B. Com.

I Year
BUSINESS ORGANISATION AND MANAGEMENT
(PAPER-I)
1. Business System and Environment
2. Entrepreneurial Process
3. Emerging Trends in Business
4. Process of Management: Planning and Decision-Making
5. Organising
6. Departmentation
7. Types of Organisation Structure
8. Delegation and Dcentralisation of Authority
9. Dynamics of group Behaviour
10. Leadership
11. Motivation
12. Communication
13. Control
14. Marketing management
15. Financial management
16. Human Resource Management
17. Management of Change
18. Management of Conflict
University Question Papers
 SYLLABUS
B. Com. I Year
Paper—I
BUSINESS ORGANISATION AND MANAGEMENT
Duration : 3 hrs. Max. Marks: 75
Lectures: 75
Objective: The course aims at providing a basic knowledge to the student about the
organization and management of a business enterprise.
Unit—I
Business System and Contemporary Business Environment - Economic, Politico-Legal,
Socio-Cultural and International. Entrepreneurial Process — Idea generation, Feasibility
study. Basic considerations in setting up a business enterprise. Emerging trends in business:
outsourcing, service sector and e-commerce 13 Lectures
Unit—II
The Process of Management. Planning - Decision Making. Strategy Formulation. Organising-
Basic considerations. Departmentation - functional, project, matrix and network. Delegation
and decentralization of authority. Dynamics of group behaviour. 13 Lectures
Unit—III
Leadership: Concept, Managerial Grid, Situational Leadership. Motivation: Concept and
Theories - Maslow, Herzberg, McGregor and Ouchi. Communication : Process and Barriers.
Control: Concept and Process
13 Lectures
Unit—IV
Marketing Management; Marketing concept, Marketing mix. Market segmentation and
positioning. Product Life Cycle. Consumer buying behaviour. Financial Management:
Meaning and Objectives, Raising of Funds: IPO, Venture Capital, Lease Finance, Borrowed
Funds.
Human Resource Management, HRM Functions, Human Relations, Basic dynamics of
employer-employee relations. 24 Lectures
Unit—V
Change Management: Resistance to change and strategies to manage change, Conflict levels,
causes and resolution. Functional and Dysfunctional aspects of conflict. 12 Lectures
Suggested Readings:
1. Barry, Jim, Chandler, John, Clark, Heather, Organisation and Management, Thompson
Learning, New Delhi.
2. R.H. Bushkirk, Conecpts of Business: An Introduction to Business System. Dryden Press,
New York.
3. Douglas, McGregor, The Human Side of Enterprise, McGraw-Hill, New York.
4. Philip, Kotler, Marketing Management: Analysis, Planning, Implementation & Control,
Prentice-Hall of India, New Delhi.
5. Stephen P., Robbins, Business Today: New World of Business, Harcourt College
Publishers, Fortworth.
6. Elwood S., Buff a, Production/Operations Management, Prentice Hall of India, New Delhi.
7. P.C., Tulsian, Business Organisation & Management Pearson Education, New Delhi, 2005.
8. N Mishra, Modern Business Organisation, Sahitya Bhawan Publishers and Distributers (P)
Ltd, 2005.
9. R. K., Chopra, Principles and Practice of Management, Sun India Publication, Delhi, 2005.
10. C.B., Gupta, Modern Business Organisation & Management, Sultan Chand & Sons, New
Delhi.
11. B.P. Singh, & T.N Chhabra, Business Organisation & Management, Dhanpat Rai & Co.,
Delhi, 2005.
12. Gauri Shankar, Modern Business Organisation, Mahavir Book Depo, New Delhi.
13. P.C. Tripathi, Principles of Management, Tata McGraw Hill, Publishing Co., New Delhi.
 1. BUSINESS SYSTEM AND ENVIRONMENT
Q. 1. Define business system and discuss its characteristics.
Ans. Business system. A system consists of a set of sub-systems a combination of which is
complex or unitary whole. It is an established arrangement of sub-systems and for the
efficient working and better results, each sub-system depends on the other sub-systems.
The various sub-systems interact with each other and are inter-related and inter-dependent.
The best example of a system is the human body which consists of several sub-systems-
organic, muscular and skeleton sub-systems—all beautifully inter-related to form an integral
whole. The efficient functioning of each of these sub-systems depends on other sub-systems
and no one is independent system. Further, the functioning of the total system i.e., human
body, depend on the efficient and co-ordinated operation of its sub-system. Similarly, in
another example, i.e., Automobile, there are many sub-systems like engine, gears, wheels,
tyres, body of automobile, etc. Working of each of the sub-systems depends on the working
of the other sub-systems and also the working of the total system i.e., automobile, depends on
the efficient effective and coordinated operation of its sub-systems. From the above, it is clear
that system refers to a group of inter-related components which function in a coordinated way
to attain some specific objectives.
Business itself is an important system which is created to satisfy human wants through the
production and distribution of goods and services. The business organisation is the heart of
the business system. It takes the inputs from its environment and supplies its output to the
environment. The inputs of a business system include materials, machinery or equipment,
manpower, information, technology, money etc. These human, physical and financial
resources are converted into goods and services which constitute the output of the business
system. The business system operates under the influence of environment consisting of
economic, social, political, legal, cultural and other factors. Business system gets feedback of
information from the environment. The feedback influences the future operation of the
system.
The concepts of business system has been illustrated in Fig. 1. It is clear from that the system
receives inputs from the environment. The inputs are converted into output with the help of
certain processes. The output is supplied to the environment which provides feedback (or
reaction or response) to the system. Feedback helps to adjust and improve the functioning of
the system.

Fig. 1 : The Design of a System

According to B.O. Wheeler, "the business system is a combination of all resources,
organisations and institutions which are directly or indirectly related to the production of
goods and services for the satisfaction of human needs." It is a total entity comprising
innumerable interlocking sub-systems.
 Characteristics of Business System
Every system in general and business system in particular has certain essential characteristics
which are discussed below :
1. Purpose. Purpose is the very reason for the birth, survival and growth of any system.
Every system exists for the accomplishment of certain purposes. For example, a university as
a system may exist for the acquisition and dissemination of knowledge to the members of
society. Business system is directed towards the achievement of specific objectives, e.g.,
supply of goods and services to consumers, earnings of profits for survival and growth,
meeting society's expectations, fair deal to employees, etc. Business objectives provide a
sense of direction to the business system.
2. Environment. The environment includes all those things which lies outside the system,
but which nevertheless have an impact on its working. The business system, being an open
system, must be adaptive to the environment to ensure its survival and growth.
3. Boundary. A boundary between any two things is the area or line which separates them
from one another. Each system has a boundary which separates it form the environment.
However, in case of business system there is no physical (or actual) boundary, separating it
from the environment. We have to image a boundary between the business system and the
environment to permit an analysis of interaction between the two.
4. Resources. Resources are the things which a system has under its control. Resources of
business system may include such inputs as materials and services, finance, labour forces,
information, physical plants and faculties, etc. Business system uses these resources to get it
work done.
5. Organisation. Each system is made of different parts called subsystems. These parts
perform the basic functions of the system. Business system contains sub-systems of
production, finance, marketing, personnel, etc. These sub-systems working in coordination
transform the inputs into output i.e., finished goods.
6. Management Decisions. One of the essential part of business system is its management.
The management of a business system makes decisions to :
(i) determine objectives,
(ii) respond to environmental opportunities and constraints,
(iii) acquire the resources, allocate resources to various parts of organisation, accept
obligation for acquiring them, and
(iv) plan and control and review the organisational structure and operation.
7. Creative. A business system is creative in the sense that it transforms inputs received from
the society into desirable outputs of goods and services required by the society.
8. Inter-dependence. Various components of a business system are highly interacting and
inter-dependent. There is inter-dependence not only between the departments of a firm but
between different firms and industries too.
9. Dynamism. Business is an open-adaptive system as it influences and is influenced by its
environment continuously. The structure and operations of business system are constantly
changing due to changes in its environment.
10. Self-adjustment through feedback. Every system must have a self-regulating and self-
adjusting device through which it can monitor its progress and correcting the mistakes in its
working. A business system takes an input, processes it, and provides an output. Feedback
tells the system whether the output is as it was supposed to be and, if not, allow the system to
correct the output. Thus, feedback is information mechanism which enable the system to
regulate and adjust itself according to the needs of the time. Thus a business enterprise is an
open, adaptive, goal-oriented system with its environment acting as a supra-system.
11. Part of socio-economic system. Business is a part and parcel of the wider system. The
wider supra-system constitutes the environment of business system. Business environment
consists of all those economic, social, political, legal, technological and other forces which
influence the working of business.
Q. 2. Define business system. Illustrate the various sub-systems of business. Also
describe the interaction between the various sub-systems of business.
Ans. Business system. See Q. 1, Page 5.
Elements (Sub-systems) of Business System :
The structure of business system is composed of two interlocking parts i.e., industry and
commerce. Each industry consists of many firms producing similar goods and services.
Commerce is that part of business which is concerned with the distribution of goods and
services produced by industry. Commerce consists of firms which are engaged in the
exchange of goods and services or activities that facilitate such exchange. Business firm is
considered as the heart of business system because other components of business system
revolve around it. Every business firm is in itself a system consisting of several sub-system,
e.g.,
1. Production system (taking care of production function),
2. Marketing system (looking after marketing activities),
3. Finance system (taking care of financial requirements),
4. Personnel system (taking care of personal resources),
5. Research and Development system (undertaking research for providing better and more
economic goods and services).
Under each of the above mentioned sub-systems of a business organisation there are number
of sub-systems.
For instance, production system is made up of the following sub-systems : (i) Purchasing and
inventory control, (ii) Plant location and layout, (iii) Plant buildings and equipment, (iv)
Quality control, (v) Production planning and control, etc.
Similarly, marketing sub-system usually has sub-systems like advertising, marketing, pricing,
channels of distribution etc.
All the sub-systems are inter-related to each other and to the bigger system of which they are
individual parts.
 Fig. 2 : Sub-systems of Business System
Interaction Between Sub-systems of Business system
Business system is inter-related with its sub-systems and sub-systems are inter-related with
each other and with their sub-systems and so on. All the subsystems must be properly
integrated for achieving business objectives. Each of them influences, and is, in turn,
influenced by the other sub-systems. For example, the quality of raw materials purchased by
the purchase department influences the quality of goods manufactured by the production
department. Moreover, purchase department will purchase raw material as per the need of the
production department. Marketing department sells what is produced by the production
department. In turn marketing department influences the production department by providing
information about the tastes and desires of customers. Production and marketing departments
influence the decisions of the finance department. The funds raised by the finance
department, in turn, influence the production and sales levels. Thus, the system concept
emphasizes the totality of the set of inter-related parts, conditions, or activities that are known
as sub-systems.
In short, if we analyse business enterprise a system, its functional areas such as production,
marketing, finance and human resource would be called sub-systems. Accordingly, these sub-
systems are interrelated and interdependent as the activities in one area cannot be performed
effectively without analysing their effect on those in other areas. The moment any disturbance
or change (e.g., workers strike) occur in any of the sub-systems, it affects all others (e.g.,
increase in workers wages). Proper action must be taken in response to the change so that the
system attains a normal functioning.
Q. 3. What are the problems in integration among sub-systems of the business system ?
Give suggestions for achieving integration.
Ans. Problems in integration among sub-systems of the business system. The achieve
goals of the organisation on the whole, the activities of various sub-systems must be
integrated effectively. From operational point of view this may involve some problems
because of increasing specialisation and growing differences in the attitude and working
styles of sub-systems. Some of the problems which arise in achieving co-ordination among
sub-systems of the business are given below :
1. Conflicting Objectives. The objectives of different sub-systems may clash with one
another, which made the task of integration highly difficult. For example, production
department gives priority to standardised production for cost-minimisation; whereas
marketing department may prefer variety in production to capture diverse market.
2. Specialisation of Management. Functional departments of modern business are headed by
functional specialists like Production Manager, Marketing Manager, Finance Manager, etc.
Due to specialisation psychology, different experts have a tendency to over-concentrate on
their over specialised areas of functioning; and ignored the significance of other specialists.
This tendency and psychology of specialists creates problems for management in achieving
effective integration among various sub-system.
3. Lack of mutual understanding and co-operation. There may be lack of mutual co-
operation and understanding between people working in different sub-systems or
departments. This lack of co-operation, which may be the outcome of poor human relations,
is a serious obstacle in the task of acheving integration among various sub-systems.
4. The interdependency between the sub-systems may not be appreciated in practice and they
may work as watertight compartments.
Techniques of Integration
or
Suggestions for achieving Integration
Despite the above difficulties in integrating the various sub-systems, however, it is necessary
to do something for integrating them in the interest of the system as a whole. Some useful
suggestions for achieving integration among the functioning of business sub-systems may be
offered as under :
(i) Balancing of objectives. The objectives of various sub-systems should be properly
balanced and their individual objectives should be harmonised with enterprise objective.
(ii) Mutual appreciation. Experts in different functional areas of business should be
encouraged to understand and appreciate the viewpoints of one another.
(iii) Highlighting inter-dependency. The inter-dependence between the different sub-system
should be adequately highlighted in the daily work routine.
(iv) Effective communication. There must be an effective two-way communication between
the various sub-systems. The channels of communication used in the system should always
be open and reliable so as to create mutual co-operation and understanding among the people
working in different departments.
(v) Equal importance to all sub-system. All sub-systems must be assigned equal importance
in achieving goals of the organisation, by the management. Undue emphasis on any sub-
system will result in adverse consequences for other sub-systems.
(vi) Periodical Appraisal. The working of the whole business system should be periodically
reviewed in the light of its objectives. Such periodical review will help in removing weak
points and corrective action is facilitated.
Q. 4. Describe business system as a Part of Economic System.
Ans. Business as a Part of Economic System. An economic system or economy refers to a
system or a set-up which provides people with the means of livelihood.
It is concerned with effective use of natural economic resources for satisfaction of human
wants. Business system is a part of economic system be it a capital system or a socialistic
system, that produce and distributes goods and services for satisfaction of human needs. The
decision regarding what to produce, how to produce and from whom to produce are taken by
the economic system and actual production of goods and services is carried out by the
business system. The business system operates within limits defined by the economic system.
The economic system defines the property rights, role of government planning, market
mechanism, consumption pattern, freedom of choice of occupation etc. and provide a
framework or structure for business system to operate it.
Many opportunities for gains and challenges are hidden in the economic system; and the
business system must plan to capitalise on opportunities and manage the forces of challenge.
An aggressive business system decides to manage challenges instead of being managed by
challenges.
In a capital economic system, business is owned by private individuals who produce and
distribute goods that maximise their profits. The market forces of demand and supply
determine the price and government interference is minimal. In a capitalistic economy, the
regulatory force of price mechanism, influences the working of the business system.
In a socialist economy, business activity in centralised in the hands of the state. All business
decisions are made by the Central Planning Authority. As such, business system in a socialist
economy is less dynamic and complex than in the capitalist economy.
In a mixed economic system, business activities are allocated to public and private sectors.
While private sector is governed by profit motive (Capitalism), public sector is governed by
the motive of social welfare (socialism). The private sector is free to carry out the desired
economic activities but within the regulatory framework established by the Government.
Thus, business system cannot be studied in isolation without reference to the economic
system in which it functions.
Similarities between Economic System and Business System :
There are certain similarities between economic system and business system :
(i) Both of them exist to satisfy human needs and wants.
(ii) Both the system are concerned with the economic aspect of human life.
(iii) Both the systems are part of the social system established by human beings for listing in
an organised and civilised manner.
(iv) Both of them are parts of the larger social system.
Differences between Economic System and Business System :
Following are the points of difference between economic system and business system :
(i) An economic system is much wider than business system.
(ii) A business system merely undertakes production and distribution of goods and services.
On the other hand, an economic system serves the society by utilising the nation's resources.
Business system functions within the limits of the economic system.
This network of systems and sub-systems is shown in the Fig. 3

Fig. 3 : Network of Systems

Q. 5. Define 'Business Environment' and explain its features.
Ans. Concept of Business Environment. The term business environment means "the
aggregate of all the forces, factors and institutions which are external to and beyond the
control of an individual business enterprise but which exercise a significant influence on the
functioning and growth of individual enterprises."
According to Bayord O. Wheeler, business environment refers to "the total of all things
external to firms and industries which affect their organisation and operation."
In the words of Arthur M. Weimer, "business environment encompasses the climate or set of
conditions : economic, social, political, or institutional in which business operations are
conducted."
Since the business system is an open-system, therefore, it must be adaptive to environment in
order to ensure its survival and growth. Business does not operate in a vacuum but it an
environment. Business Environment consists of all those factors that have a bearing on the
business.
Business environment is characterised by the following features :
1. Aggregative. Business environment is aggregative in nature. It represents the sum total of
all the external forces that have influence on the working of a business system.
2. Inter-related. Different elements of business environment are closely inter-related and
inter-dependent. A change is one element affects the other elements.
3. Relative. Business environment is relative in nature. It differs from country to country and
even region to region. Capitalist economies like USA and UK have a different kind of
environment than communist economies. The nature of economic system of a country affects
the environment of business.
4. Uncertain. Business environment is very uncertain because it is very difficult to forecast
the future environment. Business environment is highly volatile, i.e., changes very fast,
uncertainty increases.
5. Inter-temporal. Various dimensions of business environment change in the long-run. For
example, economic environment in India in the pre 1991 era and the post 1991 era can be
distinguished clearly. The post 1991 era is characterised by liberal economic policies and
globalisation.
6. Environment is subject to Perception values i.e., one environment expert may perceive a
particular factor to be favourable; another expert may regard it to be most unfavourable. As
such, decision-making based on environmental influences may become highly confused.
7. Contextual. Business environment provide the macro framework within which the
business firm (a macro unit) operates.
Business environment excercises tremendous influence on the working and success of
business firms. Therefore, management of a business enterprise must have a deep
understanding and appreciation of environment.
Q. 6. Explain the need for understanding business environment.
Ans. Need for understanding Business Environment. Just like humans, business does not
exist in isolation. Every business firm exists, survives
and grows within the context of the elements and forces of its external environment. A good
understanding of environment by business managers enables them not only to identify and
evaluate, but also to react to the farces external to their firms. They can analyse the
environment threats for the achievement of enterprise objectives as well as opportunities for
better accomplishment of these objectives.
Business enterprises which know their environment and are ready to adapt to environment
changes would be successful. On the other hand, firms which fail to adapt of their
environment are unlikely to survive in the long run.
Some advantages of understanding the environment are given below :
(i) First Mover Advantage. Proper understanding of environment helps an enterprise to take
advantage of early opportunities instead of losing them to competitors. For example—a firm
may get into a collaboration with a foreign firm and beat its current rivals at home.
(ii) Early Warning Signal. Environment awareness serves as an early warning signal. It makes
a firm aware of the impending threat or crisis so that the firm can take proper and timely
action to minimise the adverse effects, if any. For example, if an Indian firm comes to know
that multinational corporation is about to enter in its line of business, it can take steps to fight
the competition.
(iii) Customer Focus. Better understanding of environment makes the management sensitive
to the changing needs and wishes of its consumers. For example, Hindustan Lever and
several other companies launched small sachets of shampoo and other products realising the
wishes of customers. This move helped the firms to increase sales.
(iv) Public Image. A business firm can improve its image with the public reflecting that it is
sensitive to its environment and responsive to the aspirations of public.
(v) Strategy Formulation. Environment understanding and the resulting information serves as
the basis for strategy making. For example, ITC realised that there is a vast scope for growth
in the travel and tourism industry in India and the Government policy is to promote this
industry because of its employment potential. On the buses of such information, ITC planned
new hotels both in India and abroad.
(vi) Continuous Learning. Environmental analysis provides a continuing, broad-based
education for business managers. It keeps them in touch with the changing scenario so that
they can take decisions in those respects which are rewarding and prepare their enterprise to
meet the potential challenges in its environment. With the help of environment learning
managers can react in a appropriate manner and thereby increase the success of their
organisations.
(vii) Providing intellectual stimulation. Analysis of business environment is an intellectual
exercise that can stimulate planners in their decision-making process. It is essential to take
full advantage of opportunities for gain hidden in the business environment.
Q. 7. Discuss the various elements of contemporary business environment.
Ans. Elements of Business Environment. The contemporary environment of business is fast
changing i.e., it is dynamic is nature. Contemporary Business Environment is made up of the
following elements :
1. Economic Environment.
2. Politico-legal Environment.
3. Socio-cultural Environment.
4. International Environment.
1. Economic Environment. Economic environment covers those economic conditions and
trends which are external but critical to the success of a business enterprise. These includes :
(i) Nature of economic system—capitalist, socialist or mixed economy.
(ii) Economic structure—occupational distribution of labour force,
structure of national output, capital formation, investment pattern,
composition of trade.
(iii) Economic policies—industrial policy, monetary policy, fiscal policy, etc.
(iv) Organisation and development of the capital market—banking system, securities
markets, etc.
(v) Economic indices—gross national product, per capita income, rate of capital formation,
price level, balance of payment position, etc.
(vi) Economic infrastructure.
(vii) Product markets and factor markets.

Fig. 4 : Elements of Business Environment.

2. Politico-legal Environment. There is a close relationship between the success of a
business and the political environment around it. Political environment includes the elements
relating to government affairs. Legal environment constitute the existing legal framework, as
applicable to business enterprises. The main constituents of a country's political and legal
environment are as follows :
(i) The constitutions of the country.
(ii) Political organisation—organisation and philosophy of political parties, political ideology
and practices of the ruling party, ideology of the Government, political structure-central-state
relation, business donations to political parties, political consciousness, etc.
(iii) Political stability— structure of military and police force, election
system, law and order situation, President's rule, foreign infiltrations. Political stability builds
up confidence among business people to invest in the long-term projects for the growth of the
economy. Political instability, on the other hand, can shake the confidence.
(iv) Government-policy towards various industries etc.,
(v) Image of the country and its leaders.
(vi) Foreign policy.
(vii) Defence and military policy.
(viii) Laws governing business.
(ix) Flexibility and adaptability of laws—constitutional amendments and direction of public
policies.
(a) The judicial system—implementation and effectiveness of laws.
3. Socio-cultural Environment. Social environment refers to the characteristics of the
society in which a business firm exists. Social environment includes such factors as
demographics, life styles and social values. The study of the socio-cultural environment helps
in determining the code of conduct the business should follows in a particular area. Social
and cultural environment consists of the following :
(i) Demographic factors—size, composition, mobility and geographical dispersal of
population.
(ii) Social institutions and groups.
(iii) Caste structure and family organisation.
(iv) Educational system and literacy rates.
(v) Customs, social attitudes, beliefs, values and life styles.
(vi) Tastes and preferences of people.
4. International Environment. International agencies (World Bank, IMF, WTO, EEC, etc.)
international conventions, treaties and agreements, economic and business conditions in order
countries, etc.
Q. 7. Explain the impact of environment on business.
Ans. Impact of Environment on Business. The impact of different elements of environment
on business may be summarised as follows :
1. Economic Environment. A business organisation seen as a system imports various things
from the economic environment and exports a product or service to it. Economic environment
exercises most significant influence on business because business itself is an economic
institution. For example, reduction in rate of interest has reduced the cost of capital for
business firms in India. This encourages more investment in business operations. Economic
environment is also influenced by the governments tax, monetary and industrial policies.
Reforms in industrial and fiscal policies have led to the growth of new business such as
venture capital funds, mutual funds, leasing companies, etc. At present Indian firms are more
vulnerable to competition from multinational corporations and liberal imports.
2. Socio-Cultural Environment. The attitude, desires, expectations, degree of intelligence
and education, beliefs, ideas and customs of people makeup the social and cultural
environment. These factors exercise significant influence
on business. For example, social consciousness among public requires more responsible
behaviour on the part of business towards customer service and labour welfare. Growing
number of working women have increased the demand for life style products. Demand for
reservation in jobs for minority and women, equal status of women by paying equal wages
for male and female workers are some of the social changes affecting business. The cost of
ignoring the customs, beliefs, tastes and preferences of society can be very high. Pepsi's cola
lost market share in some countries where the company's slogan 'come alive' translates as
'come out of the grave', in local language. Thus, the socio-cultural of the business
environment has a significant influence on business characteristics. Since this aspect is
constantly changing, the business must alter its concepts to keep in step with the change.
3. Political and Legal Environment. The political and legal aspects of general environment
are those complexes of laws, regulations and government agencies and their actions which
affect all kinds of organisations to a varying degree. The performance of a business firm
depends upon its ability to meet the challenges arising out of political and legal change. The
political and legal environment have immediate and great impact on the business
transactions, so businessman must scan this environment very carefully. The healthy and
supportive political climate has for example made Bangalore and Hyderabad as the hub of
information technology firms. Similarly, deregulation of capital markets have made it easy
for business to raise capital from primary market. Multinationals and foreign direct
investment (FDI) have come to India in a big way due to removal of controls over foreign
exchange.
4. Technological, Physical and Natural Environment have also a definite influence and
impact on the functioning of the business organisations. For example, Xerography has
damaged carbon paper business, cable TV has adversely affected radio and cinema. Digital
watches killed business prospects of traditional watches, colour TV technology have closed
the business of black & white TV, Information technology and tele-communications have
given rise to a global market which requires better system of production (robots controlling
factories) and distribution (internet marketing).
 2. ENTREPRENEURIAL PROCESS
Q. 1. (i) Who is in entrepreneur?
(ii) What is meant by 'intrapreneur'?
(iii) What is innovation?
(iv) What is feasibility study?
Ans. (i) 'Entrepreneur'. The word 'Entrepreneur' is a French word which means to
undertake, to pursue opportunities, to fulfil needs and wants of people through innovation and
starting business, Webster's dictionary defines an entrepreneur as on who organises,
manages and assumes the risk of business enterprise. An entrepreneur undertakes a
venture, organises it, raises capital to finance it and assumes the whole or major part of the
risk of business. Thus, an entrepreneur is a risk-taker, a resource assembler, an innovator and
an organisation-builder all combined into one.
Entrepreneurship is the process of giving birth to a new business. In the words of
Schumpeter, entrepreneur is the innovator who introduces something new into the economy
and entrepreneurship is essentially a creative activity. An entrepreneur is associated with the
following :
(i) perception of opportunities;
(ii) exploitation of opportunities;
(iii) carrying out new combinations or innovations;
(iv) provision of capital; and
(v) risk-bearing.
(ii) Intrapreneur : Intrapreneur perceives and exploits business opportunities within an
existing enterprise. He is the person working in the existing organisation. He fosters
organisational innovation by assuming entrepreneurial roles. While entrepreneurs are person
who start their own company, intrapreneurs are persons who pursue an entrepreneurial idea
within a company. "Intrapreneur is a person who focuses on innovation and creativity and
who transforms a dream or an idea into a profitable venture by operating within the
organisational environment." He generally serves as the chief executive of a semi-
autonomous concern. For example, International Business Machines (IBM) of the USA has
created Independent Business Units (IBUs) each headed and operated by a top ranking
executive. In our own country HCL-HP, a computer corporation, is using the concept of
intrapreneurship under the leadership of Shiv Nadar.
Entrepreneur vs. Intrapreneur. The two terms-Entrepreneur and Intrapreneur—differ from
each other with respect to the following :
First; an entrepreneur is an independent businessman whereas an 'intrapreneur' works under
the chief executive.
Secondly, an entrepreneur himself uses the funds raised by his company, while an
intrapreneur uses the funds raised by his parent company.
Thirdly, an entrepreneur bears the risks of his business enterprise but an intrapreneur may not
be required to bear the full risk of his enterprise.
(iii) Innovation. If creativity is the seed that inspires entrepreneurship, innovation is the
process of entrepreneurship. According to Drucker, innovation is the means by which the
entrepreneur either creates new wealth-producing resources or endows existing resources
with enhanced potential for creating wealth.
(iv) Feasibility Study. After conducting the feasibility study of the proposed business idea,
the findings are presented in the form of a report-known as the feasibility report or the project
report. This report provides a basis for investment decision in a business project. It is equally
needed to get sanition of the project from government, financial institutions etc. Feasibility
study involves the following aspects :
1. Economic feasibility to determine whether the project is sound from economic standpoint,
demand and marketability of the product.
2. Financial feasibility, to determine whether financial costs and returns are properly
estimated and financially the project is viable.
3. Technical Feasibility, to determine whether the specification of technical parameters is
realistic.
4. Miscellaneous aspects, depending on the peculiarities of a particular are where the project
is to be undertaken.
Q. 2. Define entrepreneurship. Explain the characteristics of entrepreneurship.
Ans. Concept of Entrepreneurship. The concept of entrepreneurship refers to a special skill
or ability to mobilise the factors of production—land, labour and capital and use them to
produce new goods and services. The entrepreneur perceives opportunities that other business
people do not see or do not care. Thus, entrepreneurship is a creative and innovative response
to environmental opportunities and challenges and ability to identify, initiate and exploit
these opportunities as well as the challenges.
Entrepreneurship is one of the four economic factors : Land, labour, capital and entrepreneur
(organiser). Entrepreneurship may be defined as follows :
"Entrepreneurship is the process of searching for opportunities for gain through
environmental analysis; and exploiting such opportunities by converting them into a
profitable business enterprise."
According to A.H. Cole, entrepreneurship is the purposeful activity of an individual or group
of associated individuals, undertaken to initiate, maintain or aggrandise profit by production
or distribution of economic goods and services.
According to Higgins, "Entrepreneurship is meant the function of seeking investment and
production opportunity, organising an enterprise to undertake a new production process,
raising capital, hiring labour, arranging the supply of raw materials, finding site, introducing a
new technique, discovering new sources of raw materials and selecting top managers for day-
to-day operations of the enterprise." Thus, entrepreneurship is the function of creating
something new, organising and coordinating and undertaking risk and handling economic
incertainity.
In the words of Kao, "Entrepreneurship is the attempt to create value through recognition of
business opportunity, the management of risk taking
appropriate to the opportunity and through the communicative and management skills to
mobilise human, financial and material resources necessary to bring a project to fruition."
In short, an entrepreneur is a great personality, assuming the roles of a risk-taker a resource
assembler, an innovator and an organisor—all combined into one.
Nature of Entrepreneurship
The main features of entrepreneurship are given below :
1. Economic Activity. Entrepreneur involves the creation and operation of an enterprise.
Therefore, it is essentially an economic activity. It is basically concerned with the production
and distribution of goods and services. It involves creation of value or wealth.
2. Purposeful Activity. Entrepreneurship is a systematic, step-by-step and purposeful activity
of an individual or a group of individuals who seek to earn profits through the production and
distribution of economic goods and services. Thus, entrepreneurship is goal-oriented activity.
3. Creative Activity. Entrepreneurship is a creative response to change in the environment. It
involves innovation or introduction of something new and better. An entrepreneur is a
changed agent.
4. Risk-taking. Entrepreneurs take decision in the face of uncertainty. Therefore, risk is an
inherent and inseparable element of entrepreneurship. An enterprise is undertaken for profits
but there is every possibility of loss.
5. Dynamic Function. Entrepreneur thrives on the changing environment which brings new
opportunities for business. Flexibility is the hallmark of a successful entrepreneur.
6. Organising Function. An entrepreneur assembles and coordinates other factors of
production, i.e., land, labour and capital. Managerial skills and leadership are other very
important facets of entrepreneurship.
7. Gap-filling Function. It is the job of entrepreneur to fill the gap between human needs and
the products and services require to satisfy these needs. He identifies this gap and take
necessary steps to fill this gap. He introduces new products and services, new methods of
production or distribution, new sources of inputs and new markets. Thus, entrepreneurship is
a multi-dimensional concept and it can be understood and appreciated only through a
multiplicity of factors and perspectives. It is since as well as a art. But it is more of an art than
a science. There are very few principles that apply to the creation and running of business
enterprises. The environment in which entrepreneurs operate is very heterogeneous and
dynamic. Success depend on the ability of the entrepreneur to visualise the future correctly
and to take effective measures to exploit the environmental changes.
Q. 3. Describe the qualities of a successful entrepreneur.
Ans. Qualities of a successful entrepreneur. The successful entrepreneurs are those who
are able to accomplish the objectives they have set for themselves i.e., they are able to carry
out the projects of new ventures and put them on the track of further operation.: Successful
entrepreneur is characterised by : (i) an unusual alertness; (ii) a propensity to risk taking; (iii)
a strong desire for achievement. Based on these foundational traits, an entrepreneur should
have the following qualities :
1. Capacity to Assume Risk. An entrepreneur assumes risk and therefore he must have self-
confidence. He is both an investor and a financier and should therefore be able to shift
investments in search of large profit. High degree of vision, foresight and imagination are
required to handle risks. Entrepreneurs who are willing to take moderate risks seen to earn
higher return on their ventures than entrepreneurs who either take no risk or take extravagant
risk.
2. Ability to learn from experience. All entrepreneurs live and work in the world of
uncertainity and have to take decisions uncertain environment. Certain amount of error,
therefore, is bound to occur on their part. However, an entrepreneur who can learn from
experience is the one who ultimately succeeds.
3. Orientation toward hardwork. Willingness to work—and work-hard is an outstanding
trait of the successful entrepreneurs.
4. Ability to Marshall Resources. A successful entrepreneur is one who has the ability to
mobilise necessary resources at reasonable cost and time. Sound judgement, high ambition,
the will to win and determination are necessary for this purpose.
5. Ability of Organisation and Administration. The ability of building a sound organisation
is a critical skill. "The organisation builder must be able to harness the new ideas. He has to
select, train and develop the people who can share most of his burden. He must be able to
develop motivation and loyalty among his staff."
6. Control. Self control, self administration and self-confidence are the important attributes
of successful entrepreneurs. They are morally committed to their work and can mould their
destiny and destiny of their enterprise.
7. Technical Knowledge and Willingness to Change. The success of an entrepreneur
depends largely upon his ability to adopt and utilise new and better techniques of production
and marketing of goods and services. It is also necessary to be able to initiate and adapt
changes. A good entrepreneur like Dhirubhai Ambani has always shown the interest in
changing the pattern of production to suit the available resources, market conditions and
quality of output.
Willingness to accept changes has been a major quality of all successful managers.
8. Assertiveness. Successful entrepreneurs do not surrender before the power of others and
become victorious by asserting themselves. They do not have an inferiority complex and
believe that they can do as well as, even better than others.
9. Flexibility. Everything is subject to change with the passage of time. A successful
entrepreneur must be adaptable and should change his methods or attitudes in order to deal
with the new situations.
Q. 4. Distinguish between entrepreneur and manager.
Ans. Distinction between Entrepreneur and Manager. Entrepreneur differs from manager
with respect to the following :
1. Innovation. An entrepreneur introduces new ideas to earn more profits and is, therefore,
and innovator. On the other hand, a manager runs the business on established lines. An
entrepreneur is a change agent whereas a manager is the product of change.
2. Venture Creation. An entrepreneur often sets up a new venture whereas a manager only
runs an existing venture.
3. Reward. For bearing risk, an entrepreneur earns profit which may fluctuate according to
time. The reward of a manager is the salary which is relatively fixed and regular.
4. Risk Bearing. An entrepreneur assumes risk of success or failure of an enterprise. A paid
manager, on the other hand, undertakes no risk.
5. Status. An entrepreneur is his own boss and enjoys an independent status. Whereas, a
manager is an employee and dependent on the owner.
6. Continuity. Manager performs managerial functions on continuous basis whereas
entrepreneurship is a discontinuous phenomenon appearing to initiate change in the
production process and then disapperas until it reappears to initiate another change.
7. Education. Formal education is more important for a manager than for an entrepreneur.
Q. 5. Explain the functions of an entrepreneur.
Ans. Functions of an Entrepreneur. The main functions of an entrepreneur are as follow :
1. Innovation. According to Schumpeter, entrepreneurship is essentially a creative activity.
The entrepreneur is the innovator who introduces something new into the economy.
Innovation implies doing new things or doing things that are already being done in new ways.
It may occur in the following forms :
(i) Introduction of a new product or new quality of an existing product.
(ii) Introduction of a new method of production or distribution.
(iii) Opening of a new market.
(iv) Conquest of a new source of raw materials.
(v) New form of organisation of industry.
2. Risk-taking. Risk-taking is the base of entrepreneurship. An entrepreneur takes the
responsibility for loss that may arise due to unforeseen contingencies in future. Risk is
associated with innovation because the market of an innovative product or service may or
may not respond to the expectation of an entrepreneur. Risk also exists due to change in
customers' preferences, shortage of raw materials or sudden unexpected calamities.
3. Organisation Building. An entrepreneur brings together various factors of production,
organises them properly and take decisions for better
results. He determines the line of business, expansion and growth of the enterprise. As an
organisation builder, he performs planning, coordination and control functions.
Peter Kilby has listed the following functions of an entrepreneur :
(i) Perceiving market opportunities.
(ii) Gaining command over scarce resources.
(iii) Purchasing inputs.
(iv) Marketing the products.
(v) Dealing with bureaucrats.
(vi) Managing human relations within the firm.
(vii) Managing customer and supplier relations.
(vii) Managing finance.
(ix) Managing production.
(x) Acquiring and overseeing assembly of the factory.
(xi) Industrial engineering.
(xii) Upgrading process and product quality.
(xiii) Introducing new production techniques and products.
Q. 6. Discuss the various types of entrepreneurs.
Ans. Types of Entrepreneurs. A type of entrepreneurs is a class of them that has particular
features in common and that belongs to a large group of entrepreneurs. According to Danhof,
entrepreneurs are classified into the following categories :
1. Innovative Entrepreneur. An innovative entrepreneur is one who introduces something
new into the economy, e.g., a new technique of production, a new source of materials or
opens a new market and re-organise the organisation. Such entrepreneur can work only when
a certain level of development is already achieved in a country and people look forward to
change and improvement.
2. Imitative Entrepreneur. Imitative entrepreneur adopts the innovations introduced by
innovating entrepreneurs. He is suitable for developing countries which cannot afford
expensive research. Developing countries need this type of entrepreneur due to his capacity to
transform the system with limited resources. While innovative entrepreneur is creative,
imitative entrepreneur is adoptive.
3. Fabian Entrepreneur. Entrepreneurs of this type are very cautious and skeptical in
adopting and implementing any change. They are shy, and lazy and lack the will to adopt new
methods of production.
Customs, religion, tradition and past practices are the determinants of their behaviour.
They imitate change only when it becomes a must for their survival.
4. Drone entrepreneur. This type of entrepreneurs resist change and continue to use past
methods. They struggle to survive, not to grow. They are too conservative and inert. Such
entrepreneurs may even suffer losses but they do not make change in their existing
production methods.
Q. 7. Differentiate between creativity and innovation. How do these help in discovering
business opportunities?
Ans. Creativity is different from innovation. Creativity is defined as the ability to bring
something new into existence. Innovation is the process of doing new things or doing old
things through new techniques.
While creativity relates to the ability to conceive, innovation means doing new things. Ideas
have little value until they are converted into useful products or services. Innovation
transforms creative ideas into useful applications. So, creativity is a pre-requisite to
innovation. In other words, creativity is the process of generating new and novel ideas,
whereas innovation involves translation of the idea into a new business opportunity.
Innovation is less widespread than creativity though both are inter-related. If creativity is the
seed that inspires entrepreneurship, innovation is the process of entrepreneurship. Creativity
is the ability to generate useful ideas while innovation refers to managed efforts of an
organisation to develop new products or services or new uses for existing products and
services. Innovation requires both creative thinking and ability to get things done.
Innovation may occur in several forms such as introducing a new product in the market, a
new method of distribution (telemarketing), opening a new market, discovery of new source
of raw materials, etc.
Q. 8. Distinguish between invention and innovation. State various forms of innovation.
Ans. Invention and Innovation. Innovation is different from invention inspite of that both
involve a tremendous amount of creativity. Invention is the discovery of something new. The
resulting product of an inventor did not exist before. For example, mathematical calculators
and micro-electronics were inventions while innovation is a new combination of natural
elements that results in a useful and commercially viable product. In other words invention is
the verified result of a creative idea, while innovation is the conversion of something existing
by giving it a new shape or new use.
Difference between invention and innovation is shown below :

Invention → Creation of → Results in new

something new knowledge

Innovation → Transformation of an → Results in new

idea into useful application products, services or process

Innovation implies doing new things or doing things that are already being done but in a new
way. It may occur in the following forms:
1. Introduction of a new product.
2. Introduction of a new method of production and distribution.
3. Opening of a new market.
4. Conquest of a new source of raw materials.
5. New form of organisation of industry.
Q. 9. Discuss the various sources of business ideas.
Ans. Sources of Business Ideas. Entrepreneurs are creative persons who discover new ideas
from different sources. Some of the sources of business ideas are briefly discussed below :
1. Survey of Market. Careful observation of markets can reveal a business ideas. An
entrepreneur conducts a survey of the domestic and international market to estimate the
demand and supply position of various products and services. There is scope of undertaking
production and sale of products where- the product is in short supply and demand is inelastic.
It is necessary to estimate future demand and to take into amount anticipated changes in
fashions, income levels, technology etc. For this purpose advice of distributers, wholesalers
and retailers may be obtained.
2. Survey of Prospective Customers. The consumer is the foundation of a business and it is
he who keeps it going. Therefore, data on consumer needs and preference must be collected.
Once it is known that there is great demand for a product, it is advisable to contact the
prospective consumers to find out their requirements. Information about preferences and
expectations of prospective consumers is very useful in the process of product development.
3. Survey of resources. The choice of the product to be launched must be proceeded by a
survey of the availability of materials, machine, human resources. Some resources, are
available in plenty while others are scare.
4. Trade Fairs and Exhibitions. National and International Trade fairs and exhibitions are a
very good source of business ideas. At these fairs, producers and dealers in the concerned
industry, put up their products for display and/or sale. A visit to these fairs provides
information about new products/machines. Negotiations for the purchase, promotion,
collaboration, dealership etc. may also be made at these fairs.
Trade fairs and exhibitions provide opportunities for :
— Assessing the market trends in terms of demand potential and types of products required.
— Meeting a large number of buyers from different states/countries.
— Comparing the price and quality of similar products.
— Assessing the attitude of the competitors in a particular product.
— Establishing personal contacts with dealers/importers/customers.
5. Government Organisations. Many government organisations now-a-days assist
entrepreneurs in discovering and evaluating business ideas. Development banks, State
industrial development/investment corporations, technical consultancy organisations,
investment centres, export promotion councils, etc. provide advice and assistance in financial,
technical, marketing and other areas of business.
6. Project Profiles. Several government and private agencies publish periodic profiles of
various projects and industries. These profiles describe in detail the technical, financial and
market requirements and prevailing position.
A careful study of such project profiles is very helpful in choosing the line of business.
7. Study of Global Trends. Information about new products and technologies introduced in
different parts of the world can-be obtained through newspapers, business magazines and
other publications. Such information is also available on the internet. By keeping in touch
with the latest development, an entrepreneur can launch a new product in the local market.
In addition to the above, business ideas can be discovered from other sources like a new
invention awaiting commercial exploitation, an unexploited resources, an unsatisfied demand,
an inferior product, etc.
Q. 10. What do you mean by 'Preparation of Business Plan' in entrepreneurial process ?
Discuss its objectives.
Ans. Business Plan. 'Business Plan' is an important document prepared by the entrepreneur.
It describes all the relevant internal and external factors involved in starting a new business
enterprise. It is, in fact, an integration of plans in various functional areas like production,
human resource, marketing, finance, etc. Potential investors, suppliers and other interested
groups require a business plan. It should be prepared by keeping in mind the nature of
proposed business, size of market, degree of competition. The entrepreneur can take
professional advise from engineers, marketing and finance experts and lawyers in developing
the business plan.
The business plan must define the objectives, strategies, market segments, products and
services to be offered, customer scenario, sales farecast and steps required to attain these
objectives. It must describe distribution system, promotional activities, and pricing decisions.
Business Plan serves the following purposes :
1. It provides a blueprint of action to be taken in future.
2. It helps the entrepreneur in raising funds.
3. It indicates the action to be taken to implement the project.
4. It communicates to investors, lenders, suppliers etc. the programmes of the business.
5. It serves as a guide to organising and directing the activities of the business venture.
6. It helps in judging the progress of the venture at successive stages. Outline of a Business
Plan :
1. General Introduction
(a) Name and address of business.
(b) Name and address of entrepreneur (s).
(c) Stakeholders of business.
(d) Nature of business.
2. Business Venture/Project
(a) Products(s) to be offered.
(b) Service(s) to be offered.
(c) Scale of business operations.
(d) Types of technology to be used.
(e) Types of skilled person required.
(f) Location of production facilities.
3. Organisational Plan
(a) Form of ownership.
(b) Identification of business associates/partners/members, etc.
(c) Administrative Structure.
(d) Identification of management team.
4. Production Plan
(a) Manufacturing Process
(b) Physical infrastructure required.
(c) Types of Plant and Machinery.
(d) Raw material to be used.
(e) Requirement of power etc.
5. Human Resource Plan
(a) Categories of human resources required.
(b) Human resources already identified.
(c) Human resources required to be procured.
(d) Time frame of procurement of human resources.
6. Marketing Plan
(a) Pricing
(b) Distribution
(c) Promotion
(d) Product forecasts
(e) Channels of distribution.
7. Financial Plan
(a) Fixed capital requirement
(b) Working capital requirements
(c) Sources and application of funds
(d) Break-even analysis
(e) Cash flow projections.
8. Miscellaneous/Appendix
(a) Market research report
(b) Contracts with vendors
(c) Contracts with financial institution
(d) Types of business risks
(e) Contengency plan.
Q. 10. Explain basic considerations in setting up a Business Enterprise.
Ans. Basic considerations in setting up a Business Enterprise. An entrepreneur has to take
many decisions for establishing an enterprise. Such decisions are known as entrepreneurial
decisions. Entrepreneurial decisions are required to face the problems of launching a new
enterprise. For establishing a new business, a promoter or entrepreneur has to take the
following decisions : 1. Selection of line of Business. The first decision relating to the
establishment of new business enterprise is to select the nature and type of
business activities. The promoter has to decide the nature and type of business activities in
terms of industrial, trading or service. Then he has to decide the types of goods and services
he will produce or distribute. He has to give due consideration to several factors like nature
and source of raw materials required, types of technology to be used for production and
distribution of goods. After deciding about the nature of business activities, the entrepreneur
will analyses the proposed idea to find out whether the business would be profitable or not
including the analysis of risks involved. He will conduct a survey of various business
opportunities in order to know the various lines of business which he can take up.
2. Size of Business Enterprise. The determination of size of business enterprise is another
important decision to be taken by the promoters. The size of an enterprise provides a
framework within which it will operate it activities. The size of the concern has to be decided
on the basis of the market feasibility, technological possibility and availability of funds. The
size affects efficiency and profitability of the concern. Efforts should be made to achieve the
size at which the average cost per unit is the minimum.
In the initial stage, particularly where the element of uncertainty is there, scale of operations
choosen may be small; but in the process of choosing the possibilities of future expansion and
diversification must be considered.
3. Location of Business. The decision relating to location of a business enterprise is
important; because it has direct bearing on its cost-structure, profitability and growth
throughout its operating life. Moreover, it is very difficult to change the location once the
plant is set up. The promoters are to search out that location at which the organisation will
have easy access to raw materials, labour, power market and certain services like banking,
transportation, communication, insurance and warehousing.
4. Choice of Form of Ownership. The choice of the form of organisation determines the
degree of risk, income and control on the basic of ownership a business organisation may
take the form of a sole proprietorship, partnership or a joint stock company. The main factors
which govern the choice of the form are the nature and size of business, capital requirement,
managerial skill requirement, degree of risk or liability, continuity of business, tax burden etc.
5. Finance Planning. For starting a new enterprise, one of the essential requisites is capital.
The entrepreneur has to prepare finance planning which involves the determination of the
amount of capital for the business, the determination of proper capital structure, the
estimation of return on the investment etc. The entrepreneur has to provide capital for fixed
investments like land, building, machinery and for working capital to finance labour,
materials, supplies and other current costs.
6. Provision of Physical Facilities. Physical facilities are the equipment, buildings, services
etc. that are provided for a particular activity. While promoting a business concern, the
promoter should see that proper provision for such physical facilities is made. He should
make preliminary study of the manufacturing processes to be followed and the facilities to be
used. The
exact nature and quantity of physical facilities required would be determined by factors like
nature of business, size of firm, techniques of production, etc.
7. Plant Layout. After selecting machinery and equipment (Physical facilities), it is
necessary to arrange them in an efficient manner Arrangement of physical facilities within the
factory is known as plant layout. Good layout is essential for efficient and economical
operations. The layout should be such that it results in the optimum utilisation of machines,
equipment, work force and space.
8. Internal Organisation. The structural framework defining precisely duties and
responsibility assigned to all personnel in performing alloted within the enterprise is called
internal organisation. The promoter must build a sound organisation structure with clearly
defined authority and responsibility of various executives of the organisation. A sound
organisation is created by proper delegation of authority, division of work, departmentation,
and integration of all functions in the area of business management.
9. Arrangement for Labour Force. The next step is to secure adequate labour force both
skilled and unskilled. The entrepreneur has to make and estimate of the requirements of the
different categories of workers for various department and arrange for their recruitment.
10. Tax Planning. The promoter of the business has to visualise well in advance the various
taxes which the enterprise will have to pay. Of all the taxes, income-tax is the most important
factor which determines the type of ownership organisation.
11. Launching the enterprise. Launching an enterprise means making the enterprise start
actual production. After all the procedural aspects of promotion discussed above have been
considered, the promoter shall have to take practical steps to put the enterprise into actual
operation. Acquisition of required materials, machinery, money, workers and managerial
ability; start of production and advertising of products, etc. are functions performed at this
stage. According to Shubin, "the firm is launched by assembling and organising the physical
facilities, developing operation and production processes, advertising its product and
initiating a sales promotion campaign, recruiting labour and accumulating in ventories."
 3. EMERGING TRENDS IN BUSINESS
Q. 1. What is Business Process Outsourcing (BPO) ? Explain its advantages.
Ans. Business Process Outsourcing (BPO). Outsourcing means to engage the services of an
outside agency to manage, deliver and operate one or more business activities, processes or
functions. Business process outsourcing may be defined as "the contracting out of a
company's in-house function to a preferred vendor with a high quality level in a particular
task area"
B.P.O. refers to getting a business task accomplished through an outside agency. For
example, the advertisement of its product can be done by a company itself, and it could be
got done through some advertising agency. The later case i.e., getting advertisement done
through an advertising agency is an instance of outsourcing.
According to Gartner 'BPO is the delegation of one or more IT enabled business processes
to a third party that owns, administers and manages the business processes according to a
defined set of metrics"
There is no need for the company to recruit train and pay workers on permanent basis to
undertake non-core, routine jobs. Finance and accounting services, advertising services are
some of the business processes and functions which can be outsourced.
The idea of business process outsourcing has its origin in the Core Competency Theory,
propounded by famous management consultant C.K. Prahlad. The basic contention of the
Competency Theory is that a business enterprise should identify what are its core
competencies and should focus only on them.
Nature of outsourcing :
1. The idea behind outsourcing is that of specialisation i.e., "a business enterprise must
concentrate its attention only on its core activities like manufacturing, marketing, etc.; and
get non-core activities done through some external agency."
2. Outsourcing is getting routine business activities done through external service providers
on a regular basis.
Need for/Advantage of BPO. The need for outsourcing also refers to its advantages. We can
discuss them as follows :
1. Concentration on core competency areas leading to specialisation. Outsourcing enables
an enterprise to concentrate its attention on core competency areas like manufacturing,
marketing, capital budgeting etc., and thus obtain advantages of specialised performance in
those areas. It can make better use of its human, physical and financial resources.
2. Better accountability. The outsourcer provides services at a fee. Therefore, he is more
responsible for the quality of services provided than the internal staff of the enterprise.
3. Specialisation. The service provider is an expert in his field. Moreover, he keeps in touch
with the latest development in his field of expertise.
Therefore, through outsourcing, a business enterprise can take full advantage of the
specialised services of the outsourcer vendor.
4. Reduction in cost. Outsourcing agencies are specialists in their activities. They can
perform the same job at a lower cost.
5. Less labour cost and labour problem. Outsourcing of services reduces the need for staff
in the client company. Hence the labour costs of the company are reduced. Further with less
staff, labour problems are also minimised.
6. Avoiding fixed investment in services. If the enterprise plans to perform certain services
within the organisation, there is a need for huge fixed investment in facilities required for
performing those services. In fact, there is a problem of idle capacities, when these are not in
use-leading to unnecessary expenditure of fixed costs on the maintenance of those facilities.
7. Advantage of consultancy by the outsourcer. The outsourcer often acts as a consultant
for the particular function performed by it and may advise the client company or the
outsourced on better ways of managing that function.
8. Economic progress. Outsourcing enables both i.e., the client company and the external
provider to perform according to the best of their abilities. Such a performance, all through
the economy, is a boost to the economic development of the economy.
Q. 2. Describe the services which may be outsources.
Ans. Types of services outsourced. Given below is a description of some services which are
popularly outsourced these days:
1. Financial services. Business firms often need the services of specialists in various aspects
of business finance. Financial service providers maintain a pool of experts in legal, financial
and managerial aspects of business finance. Some examples of financial services which are
outsourced are:
(a) When a company needs to raise finance by way of issue of shares and debentures, several
formalities have to be performed. Investment Bankers or Issuing Houses on the Stock
Exchange specialise in the issue of shares and debentures,
(b) An important type of financial service outsourced is debt-collection activity. A factoring
agency (i.e., debt collection agency) performs the job of collecting money from debtors for
some commission. Such agency even makes advance money available to the client company.
As such, the client company need not invest much capital in credit sales.
(c) A new trend in financial services outsourced is that business firms even entrust the task of
maintaining their accounts to specialised firms.
2. Advertising services. Advertising service is generally outsourced. Business firms hand
over the task of designing advertisements, selecting media of advertising and arranging time
and space for advertising to specialised advertising agencies. Advertising agencies also make
audio-visual presentations for display through various media like T.V., cinema, radio, Internet
etc.
3. Courier services. Courier service is essentially postal service provided by private firms.
These services are very popular these days. These services are cheaper, faster and safer as
compared with the Government run postal services. Through courier service we can send
letters, documents, parcels, books, light goods and samples of products to anywhere we like.
These days courier services are available on desk-to-desk basis i.e., the courier company or
firm picks up things from the premises of the sender and delivers these to the recipient's door.
4. Customer Support Services. Producers and sellers of durable household products such as
washing machines, T.Vs, air-conditioners are required to provide after sale services to their
customers. Prompt, courteous and effective after sale service is essential for survival and
growth of business in this competitive world. Earlier, companies would provide these
services themselves. However, with the scale of production and enlarged markets,
manufacturing companies find it difficult to cope with customer support services. Therefore,
now-a-days outside agencies provide customer support services. They undertake to deliver
goods at the house of consumers and also provide after-sale services.
Q. 3. Distinguish between Primary Sector, secondary sector and tertiary sector.
Ans. There are three sectors of the Indian economy—
1. Primary Sector,
2. Secondary Sector,
3. Tertiary Sector.
1. Primary Sector. All production units producing goods by exploiting natural resources are
grouped into primary sector. Natural resources here include land, sub-soil assets, water,
climate, etc. These include agriculture, forestry, fishing, mining, quarrying etc.
2. Secondary Sector. All production units engaged in transforming one good (i.e., raw
material etc.) into another goods are classed into secondary sector. This include production
units engaged in manufacturing, construction, electricity generation, water supply, etc.
3. Tertiary Sector. All production units engaged in production of services are grouped into
tertiary sector. These include production units engaged in producing transport
communications, trade, finance, real estate, community and personal services.
The basis of classification of primary sector is that uses natural resources for production of
goods, of secondary sector is that is converts one type of good into another by further
processing and of the tertiary sector is that it produces services only.
Q. 4. Give reasons for the rapid growth of Service Sector in India.
Ans. Reasons for Growing Importance of Service Sector. The basic reasons for the
growing importance of service sector in India are as follows :
1. Planned Development. Attainment of higher rate of economic growth received topmost
priority in almost all the five year plans of the country.
The first five-year plan was launched in 1951 and followed successive five-year-plans.
Special emphasis has been given to industrial infrastructure like transport, communication,
power, banking, insurance, etc. for industrialisation and social infrastructure like education,
medical facilities and community services. This has led to growth of the service sector.
2. Increasing Urbanisation. There has been shifting of population from rural to urban areas.
With the attainment of economic development and growing industrialisation, the process of
urbanisation starts at a rapid scale. Urbanisation leads to rise in demand for infrastructure
services such as communications, public utilities and distribution services.
3. Women Workforce. Higher percentage of women in workforce has created demand for
baby sitting, domestic help and such other personal services.
4. Increase in Income Level. Growing per capita income has led to demand for new and
better services. Interior decoration, garden care, beauty parlours, slimming centres, health
clubs, etc. are examples of these services.
5. Demand for Health Care Services. Increased life expectancy of people and increased
awareness for health-care has increased the demand for many services.
6. Media. Television internet and other media have led to spurt in tourism. Modern
technology has made business more comfortable. Tourism in turn has promoted all types of
services such as hotels, restaurants, travel agents, amusement parks, event management, etc.
7. Maintenance of Equipment. Because of increased purchasing power, demand for
consumer durables like TVs, air-conditioners, cars, washing machines, etc. has increased.
This requires the services of experts for their maintenance. With increasing complexity of
modern industrial organisation manufacturing sector requires more accounting, finance, legal
public relations and such other services. This has pushed up the demand for such services.
Q. 5. What do you mean by E-commerce ? What are its benefits ?
Ans. Meaning of E-commerce. E-commerce (Electronic commerce) is the process of
carrying out of business activities through internet. It involves buying and selling products
services and information via computer networks including the internet.
"E-commerce refers to commercial transactions, in which an order is placed electronically
and goods or services are delivered in tangible or electronic form."
— The International Fiscal Association
"E-commerce means consumer and business transaction conducted over a network using
computers and telecommunications"
—Department of Treasury, USA
In short, E-commerce refers to business transactions done on the internet.
E-Business V/s E-Commerce
E-Business includes buying and selling of goods and services and also serving customers
and collaborating with business partners through electronic means. It is a wider term which
includes E-commerce. As commerce is one of the branches or one of the activities of
business. Similarly E-commerce is one branch of E-
Business. E-commerce deals exclusively distribution of goods and services whereas E-
Business involves production, sale, distribution, after sale, inter firm business transactions
such as accounting, management, etc.
E-commerce refers specifically to paying for goods and services whereas e-business cover the
full range of business activities that can happen, or be assessed, via e-mail or the web.
Benefits of E-commerce :
E-commerce is gaining popularity because it offers the following benefits to the business
community :
1. Benefits for producers
2. Benefits for consumers.
1. Benefits for producers:
(a) World-wide reach. Those businessmen who get linked with E-commerce, get world-wide
recognition. They can reach out to every human being who has an access to the Internet.
(b) Display of products. The business firms can display their products on the Internet. A
business firm can launch its new products through the medium of E-commerce.
(c) Production according to consumers'needs. With electronic interaction,
producers/suppliers can gather detailed information about the needs of individual customers
and tailor their products and services to those individual needs.
(d) Elimination of middleman. Through E-commerce, the manufacturer can establish a direct
link with the customers. This leads to saving in the cost of distribution.
(e) Low personnel costs. Because of E-commerce, one computer can do the job of many
employees quickly and correctly. Thus E-commerce results in less number of employees and
the business expenses on staff decrease considerably.
(f) Entertainment to attract customers. E-commerce website can provide entertainment to
customers through providing access to various games, sports, music etc. Thus more
customers can be attracted by business firms through E-commerce.
(g) Tailaring products to customers' needs. With electronic interaction, suppliers can gather
detailed information about the needs of individual customers and tailor their products and
services to those individual needs.
2. Benefits for consumers :
(a) Global choice. A consumer can get the benefit of global market. In other words, he can
purchase required products and services from suppliers of all nations.
(b) Customer convenience. A website is open round the clock. It can take orders and receive
payments at any time convenient to the consumer.
(c) Products and services available in remote areas. E-commerce has made it possible that
things are made available even in those areas, where there are not markets around.
(d) Easy distribution process. Many types of information and services can be delivered to the
consumers on the computer through E-commerce. This simplifies the distribution process for
the consumer.
Q. 6. Explain the resources required for successful implementation of E-commerce.
Ans. Resources required for successful implementation of E-commerce:
1. Computer system. The presence of computer system is the first and foremost requirement
of E-commerce, because the basis of E-commerce is the Internet and Internet can be reached
only through a computer.
The computer can be linked with the Internet by pressing its keys. Business transactions can
be seen on the computer screen under E-commerce.
2. Internet-connection. For conducting E-commerce transactions, Internet connection is
essential.
3. Technically qualified workforce. The business firm must have technically qualified
people who are capable of working with the computer networks and the Internet without
difficulty.
4. Well-designed website. To communicate effectively with customers and others, the
business enterprise must develop a comprehensive website. The information must be detailed
and hyperlinked with suitable supporting pictures, video dipping, clippings etc.
5. Effective telecommunication system. For successful implementation of E-commerce, an
effective telecommunication system is necessary. If telephone lines are getting frequently
disconnected; E-commerce cannot be successful.
6. System of receiving payments. There must be effective system of receiving payments for
sale of goods/services and making refunds in case of excess payment. The business enterprise
must make arrangements with banks, credit card agencies etc. to facilitate receipts and
payments electronically.
Q. 7. Discuss the opportunities for E-commerce.
Ans. Opportunities for E-commerce. E-commerce offer many opportunities to business
firms for expanding their sales volume and business relationship. Some of these opportunities
are discussed below :
1. Sale and purchase of Goods. Consumers can buy goods and services, producers can
procure raw materials for production, components etc., and producers can sell their products
through E-commerce.
2. Delivery of Goods. Direct E-commerce permits the delivery of products online. For
example, the computer software is directly downloaded by the software manufacturer on the
computer of the customer.
3. Electronic Payments. Payments can be made through credit card, debit card and
electronic transfer, etc.
4. Banking and Money transfer. Banking services are also carried out by E-commerce
online banking. ATM facility and electronic money transfer are some of the means to carry
out banking transactions through E-commerce.
5. Insurance. Insurance company can use E-commerce facilities.
Customers can get information about insurance products and can also subscribe to a policy
through E-commerce media like internet, fax, etc.
6. Transportation. Transportation is crucial for handling and delivery of raw materials,
finished products, equipments, components. Facilities for carriage of goods by see or air can
be arranged and monitored by internet facility.
7. Online Trading in Securities. It is possible to buy, sell, pledge or transfer shares and other
securities through E-commerce.
8. Import and Export. Electronic payments have played significant role in import-export
business. The internet has further simplified the import-export business.
9. Tourism and Hotel Industry. It is possible to get information about different tourist sports
and accommodation throughout the world by internet. Customers can book their tickets,
accommodation in hotel by using different E-commerce facilities like e-mail, etc.
10. In short. E-commerce helps business firms to multiply their market values. With the help
of E-commerce, business firms acquire knowledge and information and improve their
intellectual capital. E-commerce means not only shopping, it is more' than that. The primary
utility of e-commerce is its vast reach, within no time. Really speaking, e-commerce has
created several new business, market and business opportunities. Business firms can
strengthen relationships with customers due to quick and inexpensive communication.
Q. 8. Describe the threats to E-commerce.
Ans. Threats to E-commerce transactions. E-commerce transactions face the following
threats and risks:
1. Hacking. Hacking means unauthorised entry into a website. Hackers may intercept
messages sent on Internet. They may misuse information to their own advantage. They may
even modify information to harm both the parties.
2. Brand hijacking. Through Internet, powerful new brands can be created almost overnight,
which can quickly overshadow well-established old brands created through radio, T.V. and
other media over a long period with considerable expenditure of money and efforts. This
phenomenon in technical language is called brand hijacking, which involves severe loss of
goodwill to the owner of old established brands.
3. Impersonation. Hackers may pretend to be customers themselves. They thus make use of
stolen credit cards of real customers.
4. Fraudulent trading. A business firm operating a website may indulge in undesirable
practices. It may operate a fake website, take money from customers and may not supply the
product.
5. Viruses. Some viruses destroy all the informations stored in a computer. Others also
hamper the functioning of E-commerce. They cause huge loss of revenue and time.
6. Other cyber crimes. Embezzlement, hack mail, threats to life and property are examples
of other computer crimes.
Q. 9. How can the safety of E-commerce transactions be ensured? Describe.
Ans. Important methods for ensuring safety of E-commerce transactions are :
1. Cyber crime cells. Government may set up special crime cells to look into the cases of
hacking and take necessary action against the hackers.
2. Encryption. Encryption means putting information into special code, so that unauthorised
persons may not understand it. Only the sender and the recipient should be able to understand
the code.
3. Digital signature. It seeks to check authenticity of the sender of a message. Each message
carries the digital signature. Some countries have passed laws accepting digital signatures as
legal proof of the transactions.
4. Third party involvement. In order to ensure that parties to a transaction do not disown the
transaction, a copy of the transaction is sent to a third party. This copy will be helpful in
settling any dispute which may arise between contracting parties.
Q. 10. What are the different types of E-commerce.
Or
Write a short note on Application of E-commerce.
Ans. Application of E-commerce or Types of E-commerce. E-commerce can be applied in
four types of business situations which are given below :

Fig. 4 : Application of Electronic E-commerce

1. Business to Business (B2B). The transactions taking place amongst business units are
referred to as Business to Business or B2B transactions. For example, commercial
negotiation, information sharing.
2. Business to Customer (B2C). The transactions taking place between business concerns
and individual customers are known as Business to Customers or B2C transactions. For
example, selling and after sale services.
3. Business to Administration (B2A). It covers all transactions between companies and
Government organisations. Currently this category is in its infancy but it could expand quiet
rapidly as Government is encouraging the use of computer.
4. Consumer to Administration (C2A). This category has not yet
emerged. However in the wake of growth of both the business-consumer and business-
administration, Government may extend electronic interaction to such areas as welfare
payment and self assessed tax returns.
Q. 11. How does E-commerce operate ?
Ans. Operating Procedure of E-commerce
Following steps are involved in E-commerce :
1. Search for Relevant Website. An online buyer takes the following steps to finding the
appropriate seller :
(i) he logs on to the internet and selects a menu items that appears on the screen of the
computer,
(ii) he makes use of a search engine to find an appropriate seller's website;
(iii) he may approach the desired seller's website from another website that is advertising it;
(iv) he may select the desired seller from an advertisement or on a friend's recommendation.
Selecting an appropriate seller's website may be as easy or difficult as finding an appropriate
shop in a traditional market.
2. Search for Desired Product/Service on the Website. The buyer can identify the desired
product/service on the website from its picture or description. Unlike a conventional shop,
there is no saleman on the website to assist the buyer in spotting the desired product/service.
3. Negotiating with the Seller. If the website only offers information about the
products/services but not specify the price and terms of sale, the buyer will contact the seller
on telephone. He will negotiate and place order with the seller.
4. Making Payment. In case of outline purchase, payment may be made through credit card
or cheque.
5. Delivery. In E-commerce, electronic products such as software, information or music can
be delivered online by way of downloading. Air ticket or insurance policy bought and paid
for online may be confirmed online itself and there as no need for delivery. In some cases the
buyer may be requested to collect the goods from the seller's local distribution centre.
6. After Sale Service. Some suppliers provides online support and after sale services to their
customers.
 4. PROCESS OF MANAGEMENT :
PLANNING AND DECISION-MAKING
Q. 1. Explain in brief the various functions which together constitute the process of
management.
Ans. Process of Management. Management is defined as the process of getting things done
through others. This process is identified in a set of functions performed by managers to
accomplish the goals. Though different authors have different views on functions of
management, following functions are generally performed by all the managers :

Fig. 1 : The Management Process

1. Planning. It is the basic function of management. It is the process of thinking before
doing. It bridges the gap between where we are and where we want to go.
"Planning is deciding in advance what is to be done and by whom." —Koontz and
O'Donnell
"Planning means to assess the future and make provision for it. —Fayol
"A plan is a trap laid to capture the future. — Allen
Planning is done at all levels of management. It pervades all managerial activities. It is can
intellectual process and involves making choices between alternative course of action. It is a
continuous process and not a one time activity.
It eliminates uncertainties and confusions; ensures that a predetermined path
is followed and results in the achievement of objectives.
2. Organising. The term 'organising' refers to the process of:
(i) bringing together human and non-human resources (e.g., material,
machines, money), and
(ii) defining and establishing the authority—responsibility, relationship for the achievement
of organisational goals.
The outcome of organising process is the creation of organisational structure. Organisation is
a structure of line and staff relations where work is assigned by top level to lower levels
alongwith authority and responsibility, creating organisation chart, manual, climate and
culture for achievement of organisational goals.
Organising is a process which consists of certain steps as follows :
(i) Identification of activities.
(ii) Grouping of activities.
(iii) Assignment of activities.
(iv) Delegation of authority to carry out activities.
(v) Integration of group of activities.
3. Staffing. Staffing means identifying human resources needs, filling the organisational
structure and keeping it filled with competent and committed people.
The essence of staffing is the placement of the right man on the right job and at the right time.
Staffing deals with finding manpower requirements of the enterprise and taking steps to
employ the persons required to main in various positions. It includes recruitment and
selection, placement and induction of personal.
Staffing has become an important function because of an increase in production activities,
rapidly changing technology, and growing competition.
4. Directing. Directing is telling people what to do and seeing that they do it to the best of
their ability. As a function of management is the process of instructing, guiding, supervising,
motivating and leading the subordinates to contribute to the best of their capability for the
achievement of organisational objectives.
Directing is activating. It brings plans into action by motivation, communication, leadership,
supervision and team buildings of all the organisational members.
Elements of Direction. The process of directing includes the following elements :
(i) Motivation. According to W.G. Scott: "Motivation means a process of stimulating people
to action to accomplish desired goals"
So, motivation is a process that invloves the creation and sustenance of the desire to work for
certain goals among the people.
(ii) Leadership. It is concerned with influencing others to do what the leader want them to do.
(iii) Communication. Communication means transfer of information and understanding from
person to person, i.e., a flow of information from the top to the bottom and vice- versa.
5. Controlling. Controlling involves identification of actual results, comparison of actual
results with expected results as set by planning process, identification of deviation between
the two, if any, and taking of corrective action so that actual results matched with expected
results.
In other words, controlling consists of : (i) Laying down standards, (ii) measuring actual
performance, (iii) comparing actual performance with the standards, (iv) finding the cause
and extent of deviation, if any, and (v) taking corrective actions to remove the deviations.
" Control consists in verifying whether everything occurs in conformity with the plan
adopted, the instruction issued and the principles established. It has
for its object to point out weakness and errors in order to rectify them and prevent
recurrence? — Henry Fayol
Q. 2. Define Planning and discuss its essential characteristics.
Ans. Planning. Planning is the first managerial function to be performed in the process of
management. It is concerned with deciding in advance what is to be done, when, where, how
and by whom it is to be done. Thus, it is a predetermined course of action to achieve a
specified aim or goal.
Definitions of Planning. Some of the important definitions of planning are given below :
1. " The plan of action is, at-once and the same time the result envisaged, the line of action to
be followed, the stages to go through and the methods to use." — Henry Fayol
2. "Planning is deciding in advance what to do and how to do it. Planning bridges the gap
from where we are to go where we want to go. It makes it possible for things to occur which
would not otherwise happen." — Koontz and O'Donnell
3. "Management planning involves the development of forecasts, objectives, policies,
programmes, procedures, schedules and budgets"
A careful analysis of the above definitions of planning reveals that:
— planning is concerned with future and it is essence of looking ahead;
— it involves thinking and analysis of information;
— it involves predetermined course of action;
— it is concerned with the establishment of objectives to be attained in the future;
— it is basically a problem of choosing best alternative course of action;
— it involves decision-making;
— its objectives is to achieve better results;
— it is a continuous and integrated process. Nature or characteristics of Planning
The following are the important characteristics of planning :
1. Focus on objectives. A plan starts with the setting of objectives and then make efforts to
realise them by developing policies, procedures, strategies, etc.
2. Planning is an intellectual process. Planning involves vision and foresightedness to
decide the things to be done in future. It bridges the gap between where we are and where we
want to go.
3. Planning is basic to all management functions. Since managerial operations in
organising, staffing, directing and controlling are designed to support the accomplishment of
enterprise objectives, planning logically precedes the execution of all other managerial
functions.
4. Planning is continuous Process. Since planning is an integral part of every function of
management, it is a never-ending activity.
5. Planning is selective Process. Planning involves decision making or choosing the best
alternative out of many available alternatives. Thus, planning or choosing a course of action
is a selective process.
6. Planning is a Pervasive. Planning is a pervasive activity covering all the levels of the
enterprise. While top management is concered with strategical planning, the middle and the
lower management are concerned with administrative planning and operation planning
respectively.
7. Planning is actionable. An ideal requirement of planning is that it must be actionable. A
plan is not just a 'paper-plan'; which either is not capable of implementation (being over-
ambitious or impractical) or never put into practice, for any reasons whatsoever.
8. Planning is directed towards efficiency. To increase the efficiency of the enterprise is the
main purpose of planning a good and effective plan should not only attain optimal
relationship between output and input but should also bring a high level of satisfaction to
those implementing it.
9. Planning is flexible. The planning process should be adaptable to the changes that take
place in the environment.
10. Planning is futuristic. The purpose of planning is to face future events effectively, to the
best advantages of an organisation. It is a forward looking function, based on forecasting.
Q. 3. What are the basic principles underlying planning ?
Ans. Principles of Planning. Though no exhaustive, the basic principles that must be
followed to make planning effective are as follows :
1. Principle of contribution to objectives. Every plan and all its derivating plans must
contribute in some positive way to the accomplishment of group objectives.
2. Principle of efficiency. This principle stresses upon economical use of individual effort to
achieve group goals. The efficiency of plan is measured by the amount it contributes to
objectives minus the costs involved in the formation and implementation of plan.
3. Principle of primary of planning. Planning is pre-requisite to other managerial functions.
It must be effectively done so that all other functions of management also contribute to the
attainment of overall organisational goals.
4. Principle of planning premises. Since planning is based on forecasts, clarity of planning
premises leads to efficiency in the planning process.
5. Principle of policy framework. A consistent and effective framework of enterprise plan
can be developed it the basic policies that guide thinking in decisions are well defined and are
understood by managers who prepare the plans.
6. Principle of timing. Timing is an important attribute of any plan. Timing must be adhered
to in the execution of plans.
7. Principles of Alternatives. In choosing from among alternatives, best-alternative will be
that which contributes most efficiently and effectively for achieving organisational goals.
8. Principle of limiting Factor. While choosing form among alternatives, the planner should
focus on those factors which are critical for achieving desired goal. This will help in selecting
the most favourable alternative.
9. Principle of flexibility. This principle involves that plans should be flexible so that loss
from unexpected events can be minimized.
10. Principle of commitment. Plans should cover a time span which is long enough for the
managers to fulfil their coommitments to the decisions taken by them.
11. Principle of Navigational Change. This principle of planning states that a manager like
the navigator must continually check his course and redraft plans to meet a desired goal.
12. Principle of competitive Strategies. This principle of planning states that plans should
always be formulated in view of the policies and strategies of the computers.
Q. 4. Discuss the various steps in the process of planning.
Ans. Steps in Planning Process. Every manager whether he is the chairman of Board of
Director or to the General Manager or the works manager etc. Planning by the top level
management is the basic one. The lower level managers should plan within that framework.
But at every level planning must be done perfectly. A good plan must be based on clearly
denned objectives, simple, balanced and flexible and makes utmost use of the existing
resources. To prepare such a plan a definite process has to be followed. The various steps in
the planning process are as follows :
1. Determination of Objectives. First of all the objectives of the whole organisation have to
be precisely determined. The objectives must be clear, specific, realistic, and informative and
not 'creed-type' (i.e., idealistic) At first, major objectives are to be decided which might be
further broken into departmental, sectional or individual objectives.
2. Establishing Planning Premises. It provides the very foundation of planning. Planning
premises are planning assumptions or the expected environment of plans in operation. They
provide important facts and information relating to the future and thus, facilitate the work of
planning.
3. Indentifying Alternative courses of Action. After, determining objectives the manager
search for and examine alternative course of action for comparison and final selection.
Generally, there are alternative was of achieving the same goal (objective). For example, the
objective of improving the economic power and profitability can be achieved by any one or a
combination of the following courses of action :
(a) by increasing the sales of its existing products in the existing markets;
(b) by exploring new markets;
(c) by introducing new products;
(d) by introducing new process of production;
(e) by acquiring other organisations.
Therefore, alternative course of action should be determined. This requires imagination,
foresight and ingenuity. In determining alternatives, the critical or limiting factor must be
kept in view.
4. Evaluating Alternative courses of Action. After the development of alternative courses of
action, the next step is to evaluate them. At this stage,
the managers are required to examine the merits, demerits and consequences of each
alternative course of action. All the aspects like cost, risk, feasibility etc. have to be analysed
before final selection.
5. Selecting an Alternative. This most appropriate alternative is selected as plan. This is the
stage of decision where a plan is adopted for accomplishing identified goals.
6. Formulation of Derivative Plans. The final step in planning process is to develop sub-
plans. The derivative plans are the sectional plans within the frame-work of the overall
operating plan. In order to give effect to and support the basic plan, several sub-plans are
required. Once a choice is made and the master plan is adopted, functional and tactical plans
and action programmes are decided. Koontz and O'Donnell write, "plans do not accomplish
by themselves. They require breakdown into further plans—making a basic plan a reality." A
time sequence of activities should also be decided.
7. Implement the Plan. This is the step where other managerial functions also come in. This
is concerned with putting the plan into action.
8. Follow up Action. To see whether, plans are being implemented and activities are
performed according to schedule is also a part of planning process. Monitoring the plans are
equally important to ensure that objectives are achieved.

Fig. 2 : Planning Process

Q. 5. Explain the significance and limitations of planning ?
Ans. Need and Importance of Planning. Planning is essential part of
management and forms the basis from which all future management action arise. "It enables
the manager to a void entropy or the tendency to let things run down." — Terry
1. Planning offsets future uncertaintly and change. A business concern has to work in an
environment which is uncertain and ever-changing. Planning helps the manage in carrying
out the future course of action and this brings a higher degree of certainty and order into the
organisation than would be present without planning.
2. It tackles increasing complexity in modern business. To run a modern business
undertaking, there is need for a large number of people with different specialisation and
complex machines. This makes it necessary for the
management to depend on planning to get a clear idea of what is to be done, when it is to be
done, where it is to be done and how it is to be done.
3. It makes activities more meaningful. Since, in planning objectives and goals are
determined and defined precisely. A clear understanding of these goals enables the employees
of know that how their activities are related to these goals and how better they can do far
achieving them.
4. Planning aims at efficiency. By making plans for each activity and performing the
activities according to plans bring efficiency. It is because it improves the performance of the
employees, time and efforts on their part are saved and inefficiency is reduced.
5. It helps in co-ordination. Planning by deciding common objectives and goals promotes
feeling of co-operation and co-ordination among departments, sections and employees. It
avoids duplication of work and conflict.
6. It helps securing economy in operation. Planning is basically concerned with choosing
and adopting that course of action which involves minimum cost. It aims at eliminating all
wastages, leakage and inefficiencies. It leads to optimum utilisation of available resources.
7. Focus attention on organisational's goals. Planning helps the manager to focus attention
on the organisational goals and activities. This makes it easier to apply and coordinate the
resources of the organisation more efficiently.
8. Improves adaptability. Planning helps the organisation in coping with the changing
environment. Planning is looking ahead and it is anticipatory in nature.
9. It enables the exercise of controlling. Planning provides the basis for exercising control
over the action of people, working in an enterprise. This is so because the standards, with
reference to which control is exercised; are contained in plans. As a matter of fact—
controlling is not possible, in the absence of planning.
Limitations of Planning :
Though planning is a primary function of management, it facilitates various other
management functions and brings orderliness, stability and continuity in operation. It suffers
from certain limitations, These are :
1. Planning creates rigidity. In many enterprises, the rigid (or tight) rules, policies or
procedures of the organisation might come in the way of the successful implementation of
some progressive piece of plan.
2. Expensive. It takes too much time and is expensive. It becomes time-consuming
particularly in big concern. Sometimes the cost of planning becomes higher than the value of
benefit derived from it. It is, in fact, a time-consuming, a money-consuming and a mind-
consuming process.
3. Non-availability of accurate data and correct information. Planning is drawn on the
basis of the data and information. If the required data and information are not correct,
planning will be defective.
4. Planning delays actions. Some emergencies or sudden difficult situation requires
immediate decisions. For such situation planning is useless.
5. Lack of initiative and drive. Since there is an element of rigidity
in the implementation process of planning, intelligent employees lose initiative and drive. As
a result, proper implementation of plan becomes difficult.
6. External limitations comes from external environment. For example, some policies
adopted by national trade unions may hamper the planning of a single firm.
From the above discussion we may conclude that inspit of its limitations, some form of
planning is necessary for every form of enterprise. The statement that "planning has little
practical relavance in a rapidly changing environment" is not totally correct. By planning in
the words of Terry, "Suret is increased and chance decreased."
Q. 6. Discuss the components of Planning.
Ans. Components of planning are also known as the types of plans. Depending on their use,
management plans may be classified into two broad groups as shown in Fig. 3.:

Plans

Standing Plans Single-use Plans

— Objectives — Programmes
— Strategies — Budgets
— Policies — Sechedules
— Procedures — Methods
— Rules

Fig. 3 : Types of Plans

Standing Plans. Standing Plans are used again and again. Such plans provide guidelines for
further course of action and are used over a period of time. Once formulated, these plans are
in operation for a long period unless there is a change in these plans. Such plans serve as
ready forms of reference for managerial action. Objectives, strategies, policies, procedures,
and rules are important standing plans.
Single use or adhoc Plans. A single-use plan is used once and then it is discarded. It lays
down a course of action to fit a specific situation. A single-use plan is largely meant to
achieve a particular goal and is than discarded, programme, budget, schedule, project etc. are
examples of single-use plans.
The various type of plans (Components of Planning) are explained below : 1. Objectives.
Objectives are the ends towards which the activities of an organisation are directed. They are
the results to be achieved. They represent not only the end point of planning but also the end
towards which organising, staffing, leading and controlling are aimed. While determining the
objectives, it should be kept in mind that these should be clear and realisable. Objectives may
be long-term as well as short-term, but there should be integration between them.
2. Strategies. Strategy may be defined as a comprehensive and integrated plan designed to
assure that the mission and objectives of the organisation are achieved. It is a broad plan for
bringing the organisation from the present position to the desired position in future. It links
the organisation with its environment and provide long-term direction to its activities. It is
forward looking. It is relative combination of actions.
3. Policies. Policies are general statements that are formulated by a company to guide its
members in decision-making. Their basic purpose is to mark out an area within which action
can be taken or decision can be made. Policies are standing decisions which act as guide to
action. Policies are generally expressed in qualitative, conditional or general way. Policy
formulation is a function of all managers in the organisation because some form of guidelines
for future course of action is required at every level. Policies keep the progress of the
organisation in line with the objectives. Deviations from the predetermined policies may,
however, be allowed under special circumstances.
4. Procedures. A procedure serves as a means of implementing policies. It lays down the
manner or methods by which work is to be performed. Procedures, if properly laid down,
ensure simplification and eliminate overlapping or duplication of work. Procedures guide
only the action whereas policies guide both thinking and action. Terry and Frankline have
defined procedure as follows :
"A procedure is a series of related tasks that make up the chronological sequence and the
established way of performing the work to be accomplished."
5. Rules. A rule is prescribed guide for conduct or action. Rules are rigid and definite plans
that specify what is to be done or not done in given situation. The rules are usually more rigid
and specific than even the policies. They require that a specific action be taken or not taken.
But rules provide no discretion in their application. Rules, thus, ensure discipline and smooth
going for the business. Rules bring rationality in behaviour of organisation members. The
dictate the way the activities are to be or not to be done.
6. Programmes. A programme is a concrete scheme of action designed to accomplish a given
task. It is a sort of time-table of action. A procedure determines how work is to be done and a
programme tells when and what is to be done. So programme is a single-use plan and gives a
step-by-step approach to guide action. Allen defines it as "a sequence of action steps arranged
in the priority necessary to accomplish an objective."
Programmes help to ensure economy and uniformity in day-to-day operations. Programmes
are prepared for various activities e.g., development of new product, training of workers,
purchase of fixed asset like machinery, building, etc.
7. Budget. Budgets are plans which express anticipated results in numerical terms. A budget
is a projection of all expected expenses which are matched against all expected incomes or
revenues. A budget is an important
element of planning as it itself starts as a forecast.
Budget serves as standard of measuring actual performance. Budget may be prepared for
various groups of activities, e.g., production, sales, finance, cash etc.
8. Schedules. A schedule specifies time limits within which activities are to be performed.
Scheduling is the process of deciding a time sequence for the work to be done. Schedule are
essential for avoiding delays and for ensuring continuity of operations.
9. Methods. A method may be defined as formalised or systematic way for performing a
particular operation. According to E. Bryan, method means, 'manner of proceeding in the
performance of work.'
Methods provide details about a particular operation or activity. They provide the exact
manner in which the operation will be performed.
Q. 7. Discuss the types of Planning. Distinguish between Strategic and Operational
Planning.
Ans. Types of Planning :
1. Strategic Planning. Strategic planning sets the long-term direction of the organisation in
which it wants to proceeds in future.
"Strategic planning is the process of deciding on objectives of the organisation, on changes
in these objectives, on the resources used to attain these objectives and on the policies that
are to govern the acquisition, use and disposition of these resources." — Anthony
A basic problem in strategic planning is the period for which plan is to be formulated.
Normally more than one year period is considered to be long one. Usually for most of the
organisations, it ranges between 3 and 5 years.
Strategic planning encompasses all the functional areas of business. It defines the manner in
which the resources of the enterprise are to be used. It also determines the direction in which
the company is to grow and diversify. It serves as the framework for the formulation of
detailed operational plans. Types of products to be offered, diversification of business into
new lines, planned growth rate in sales are examples of strategic planning.
2. Operational Planning. Operational Planning, also known as tactical or short-term
planning, usually covers one year or so. It is largely concerned with conversion of strategic
plans into detailed and specific plans. An operational plan is the blue print for current action
and it supports the strategic plan. It provides contents and form to strategic planning. It is
concerned with the efficient use of the resources already allocated and with the development
of a control mechanism to ensure efficient implementation of the action for achieving
organisationsl goals.
Difference between Strategic and Operational Planning

Basic of Distinction Strategic Planning Operational Planning

1. Time Span Long-range Short-range

2. Scope For the enterprise as a whole For particular department's or

functional areas.

3. Range of Choice Wide—broad directions for Narrow—specific ways and

planned allocation of re- means.

sources.

4. Primacy Strategic plans are based on Operational Plans are based

 organisational objectives and on strategic plans and they

they precede operational succeed strategic plans.

plans

5. Level of Top-level management. Operating and middle level

formation management

6. Resources Strategic Plans are con- Operational plans are made

cerned with the acquisition to utilise the given resources

and allocation of new re- efficiently.

sources.

7. Question Where should we go ? How will we get their ?

answered

8. Types of Strategic plans are made in Operational plans are

Environment the light of external environ- focused on the internal

ment. environment of the firm so as

. to make effective use of firm's

resources.

Q. 8. State the characteristics of a good managerial plan.

Ans. Features of a Good Plan. A sound plan has the following features :
1. Well-defined objective. A good plan is one which is based on clearly defined objectives.
These objectives must be clear, concise and to the point.
2. Based on facts. It should be based on facts not guesses.
3. Stable. It should be stable yet flexible. Plans must be able to adjust themselves (flexible)
to future environment changes.
4. Integration. A good plan integrates short-term requirements of a firm with its long-term
requirements.
5. Logical. It should comprise logical sequence.
6. Goals. It should result in the accomplishment of policies and, finally, company goals.
7. Flexibility. An important characteristic of a good plan is that it is flexible. The idea is that
if future events do not occur according to the anticipation, the same plan should capable of
being modified to meet the change condition.
8. Co-ordination. A plan should co-ordinate working of all the functional areas. If functional
plans (or departmental plans) are not synchronised with the overall organisational plan,
failure of the organisation to achieve its goals in evident.
9. Balanced. A good plan should be well-balanced and lop-sided. There should be proper
balance in its specification of the use of resources, so that each is given appropriate weighing
and available resources are used adequately.
10. Acceptable. Best laid plans may turn out to be failures if they are not implemented
effectively. It is important that plans are acceptable not only to those who frame them but also
to those who implement them.
11. Participative. The acceptability of plans increases if subordinates are allowed to
participate in the planning process.
12. Simple. A good plan must be simple so that it can be easily understood be every
employee working in the enterprise.
Q. 9. State the characteristics of a good policy.
Ans. Characteristics of a Sound Policy (Principles of Policy Making). A policy is general
guide to action. "Typically it does not tell a person exactly what to do, but it does pointout
the direction to go." A policy can be called sound when it contains the following
characteristics :
1. Policy should, be based on objectives of the firm and it should contribute towards the
attainment of objectives.
2. It should be stated in understandable words and recorded in writing.
3. It must be stable but amenable to change consistent with economic conditions and business
requirements.
4. It must be reasonable and capable of being accomplished.
5. It must be in prescribed criteria for current and future action.
6. It should be in harmony with the economic, political and social environment of an
organisation.
7. It should be comprehensive enough to cover a range of action.
8. It must specify the limitations of its scope of action.
9. Policies should be reviewed and revised regularly to keep them up-to-date and relevant.
10. It is not just sufficient to formulate policies. Unless they are communicated properly to
the person concerned, no meaningful purpose will be served. All policies should be
communicated to the concerned, person so that they understand them properly.
11. Policies must conform to the norms of ethical behaviour which prevail in society and to
the ethical standards of business.
Q. 10. Distinguish between : (i) Policy and Rule, (ii) Policy and Procedure.
Ans.(i) Distinction between Policy and Rule :
Basis of Distinction Policy Rule

1. Meaning A broad plan laying down the A specific plan indicating what
limits within which discretion is to be done or not to be done
can be exercised in decision in a given situation.

making.

2. Nature A general statement. A specific statement.

To guide behaviour and ensure
discipline.
Rigid—levels no scope for
discretion and judgement.

3. Purpose To guide decision making.

4. Flexibility Flexible—provide scope for

discretion and judgement.

(ii) Distinction between Policy and Procedure :

Basic of Distinction Policy Procedure

1. Meaning A general statement which A chronological sequence of

specifies the criteria for deci- steps to be taken for

sion making. performing a task.

2. Nature Broad and general-flexible. Detailed and specific-rigid.

3. Purpose To facilitate decision making To provide operational

reflects attitudes of manage- guidelines for action-reflects

ment. systematic way of performing

routine work.

4. Level of Formulating at top and middle Formulated at middle and

Management levels of management. lower levels.

5. Freedom Provides room for discretion- No room for discretion or

strategic. judgement lactical.

6. Sequence No sequences prescribed. Chronological sequence is

prescribed.
Q. 11. What do you understand by the term 'Strategy' ? Discuss the need and importance
of strategies and process of strategy formulation.
Ans. The term strategy might be defined as follows :
Strategy may be defined as a comprehensive and integrated plan designed to assure that the
mission and objectives of the organisation are achieved. It is a broad plan for bringing the
organisation from the present position to the desired position in future.
"Strategy implies the determination of basic long-term objectives and goals of the enterprise
and formulation of a unified course of action for the organisation, allocation and utilisation
of resources necessary to achieve these objectives"
— Alfred D. Chandler
"A strategy is a unified, comprehensive and integrated plan designed to ensure that the basic
objectives of the enterprise are achieved!'
— Glueck and Jauch
For purposes of implementation strategies are converted into action or operational plans.
Need and Importance of Strategy :
The role of carefully formulated strategies is quite significant in all types of organisations—
business or non-business, public sector or private sector, large or small. Looking at the
importance of strategies in organisational effectiveness, a new branch of management, known
as strategic management has been developed which deals with strategy formulation and
implementation. A strategy Contributes to the success of an organisation in the following
ways :
1. Meeting environment challenges. To face environment challenge, it is necessary for a
business to formulate an effective strategy. In fact, the basic idea behind strategy formulation
is to beat competitive forces successfully; and get market share.
2. Frame-work for operational Planning. Strategies provide the frame-work for plans by
channelling operating decisions. If strategies are
developed carefully and understood properly by managers, they provide more consistent
frame-work for operational planning.
3. Clarity in Direction of Activities. Strategies focus on direction of activities by specifying
what activities are to be undertaken for achieving organisational objectives. They make the
organisational objectives more clear and specific.
4. Best utilisation of Scarce Resources. Strategies aims at the best utilisation of
organisations precious and scarce resources along most fruitful lines of activity.
5. Facilitates Coordination and Control. Master strategy interrelates the different
departments and groups of the organisation. It provides a unifying force by focussing
attention on common objectives. Strategy also simplifies control by deciding standards of
performance.
6. Development of creativity talent in management. The process of strategy formulation
forces managers to think in most innovative ways for selting realistic objectives and devising
tacties for their best attainment. Thus strategies help in the development of creativity talent in
managers-making than allround best managers.
Process of Strategy Formulation
Main steps involved in the strategy formulation process are given below :
1. Determination of Mission or Purpose. The strategic planning process begins with
spelling out the business mission or tentative purpose that might be pursued in future.
Mission explains the basic purpose of an enterprise. For example, mission of a manufacturing
organisation may be production of high quality goods at reasonable prices, for the common
men of society. Long-range objectives may relate to specific aims in areas of e.g., production,
public relations, profitability, market standing, etc.
Mission provides unity of purpose, specifies the identity of the firm and provides guidelines
for making strategies at various levels in the organisation.
2. Environmental Analysis and diagnosis. The first step involved in strategy formulation is
environmental analysis and diagnosis. Since the basis objective of strategies is to integrate the
organisation with its environment, it must know the kind of environment in which it has to
work. SWOT analysis is a key concept in the field of strategy formulation.
SWOT stands for the following elements of environment:
S → Strengths Internal Environment
W → Weakness
O → Opportunities External Environment
T → Threats
For a better understanding of SWOT analysis, it is necessary to have an overview of the
environment analysis, consisting of —
(i) Internal Environment analysis
and
(ii) External Environmental analysis
(i) Internal Environmental Analysis. All that environment which is found within the
business enterprise itself may be termed as the internal environment of business.
Internal environment includes the following factors :
(a) Philosophical environment, consisting of the mission, values, belief and long-term goals
of the enterprise.
(b) Managerial environment, consisting of the management hierarchy, quality of managerial
talents and process of managerial development.
(c) Structural environment, consisting of —
— Rules, policies and procedure of the organisation
— Authority-responsibility relationship
— Communication network
— Controlling techniques etc.
(d) Production environment, consisting of —
— Availability of raw material and utilisation system.
— Technique of production
— Quality control system.
— Plant capacity utilisation.
(e) Financial planning, consisting of—
— Working capital management
— Capital Budgeting etc.
(f) Marketing environment, consisting of—
— Marketing research system and procedures.
— Training and compensation of salesman.
— Advertising and sales promotion techniques.
(g) Personal environment, consisting of—
— Type and nature of manpower planning
— Quantity and quality of manpower.
— System of training, compensation, promotion etc.
(h) Human relation environment, consisting of—
— Industrial relations
— Public relations etc.
By and large, management has control over elements of internal environment, except human
relation aspect.
(ii) External Environment Analysis. All the environment which obtains and prevails outside
the business enterprise may be termed as external environment of business.
Major factors comprised in external environment: (i) Political factors, (ii) Legal factors,
(iii) Social-religious-cultural factors, (iv) Competitive factors, (v) Technological factors etc.
Features of External environment:
(i) External environment is unlimited.
(ii) By and large, external environment is beyond the control of management.
(iii) External environment is dynamic and uncertain.
(iv) External environment is subject to perception value i.e., one person may perceive a
particular factor to be favourable; another may regard it to be most unfavourable.
Through environment analysis, the management can develop an Environmental threat and
opportunity Profit (E to P) which will assess the impact of various environmental forces to
the firm. After environmental analysis, the next task for the strategist is to undertake
environmental diagnosis find out.
— Which factors of the environment are opportunities for the organisation; and which factors
are threats for the organisation.
— What is the significance of various environmental factors for the working of the
organisation.
— What is the expected change in various environmental factors, and soon.
3. Gap Analysis. This will show the gap that exists between the existing position of the
enterprise and its intended position in future. Strategy designers than, accordingly, plan to
formulate suitable strategies to fill such gap.

Present Position Future Intended Position

Strategies for Filling Gap

4. Development of strategy alternatives. After environment analysis, strategic (or strategy)

alternatives are developed. Such alternatives are developed on the basis of—
(i) The mission of the enterprise.
(ii) Long-term goals of the enterprise.
(iii) Result of SWOT analysis.
(iv) Extent of gap, as shown by gap analysis.
(v) Past strategies of the company with their record of success or failure. (vi) Strategies of
competitors.
5. Evaluation of strategy alternatives. Each strategic alternative has its own merits and
demerits which need to be analysed carefully. Each alternative is critically evaluated from the
following angles :
— risk and resources implications
— contribution to mission and long-range objectives
— the extent to which each alternative helps in filling the gap between present position and
future intended position of the enterprise.
6. Choice of strategy. Selection of the best strategy alternative, after critical evaluation of
each alternative, amounts to choice of strategy for implementation purposes.
7. Implementation of strategy. After the strategy has been finalised, it must be incorporated
into the operations of the organisation. It must be translated into appropriate operational and
tactical plans, programmes, budgets, etc. so that it could be implemented. After the strategy
has been put into the
practice, its effectiveness should be reviewed to know if it has been able to achieve the
expected results.
Q. 12. What is decision-making ? Discuss the process and role of decision-making in
management.
Ans. Decision-making. To decide means to 'cut short', 'cut-off, come to conclusion. A
decision is a choice whereby a person forms a conclusion about a situation a decision
represent a course of behaviour or action about what must or must not be done.
Managerial function is exercised through decision-making. Decision-making is necessary at
every stage of managerial function. Drucker has stated, "whatever a manager does, he does
through making decisions". In the language of Terry." If there is one universal mark of a
manager it is decision-making .... Decision-making permeates all management, exists in
every part of an enterprise, and deals with every possible subject."
"Decision-making is a blend of thinking, deciding and acting."
— Franklin G. Moore
"Decision-making is the selection based on some criteria from two or more possible
alternatives" — George R. Terry
"A decision is an act of choice wherein executive forms a conclusion about what must be
done in a given situation, a decision represents a course of behaviour chosen from a number
of possible alternatives"— D.C. McFarland
In the language of Mcdonald, "the business executive is by profession a decision-maker.
Uncertainty is his opponent, overcoming it is his mission." Decision-making can be called the
weapon in his hands to fulfil this mission.
The process of decision-making is the process of choosing from amongst alternatives. It is a
conscious intellectual activity involving judgement, evaluation and selection.
From the foregoing description, the following characteristics of decsion-making can be
identified :
1. Decision-making is a goal-oriented process. Decisions are taken to achieve certain goals
i.e., to bridge the gap between the present position and the desired position.
2. Decision is the choice of the best course among alternatives.
3. Decision-making is a mental process because the final selection is made after thoughtful
consideration.
4. Decision involves rationality because through decisions an endeavour is made to better
one's happiness.
5. It also involves the evaluation of the available alternatives because only through critical
appraisal one can know the best alternative.
6. Decision-making involves a certain commitment. This commitment may be for short run or
for long run depending upon the type of decision.
7. Decision-making is pervasive. Managers at all levels take decisions
though the nature and significance of decision taken may vary from one level to another
8. Decision-making is situational.
9. Decision-making is a continuous process.
Steps or Process of Rational Decision-making. Decision-making is a systematic process
and so in order to make a decision, some successive steps have to be followed. Decision-
making consists of the following steps in order of their sequence :
1. Defining and understanding the problem. Naturally, the process of decision-making
takes place only when some problem arises and needs to be solved. For this, first of all. the
problem itself has to be well understood and analysed. The problem has to be well identified
through proper investigation by forming a panel or committee of managers related to the
problem. In this regard, it is suggested that the process of forming committee is adopted as
persons with different views discuss and understand the problem better.
2. Finding various alternatives. Generally, there are many ways of solving a problem. Out
of these various available alternatives, only one, which is the best, is to be adopted. All
management problems should be solved by developing various possible solutions. It is here
that the group leader assumes his role, otherwise group discussions and efforts can result into
nothing but only aimless meetings.
3. Selecting the best alternative. After the various alternatives are so established, each one
of these are properly evaluated.. For this, the managerial decision-making requires the full
use of understanding, previous experience as well as the foresight of all the managers
involved in this process.
Peter F. Drucker has suggested the following four criteria for the proper analysis of
alternatives :
(i) the risk, (ii) economy of efforts, (iii) timing, and (iv) limitations of the resources available.
4. Taking action. Once a particular alternative is selected, necessary decision is to be taken.
This is the actual decision-making process. But this itself is not enough as the progress now
should be checked through methods like Meetings, Reports, Observation etc.
5. Implementation and follow up. After taking a decision, it should be properly
implemented. Implementation involves several steps. First, the decision should be
communicated to those responsible for its implementation. Second, acceptance of the
decision should be obtained. Thirdly, procedures and time sequence should be established for
implementation.
The implementation of the decision should be constantly monitored. The effect of the
decision should be judged through periodic progress and reports. If feedback indicates that
the decision is not yielding the desired results, necessary action should be taken.
Role of Decision-Making
One of the most important function of a manager is to take decision. Peter Drucker said, "
Whatever a manager does he does through decision-making."
Decision-making permeates through all managerial functions. Management and decision-
making are unseparable. Managers use the tool of decision-making for discharging their
duties. Whatever a manager does, he can do it by taking some decisions—the selection of
suitable course of action from a number of available alternatives. Decision-making is the
vehicle for carrying managerial workload and discharging managerial responsibilities. It is
through decision-making that managers strive to achieve organisational goals. They try to
bridge the gap between the existing situation and the desired situation by taking and
executing decisions. Management without decisions is like a man without backbone. Nothing
can be performed without taking decisions. The quality of judgement in decision-making
determines the quality of management.
 5. ORGANISING
Q. 1. Define organising and discuss various steps in the process of organising.
Ans. Concept of organising. Organising can be defined as "identifying and grouping
different activities in the organisation and bringing together the physical, financial and human
resources to establish most productive relations for the achievement of specific good of
organisation.
According to Louis A. Aller, "Organising is the process of identifying and grouping the work
to be performed, defining and delegating responsibility and authority relationships for the
purpose of enabling people to work most effectively together in accomplishing objectives"
In the words of Theo Haimman, "Organisingis the process of defining and grouping the
activities of the enterprise and establishing authority relationship among them."
In the words of Terry, "Organising is the establishing of effective authority relationships
among selected work, persons and work places in order for the group to work together
effectively."
As a basic function of management, organising is the continuous and dynamic process of
creating harmonious authority-responsibility relationship between specialised units.
Organising as a process is a dynamic and humanistic concept. However, the two terms
(organisation structure and organising process) are complementary to each other. The process
of organising results in a structure, i.e., organisation structure is the end-result of the
organising process.
Feature of Organising
1. Organising is a basic element or sub-process of management.
2. It is based on the principle of division of work.
3. It has two sub-process, division and integration of activities.
4. It aims at integrating and coordinating various activities for seeking goals.
5. It establishes authority, relationship of superior and subordinate among the employees.
6. It is goal oriented, because it is designed on the basis of objectives and its functions for
achieving them.
7. It deals with group efforts that are made for achieving common goals. The Process of
Organising
Organising process involves the following steps :
1. Division of Work. The organising function begins with the division of total work to be
done into specific activities. The activities are then grouped into jobs such that each job
consists of certain similar tasks, which can be carried out by an individual. Such division of
work facilitates specialisation of work and skills.
2. Grouping Jobs and Departmentation. The next step in the process organising is to
combine or group similar or related jobs (activities) into large
units called departments, division or sections. This grouping process is called
departmentation. Activities may be grouped on the basis of functions, products, territories,
customers, etc. Each department may be further divided into section to create a logical
structure.
3. Assignment of Duties. After diving the organisation into specialised departments each
individual working in different departments is assigned a duty matching to his skill and
qualifications. The work is assigned according to the ability of individual. Clear definition of
the responsibility of each is necessary to avoid duplication of work and overlapping of
efforts.
4. Establishing Authority/Responsibility Relationship. Authority must be granted to the
persons who have been entrusted with the responsibility of doing certain jobs. There should
be a clear definition of authority-responsibility associated with each job. Every person should
be clear in his mind as to whom he is accountable. Various members are linked by authority-
responsibility relationship through the process of organising. Thus an authority structure is
created.
It is clear from the above that the process of organising is a serices of steps which must be
undertaken to create a logcal structure of authority—
— responsibility relationship.
Q. 2. "Effective organisation is the basis of successful enterprise." Discuss the
importance of organisation.
Ans. Importance of Organisation. A sound organisation is a must for every enterprise not
only for its continuity but also for its success. It is the backbone of management and without
it, not management can manage the various operations of an enterprise. It lays down the basis
for other managerial functions such as planning, direction, co-ordination and control.
According to Allen, sound organisation can contribute to the success of an enterprise in the
following ways :
1. Facilitate Administration. Sound organisation makes for efficient management. It
provides a clearly description of job and related duties. It enables smooth operations of the
enterprise by provide a frame-work with which management can perform managerial
activities.
2. Growth and Diversification. Effective organisation leads to the growth diversification
and development of new and improved ways of doing operations in workers. It allows a
business enterprise to add more job position, departments and even diversify their products
line.
3. Optimum utilization of Resources. A sound organisation help in the optimum utilisation
technological innovations and human resources. It avoids duplication of work and
overlapping of efforts.
4. Encourage Good Human Relations. In a sound organisation, every individual gets job
according to his experience, qualification and ability. The assignment of right job to right
persons improves job satisfaction and interpersonal relations.
5. Stimulates initiative and creativity. Sound organisation requires creative efforts,
encourages innovation and permits extensive delegation and decentralisation. A sound
organisation also helps in the continuity of the enterprise by providing training and
development of executives.
6. Facilitates co-ordination. Sound organisation is an important source of bringing co-
ordination among the various departments of the enterprise. It creates clear-cut relationships
between the departments. It also provides for the channel of communication for the co-
ordination of activities of different departments.
In short, sound organisation facilitates effective communication, precise delegation, smooth
management, proper co-ordination and control, effective leadership, higher employee morale,
managerial efficiency, steady growth and diversification, optimum use of human and other
resources, creativity among the staff and accomplishment of enterprise objectives.
Q. 3. Write a short note on Formal organisation and Informal organisation.
Ans. Formal organisation. In all organisation, employees are guided by rules and procedure.
To enable smooth functioning of the enterprises, Job description and rules and procedures
related to work process have to be laid down. Thus is done through the formal organisation.
Formal organisation refers to an organisational structure in which the functions,
responsibilities and relationship of all the persons working in an enterprise are clearly defined
and prescribed by top management. In such an organisation, everything takes place at the
official level.
— The formal organisation is a system of well defined jobs, each bearing a definite measure
of authority, responsibility and accountability.
— Louis Allen
— Formal organisation is a system of consciously coordinated activities of two or more
persons towards a common objectives."
— Chester Bernard
Bernard fees that an organisation is formal when the activities of two or
more persons are consciously coordinated towards given objectives. He felt that
the essence of formal organisation is conscious/common purpose and that it
comes into existence when person are :
(i) able to communicate with each other, (ii) Willing to act, and (iii) ready to share the
purpose.
Features of Formal organisation :
(i) Organisation structure is predetermined by the top management. (ii) Organisational
structure is based on division of labour and specialisation.
(iii) The structure is based on the jobs to be performed and not according to the individuals
who are to perform jobs.
(iv) It places more emphasis on work to be performed than interpersonal relationship among
the employees.
(v) The authority and responsibility relationships created by the organisational structure.
Informal organisation.
It is a matter of common experience that in every organisation people often cut across formal
channels and form informal social groups. The term informal organisation refers to those
personal and social relations which arise spontaneously as people associate with one another.
Thus the informal organisation has no place in the formal organisation chart. It is formed to
meet personal needs of the groups and acts as an agency of social control.
Following are some outstanding definitions of informal organisation :
"Informal organisation is network of personal and social relations not established or
required by the formal organisation but arising spontaneously as people associate with one
another". — Keith Davis
"Informal organisation is joint personal activity without conscious common purpose though
contributing to joint results" — Chester J. Bernard
Features of an informal organisation
1. It arises spontaneously.
2. It is a social structure formed to meet personal needs.
3. It has no place in the formal chart.
4. It acts as an agency of social control.
5. It can be found on all levels within the managerial hierarchy.
6. It is based on common tasks, attitudes, emotions, prejudices, problems, culture, religion
etc.
7. It has its own rules and traditions that are not written but are commonly observed.
8. It constitutes an integral part of a total organisation.
9. It is indefinite and structureless.
Informal organisation considerably affects the working of formal organisation. It should be
well understood that informal organisations are basic aspects of social life and their existence
should be taken for granted.
Q. 4. Distinguish between Formal and Informal organisation.
Ans. Distinguish between Formal and Informal Organisation:

Point of Distinction Format Organisation Informal Organisation

1. Formation Consciously created by Arises spontaneously out of

management social contracts of people.

2. Purpose To achieve Planned To satisfy social and cultural

organisational goals. needs and fulfil common

interests.

3. Nature Stable and Predictable Fickle and unpredictable.

4. Structure Has a well-defined structure Does not have a clear-cut

of task and relationships. structure but forms a complex

network of relations.

5. Communication Official lines of communica- Informal communication

tion through the scalar chain. based on convenience.

6. Basis Based on delegation of au- Based on common interests,

thority. language, religion etc.

7. Control Process Rigid rules and regulation Group norms and values.

8. Charting Shown on organisational Not shown on organisational

chart chart.

9. Authority Positional, flows top down. Personal, flows hott on up.

Q. 5. Enunciate and explain the principle of organising.

Ans. Principles of Organising. There is a need to follow certain principles in order to
formulate and develop a sound and efficient organisation structure. Some of the important
principles of organisation are as follows :
1. Unity of objectives. The whole organisation and every part of it must contribute towards
the accomplishment of common objectives.
2. Efficiency. An organisation is efficient if it is able to accomplish predetermined objectives
at minimum cost. An organisation should also provide maximum satisfaction to its members
and should contribute to the welfare of the society.
3. Division of Labour. Since the total work of the enterprise cannot be performed by only
one person it is necessary that the entire work should be divided into specific job and role (or
job) of each should be given to an individual. Such as individual specialises in the specific
job assigned by performing that job an repetitive basis.
4. Functional Definition. According to this principle, individual and of each department of
the enterprise must be well defined so that there is no overlapping of functions.
5. Scalar Chain of Command. Scalar chain of command means a stepwise chain of
authority. Authority is the right to decide, direct and coordinate. According to this principle,
"there must be an unbroken chain of authority running from the top of the bottom of the
organisation."
6. Unity of Command. According to this principle, each subordinate should receive order
from one superior only and should be accountable to that superior from whom he receives
order.
7. Unity of Direction. The principle implies that there should be one head and one plan for a
group of activities having the same objectives.
8. Absoluteness of Responsibility. The responsibility of the superior for the act of
subordinate is absolute and a superior cannot escape responsibility for the act of his
subordinates.
9. Balance. It is essential that the various units of an organisation should be kept in balance.
To make the organisation must effect, a balance between centralisation and decentralisation
should be maintained.
10. Continuity. Reorganization is a continuous process; is every undertaking specific
provision should be made for it.
11. Span of Control or Span of Management. No executive should be required to supervise
more subordinates than he can effectively manage. Due to limitation of time and ability, there
is limit on the number of subordinates than an executive can effectively supervise.
The span of management principle implies that there is a limit to the number of
subordinates; Whose work could be effectively managed (controlled) by a supervisor.
12. Correspondence. In every position the responsibility and the authority should
correspond.
13. Exception. Every manager should take all decisions within the scope of his authority and
only matters beyond the scope of his authority should be referred to higher level of
management.
14. Coordination. The purpose of organising is to secure unit of effort. There should be an
orderly arrangement of group effort and unity of action in the pursuit of a common purpose.
15. Flexibility. Organisational flexibility is necessary to meet the changing conditions
because rigidity of principle is risky to meet the change of time.
 6. DEPARTMENTATION
Q. 1. Define departmentation. State the different types of departmentation.
Ans. Meaning of Departmentation. Departmentation is the foundation of organisation
structure, that is, organisation structure depends upon departmentation. Departmentation
refers to division of work into smaller units and their re-grouping into bigger units
(departments) based on similarity of certain features.
"Departmentalisation is the grouping of jobs, processes and resources into logical units to
perform some organisation tasks" —Pearce & Robinson
"Departmentation is a process of dividing the large monolithic functional organisation in to
small and flexible administrative units.
—Koontz and O'Donnell
Infact, departmentation is a process of grouping of activities into administrative units, such as
division, departments or sections for the purpose of efficient administration.
Basis or Types of Departmentation
Common basis of departmentation as follows :
1. Departmentation by Functions
2. Departmentation by Products
3. Departmentation by Territory
4. Departmentation by Customer
5. Departmentation by Process or Equipment
6. Departmentation by Time
7. Departmentation by Numbers
8. Combined Departmentation.
1. Departmentation by Functions (Functional Departmentation). Under this method, the
activities of an enterprise are ground into major functional departments like production
department, sales department, purchase department, finance department, etc., and each
department is headed by an executive, who is directly responsible to the top or chief
executive. It is the most popular basis of departmentation.

Fig. 1 : Department by Functions

Advantages of Functional Departmentation. It offers the following advantages:
(i) It is the most logical basis of creating departments.
(ii) It provides specialisation which makes optimum utilisation of
manpower.
(iii) It ensures the performance of all activities for achieving organisational objectives.
(iv) It permits effective control over performance.
(v) It facilitates delegation of authority.
(vi) It eliminates costly duplication of effort.
Limitations of Functional Departmentation. This form of departmentation suffers from the
following drawbacks :
(i) Employees may become so involved achieving their departmental goals that they lose
sight of the overall organisational goals.
(ii) Since decisions have to be made by each departmental head for his respective department,
it may result in delayed decision-making for the organisations a whole.
(iii) There may be conflicts between departments as the responsibilities are inter-dependent
and cannot always be clearly delineated.
(iv) There may be difficulties in coordinating the activities of different departments.
(v) It does not offer opportunities and facilities for the overall development of managers.
2. Departmentation by product or Product Departmentation. In a big firm where many
varieties of product are produced, departmentation can be introduced based on different
single products or group of related products. Each department looks after the production,
sales and finance of one product. Product departmentation is useful when product expansion
and diversification, manufacturing and marketing characteristics of the product are of primary
significance.

Fig. 2 : Departmentation by Products

Advantages:
(i) Maximum utilisation of technical and managerial skill is possible.
(ii) There is greater scope for expansion and management development.
(iii) Better consumer service, better research and better performance in all respects can be
achieved.
(iv) The performance of each product division and its contribution to overall results can be
easily evaluated.
(v) It is more flexible and adaptable to change.
Disadvantages :
(i) It increases overall managerial cost.
(ii) It may develop rivalries among the personnel of different product divisions.
(iii) Advantages of centralisation of certain activities like financing accounting, distribution,
etc. are not available.
(iv) There may be under utilisation of plant capacity when the demand for a particular
product is not adequate.
3. Territorial or geographical Departmentation. Geographical areas or regions are accepted
as the main basis for divisionlisation of an enterprise. It is mainly practicised by big concerns,
and invariable by multinational corporations. All similar activities happening in a particular
area are grouped under one manager. For instance, the sales activities of the enterprise may
be grouped area-wise and entrusted to different area sales managers.

Fig. 3 : Departmentation by Territories

Advantages :
(i) Advantages of localisation are enjoyed.
(ii) Local factors can be considered before taking decisions and resources can be better
utilised,
(iii) It facilitates the expansion of business to various regions.
(iv) It provides opportunity to managers to improve their skill in various fields.
Disadvantages :
(i) Co-ordination and control of different branches from the head office becomes less
effective,
(ii) Due to geographical distance there is problem of communication.
(iii) There is duplication of physical facilities due to which costs of operation may be high.
(iv) As it is a costly system, small business concern cannot afford it.
4. Departmentation by Customer (Customer Departmentation). Such kind of
departmentation is found at marketing level. There are different departments for different
type of customers, like industrial consumers and actual consumers of different social groups,
age groups, income groups, etc. In wholesale trade, educational institutions, hotels, etc. such
departmentations are found.
Advantages:
(i) It may offer better consumer service.
(ii) When the market is very vide, it provides suitable channels for supplying goods.
(iii) The enterprise gains intimate knowledge of the needs of each category of customers.
Disadvantages:
(i) There is the problem of co-ordinating the activities of different departments.
(ii) There may be under-utilisation of facilities and resources, particularly during periods of
low demand.
(iii) It may lead to duplication of activities.
5. Process or Equipment Departmentation. Under this basis, activities are grouped on the
basis of production processes or equipment involved. This type of departmentation is
generally popular in a manufacturing enterprise. For example, a cotton textile mill may be
organised into ginning, spinning, weaving and dyeing departments. Similarly, a printing press
may consist of composing, proof reading, printing and binding departments. Such
departmentation may also be used in engineering and oil industries.
Advantages:
(i) It is suitable for batch production and at lower level of organisation.
(ii) There may be economy of cost.
(iii) This basis ensures effective performance control.
Disadvantages :
(i) There may be difficulty in co-ordinating different process departments. Conflicts among
managers of different processes may arise.
(ii) Volume of production must be large enough to justify a separate department.
6. Time Departmentation. A concern which carries on continuous or non-stop activities
(e.g., a public utility service like power generation) often departmentalisation on the basis of
time or 'shift'. Each shift is considered as a single separate unit of operation. For instance, in
manufacturing concern, for managing the activities relating to each shift, a separate
department is created. The idea is to obtain the advantages of people specialised to work in a
particular shift.
7. Departmentation by Numbers. Under this basis, activities are grouped on the basis of
their performance by a certain number of persons. For example, in the army soldiers are
grouped into squads, battalions, companies, brigades and regiments on the basis of the
number prescribed for each unit.
8. Composite or Combined Departmentation. Big enterprises follow a composite or
combination of several bases. Generally, functional departmentation is used at the higher
level. Activities of the sales department may be grouped on product or territorial basis which
may further be sub-divided on customer basis. Similarly, activities in the production
department may be grouped on the basis of process or equipment employed.
This type of departmentation is very useful and logical because the objective of
departmentation is not to build a rigid structure, but to group the activities in a manner that
contributes to the realisation of organisational goals.
Q. 2. What are the benefits of departmentation ?
Ans. Importance and Advantages of Departmentation :
Different functions become distinct and specialised entities and so the management has
to look for departmentation. Terry has said, "Functions are the main entities around which
a manager builds an effective organisation structure" Koontz and O'Donnell have added, "
Grouping activities and subordinates into departments makes it possible to expand firms to
indefinite degree." Departmentation contributes to the success of an enterprise in a number of
ways. The main advantages of departmentation are :
1. It contributes to systematic distribution of work among individuals.
2. It simplifies managerial tasks.
3. It contributes to the attainment of specialisation.
4. It increases the operating efficiency of the organisation.
5. By defining the duties and responsibilities of the executives clearly, departmentation fixes
accountability for the results. This makes the executives alert and efficient.
6. It facilitates effective control by grouping activities and personnel within well-defined
areas, setting standards of performance and by preparing budgets.
7. Departmentation is a training device for the managerial personnel. Under departmentation,
the entire enterprise is divided into various departments and the departmental managers are
given the opportunity to take initiative. The departmental managers can learn new managerial
skills which will help them to move higher in the hierarchy.
8. By bringing about division of functions and responsibilities departmentation provides
sufficient scope for growth and expansion.
9. By giving sufficient powers to the managers in-charge of different departments and
allowing them take their own decisions within the powers given to them, departmentation
increases the prestige of the managers.
Q. 3. Discuss those factors which must be considered while selecting a suitable basis of
departmentation.
Ans. The following factors must be considered while selecting a suitable basis of
departmentation :
1. Specialisation. Whatever may be the pattern of departmentation, it should be as such to
yield the advantages of specialisation. The activities of an organisation should be grouped in
such a way that it leads to specialisation of work. Specialisation helps to improve efficiency
and economy of operations.
2. Coordination. All activities are designed to achieve the organisational objectives.
Coordination in the performance of different activities is necessary so that they contribute
maximum towards the organisational goals.
3. Control. That basis of departmentation is best which facilitates measurement of
performance and timely corrective action. It should enable the management to hold people
accountable for results. Effective control helps to achieve organisational goals efficiently and
economically.
4. Economy. The cost to be involved in monetary and non-monetary terms both, increating a
new department for any special activity should also be considered. Therefore, the pattern and
number of departments should be so decided that maximum possible economy is achieved in
the utilisation of physical faculties and resources.
5. Attention. The various activities should be given adequate attention so that each necessary
activity is performed and there is no unnecessary duplication of activities. Proper weightage
should be given to different activities depending upon their significance and the
organisational needs.
6. Environment. Modern organisations are operating in the dynamic environment where
economic, sociological, political, technological factors are changing rapidly. The basis of
departmentation should ensure that organisation are adapt to about themselves to
environmental changes.
7. Full Recognition of Local Conditions. Local factors must be considered in a scheme of
decentralisation. They are the personalities of individuals, the nature of organisation, the
pattern of informal relationship in the organisation, the attitude of management towards
workers, the market to be served etc.
8. Human Consideration. Departmentation should not follow only technical aspects but
human aspects of the organisation too. The existence of informal groups, cultural patterns,
value system, attitudes of personnel etc. should be given due consideration. Attention to the
human factor will make departmentation more efficient and more effective.
Thus we see that departmentation is not an easy task. It is a radical procedure which requires
a careful consideration of various factors before proceeding to actual grouping of activities.
Q. 4. Distinguish between Functional Departmentation and Products Departmentation.
Ans. Functional Vs. Product Departmentation :

Basic of Distinction Functional Departmentation Product Departmentation

1. Nature For every major function For every product line there

there is a separate depart- is a separate department.

ment.

2. Type of Occupational specialisation Product specialisation

specialisation

3. Organisational units Functional departments and Product divisions

sub-departments

4. Suitable For all types of firms For multi-product or diversi-

fied firms.

5. Control Simple Difficult

6. Economy Economical Expensive

7. Coordination Difficult Simple

8. Responsibility for Cannot be fixed on specific Can be fixed on specific per-

results person sons

9. Executive Less scope for the develop- More scope for the develop-

development ment of all-round executives. ment of all-round executives

 7. TYPES OF ORGANISATION STRUCTURE
Q. 1. What is matrix organisation ? Under what circumstances it is most useful ?
Discuss in brief the advantages and limitations of matrix organisation.
Ans. Matrix or Grid organisation. When multiple project operations of short duration are
undertaken by an organisation, to execute them efficiently, matrix organisation structure is
used.
Matrix organisation is a combination of functional organisation and project organisation. It
consists of groups of persons, drawn from various functional departments and deputed to
work on a project under the guidance and direction of a Project Manager appointed by the top
management. The Project Manager is given the necessary authority to complete the project
assigned to him within the scheduled time and at a specified cost and in accordance with the
quality and other conditions laid down by the top management. The Project Manager assigns
work to the various functional groups and co-ordinates their activities and gets the project
completed. After the completion of the project, he will report to the chief executive (i.e., top
management of the organisation). When the specified project is completed, various
individuals drawn from various functional departments will go back to their respective
departments for further assignment to other projects. Even the Project Manager goes back to
the functional department for reassignment.
"Matrix organisation represents a combination of functional departmental organisation and
project organisation" — Fred Luthans
"Matrix organisation is any organisation that employs am ultiple command system, that
includes not only them ultiple command structure but also related mechanisms and an
associated organisational structure and behaviour pattern".
— S.M. Davis and P.R. Lawrence
A matrix organisation is a permanent organisation structure designed to accomplish a
specific project (or to achieve specific result) by using teams of specialists drawn from
different functional departments within the organisation.
Following chart illustrates the matrix organisation :

Merits (Advantages) :
1. It provides a flexible structure suitable for the requirements of changing conditions.
2. It helps to focus attention, talent and resources on a single project which facilitates better
planning and control. Specialists from several functional departments provide a pool of
expertise, particularly technical skill.
3. It provides an environment in which the professionals can test their competence and make
maximum contribution.
4. It provides motivation to the project staff as they call focus directly on the completion of a
particular project.
5. It ensures effective communication because of dual authority and multiple reporting.
6. The problem of co-ordination, which is quite serious in functional organisation, is
minimised in a matrix organisation, because the Project Manager acts as an effective
coordinator between the personnel of the different functional departments.
7. Each project is assigned the physical resources and personnel it requires. Thus,
unnecessary duplication is avoided.
8. It contributes to the development of the Project Manager, as he is entrusted with work
involving wider responsibilities.
9. As the Managers of the Project-team work on different projects, their knowledge and
experience will certainly increase.
Demerits (Disadvantages) :
1. It violates the principle of unity of command. Each employee has two bosses—the
Functional Boss and the Project Manager. During his assignment to a project, he works under
the command of the Project Manager. In addition, he receives orders from his permanent
supervisor. This may create confusion and conflict in the organisation.
2. It may contribute to conflicts between the members of the project team because of the
heterogeneity of team members.
3. Frequent shifting of the staff of functional departments from one project to another may
create problems in training new employees.
4. Though the problem of co-ordination is not quite serious here, still there remains the
problem of co-ordination between the Project Manager and departmental heads.
5. Operating cost of matrix organisation seems to be on the higher side, because it is not only
the functional departments and their heads but for every project a separate Project Manager is
to be appointed and excessive overheads are incurred in respect of each project unit.
6. Dual reporting in the organisation also contributes to indiscipline, ambiguity and role
conflict. It is because project representative, who is subject to dual command, cannot satisfy
the priorities of both the bosses.
7. Unless the top management plays an active role in balancing power.
matrix organisation may create power struggle among the people.
8. If the matrix organisation is not administered properly, there would be delays in decision-
making, and project completion, as there are many persons involved in the decision-making
process.
Inspite of the above mentioned limitations, matrix organisation still remains one of the most
popular forms of organisation. It may be either due to growing complexity and uncertainty of
changing environment or an extension of business operations throughout the Globe. The
matrix form of organisation can be used in public institutions also.
Q. 2. What do you understand by Project Organisation? Explain in brief the
characteristic, advantages and limitations of project organisation.
Ans. Project organisation. A project involves distinct functions and faculties for a definite
purpose. So a project is designed and executed as a distinct plan. It is marked separately from
all other normal operations. It is so because of its special significance. Sometimes an
enterprise has to execute a single or a small number of projects or programmes which need
high degree of care and caution as far as their execution is concerned. In such a case, a
project organisation is created and each such project organisation deals with each specific
project or a group of projects which are similar in nature. As each project is important to the
organisation, so a team of specialists is to be created to execute each project.
3. Decision making becomes difficult because of different view-points of and pressures from
the specialists.
4. There is always danger of over-specialisation.
5. Specialists may face the problem of insecurity. They fear that completion of the project
may result in loss of the job.
6. There is always a danger of conflict among specialists on account of difference in opinion.
7. A Project Manager usually has limited line authority. He, therefore, faces problems in
accomplishing the project.
Project Organisation can be effectively applied under the following situations :
1. The project offers a unique or an unfamiliar challenge.
2. The project has definite goals and well-defined specialisations.
3. The project is complex with interdependent tasks.
4. The assignment is to be completed within a given period.
5. Successful completion of the project is crucial to the organisation.
Q. 3. Distinguish between Matrix organisation and Project organisation.
Ans. Distinction between Matrix organisation and Project organisation :

Matrix Organisation Project Organisation

1. It is a combination of functional and 1. It is a pure product like structure.

product structure.

2. There is multiple command system. 2. There is single command system.

3. High information processing. 3. Low information processing.

4. Project Manager share resources with 4. Exclusive use of resources by each

functional heads. Manager.

5. Possibility of power struggle between 5. No such power struggle.

functional heads and Project Managers.

6. It is a way of balancing customers' 6. No such balancing involved.

needs for project completion and cost

control with organisation need for eco-

nom

to co-operation and development.

Q. 4. Write a short note on Networking organisation.

Ans. Networking organisation. In simple words 'Networking' means a system of trying to
meet and talk to other people, who may be useful to one in one's work.
On the basis of this concept of networking, we can define the networking organisation in the
following manner :
"A networking organisation is one that is created around a central organisation (called hub
organisation) that has relationship and arrangement with some other organisation to
perform functions like designing, manufacturing, marketing etc. for the central organisation,
on a contractual basis"
A networking organisation is called a Boundaryless Organisation; as the central
organisation has relationships and arrangement with many business partners beyond its own
boundary lines.
In Indian, Maruti Udyog, Larsen & Toubro, Wipro and ITC make use of Net Working.
In Japan, network form of organisation is called Keiretsu. It involves a very large financial
institution, a very large industrial conglomerate and small firms in a network of relationship
which enables the large forms to produce the product and the smaller firms to supply
components, do research and design, and perhaps distribute and market.
A networking organisation is also called a Virtual organisation, in that it is nearly a
complete organisation; and any slight difference in the structure of organisation is not
important.
 Fig. Network Organisation
Features of a Networking Organisation :
1. It is a temporary arrangement between a number of companies. It is formed to exploit fast
changing opportunities.
2. In the central organisation of the networking structure; there is no horizontal and vertical
boundaries within the organisation.
3. This type of organisation, the critical management decisions are with whom to develop
business relations, for what and on what basis.
4. A networking organisation rests on co-operative relationship with suppliers, distributors
and many other partners.
5. Sharing of information among constituents of the networking is mainly facilitated by
electronic techonology such as computer, e-mail, fax etc.
Advantages/Merits :
1. The overhead expenses are low due to lean structure.
2. There is choice of sub-contractors on the basis of quality, price and control.
3. There is flexibility of control due to very few employees at headquarters.
4. Sub-contractors may be located all over the world.
Disadvantages/Demerits :
1. Coordination of various activities and sub-contractors becomes difficult.
2. Direct control over operations is limited.
3. With change in subcontractors new relationship is to be developed.
4. Employees may get frustrated and demotivated due to poor performance of sub-
contractors.
 8. DELEGATION AND DECENTRALISATION OF AUTHORITY
Q. 1. Give the meaning of Authority, Responsibility and Accountability.
Ans. Authority. An organisational structure cannot be conceived without authority and
responsibility. Authority is always considered to be the key to managerial job. The basic
purpose of authority is to maintain order. The term 'authority' is usually identified with power.
It is power that directs others what to do and see they do it.
Henri Fayal thinks, authority is "the right to give orders and the power to expect obedience."
Terry defines authority, "as the power to expect others to take actions considered
appropriate for the achievement of a predetermined objective. "Davis defines authority as
"the right of decision and command."
In the words of Simon, "Authority may be defined as the power to make decisions which
guide the action of another. It is a relationship between two individuals, one superior', the
other subordinate. The superior frames and transmits decisions with the expectation that they
will be accepted by the subordinate. The subordinate accepts such decisions and his conduct
determined by them."
The main features of authority are as follows :
1. It is a means to create order, discipline and co-ordination of diversified activities.
2. It is an inter-relationship between one individual called the superior and another called the
subordinate.
3. The superior takes some decisions and transmits them to the subordinates.
4. The superior expects that the subordinate will accept them.
5. The conduct of the subordinate will be guided by those decision.
6. Authority is followed by accountability.
Responsibility. Responsibility is the obligation of a subordinate to perform the assigned duty.
It arises from a superior-subordinate relationship because the subordinate is bound to perform
the duty assigned to him by his superior. Thus, responsibility flows upward i.e., a subordinate
will always be responsible to his superior.
In the words of George R. Terry, "Responsibility is the obligation to carry out assigned
activities to the best of his abilities"
According to R.C. Davis, " Responsibility is the obligation of individual to perform assigned
duties to the best of his ability under the direction of his executive"
Accountability. Accountability implies being answerable for the final outcome once
authority has been delegated responsibility accepted, one cannot deny accountability.
Accountability is the obligation to carry out duties and exercise authority in terms of
performance standards. Accountability is most
meaningful if standards of performance are predetermined and if they are fully understood
and accepted by the subordinate.
Accountability grows out of responsibility and goes hand in hand. A person who is
responsbile for something is also accountable for the result. Responsibility is the obligation
to perform assigned task, accountability is the reporting of performance.
Responsibility is a personal attribute. It is an obligation to one's own superior No person can
shift his responsibility by delegating his authority to others.
In conclusion, it can be stated that while authority is delegated, responsibility is assumed,
accountability is imposed. Responsibility is derived from authority and accountability is
derived from responsibility.
Q. 2. What is meant by delegation of authority ? Briefly explain the various elements of
delegation. Can responsibility be delegated ?
Ans. Delegation of Authority. Delegation is a process of assignment of work to other and
conferring them the requisite authority to accomplish the work assigned. It enables the
managers to distribute their load of work to others and concentrate on important functions
which they can perform better because of their capability.
"Delegation of authority merely means the granting of authority to subordinates to operate
within prescribed limits." — Theo Haimann
"Delegation is primary formal mechanism by which network of authority relationship is
established." The individual who delegates authority is superior and to whom it is delegated
he becomes subordinate. Hence, delegation of authority creates relationship of superior and
subordinate. — McFarland
The concept of delegation is based on the principle of division of labour.
Elements of Delegation. There are three elements of delegation :
1. Assignment of Tasks or Duties. The first step in delegation is to assign the tasks to the
subordinates. Before the tasks are assigned, the delegator (superior) must—
(i) determine the results expected from subordinates;
(ii) identify the tasks to be assigned;
(iii) define the tasks to be assigned.
2. Grant of Authority. The second step in delegation is to grant the necessary authority to
subordinates to perform the tasks assigned to them. Authority is the sum of powers and rights
to perform the tasks assigned.
3. Creation of Responsibility and Accountability Once the tasks are assigned and authority is
granted to subordinates the delegator creates responsibility and accountability.
Can Responsbility be Delegated ?
Responsibility can't be delegated or shifted. The responsibility carries an obligation to do the
duties assigned and exercises authority properly. The accountability of the delegant is
absolute. He continues to be answerable for the duties assigned to him even though he may
get the work done from his subordinate.
Q. 3. Explain briefly the principles of Delegation of Authority.
Ans. Principle of Delegation
1. Principle of Functional Definition. According to this principle, each role in the
organisational structure must be will defined pre-hand, in terms of, the work-content,
authority required and the responsibility attached.
This principle is very useful in the process of effective delegation because by following this
principle superior delegating authority knows what work is assigned to the subordinate; how
much authority is necessary for performing such work and what type of responsibility is to be
exacted from the subordinate.
2. Principle of delegation by results expected. According to this principle, the delegated
authority must be in accordance with the results expected from subordinates. In other words,
the delegator must determine the results expected from subordinates, identify the tasks to be
assigned, define the tasks to be assigned, communicate the results expected and tasks to the
delegatee.
3. Principle of parity of authority and responsibility. According to this principle, the
authority delegated to a subordinate must be equal to his responsibility. In other words, one
must not be greater than the other.
4. Principle of absoluteness of responsibility. According to this principle, responsibility
neither be delegated nor be shifted to another person. Even when a manager has delegated a
part of his authority and assigned some tasks to his subordinates, he will remain accountable
to his superior for the performance of the subordinates.
5. Principle of unity of command. According to this, principle, each subordinate should
have only one boss to whom he should be accountable to avoid confusion and conflict.
6. Principle of Sclar chain. According to this principle, delegation of authority must take
place via the sclar chain or the management hierarchy i.e., it must be the most immediate
superior who delegates authority to the most immediate subordinate.
7. Authority-Level Principle. As per this principle, a manager at a particular level in the
management hierarchy must take only such decision as full within the purview of his
authority, at that level; and that matters—not covered by his authority—must be either refered
to upwards or pushed down the management hierarchy, at the appropriate level.
Q. 4. Discuss the need and importance of Delegation of authority.
Ans. Importance of Delegation of Authority. The importance of delegation of authority
could be stated, in terms of the following advantages, which it provides :
1. Basis of organisation. Delegation of authority is one of the most important steps involved
in the process of designing organisational structure. Moreover, without creating an
organisational structure, the working of the enterprise is not possible. Hence, in the ultimate
analysis, we can say that delegation of authority is not only the basis of organisation; it is also
the very basis of enterprise life.
2. Reduces workload of managers. Delegation reduces the workload
of managers because managers share their workload with their subordinates through
delegation.
3. Improves managerial effectiveness. Delegation improves managerial effectiveness
because delegation of authority for routine works leaves the manager free to concentrate on
important matters which need his attention.
4. Motivates subordinates. Delegation of authority enhances the status of subordinates and
motivates them to utilise their abilities and skill to do work assigned to them.
5. Source of development. Delegation acts as a source of development of managers because
through delegation subordinates can be developed and trained to take up higher
responsibilities.
6. Facilitates organisational growth. Delegation of authority provides flexibility to
organisational structure. According to needs and situations, more layers to the existing
organisational structure can be added—through the process of delegation—to cope with the
requirement of growth and expansion of the enterprise.
7. Quick and better decision-making. Delegation of authority leads to decision-making
which is both—quick and better. Decision-making is quick because subordinates can well
take decision within there authority without recourse to their superiors. Moreover, decision-
making is better because subordinates take decisions are closer to the realities of the situation.
Q. 5. What are the various difficulties arising in delegation and how delegation can be
made more effective.
Ans. Barriers or Difficulties in Delegation of Authority. Delegation of authority is a basic
art of management. It appears to be a simple process but in practice several obstacles arise in
the way of effective delegation. These obstacles may be grouped into three categories :
I. On the Part of the Super :
A manager may fail to delegate authority on account of the following reasons :
(i) I can do it better myself feeling. Some managers are trapped in a fallacy 'I can do it better
myself and they are unable to let go.
(ii) Lack of confidence in subordinate. Lack of confidence in the capacity, ability and
dependability of the subordinate obstructs the superior to delegate.
(iii) Lack of ability to direct. A manager may not delegate authority because he does not know
how to direct the behaviour of subordinate.
(iv) Lack of control. While delegating authority, the superior must find means of assuring
himself that the authority is being used properly to accomplish the given assignments, where
the managers does not set up adequate control, he may hesitate to delegate the authority.
(v) Fear complex. An executive may have a fear complex that his subordinate will outshine
him, get more recognition and attention.
II. On the Part of the Subordinates :
(i) Dependence on the boss for decisions. If a subordinate always depends upon his boss for
tackling problems, he may avoid accepting authority.
(ii) Fear of crticism. It subordinates fears the criticism even for a small genuine mistake, he
will avoid accepting authority.
(iii) Lack of information and resources to do a good job. This factor may also obstruct in the
way of accepting any authority.
(iv) Lack of self-confidence. A diffident subordinate lacking in self-confidence will generally
try to shirk responsibility.
(v) Inadequacy of positive incentives. A subordinate may also hesitate in accepting authority
if he does not get sufficient incentives in the form of recognition and cread and other rewards.
III. On the part of the organisation :
(i) Defective organisation structure and non-clarity of authority responsibility relationship.
(ii) Inadequate planning.
(iii) Infringement of the principle of unity of command.
(iv) Lack of effective control mechanism.
Guidelines for Effective Delegation :
For better delegation, consideration should be given to the following guidelines :
(i) An atmosphere of giving and taking responsibility in the organisation should be created,
(ii) An atmosphere of mutual trust and confidence between superior and subordinate should
be created in the organisation.
(iii) The necessary training should be provided to the subordinates to perform the tasks to be
assigned and to use the authority to be delegated.
(iv) The subordinate should be motivated to assume authority and responsibility.
(v) The delegator should establish clear objectives so that the delegatee may know what is
expected from him.
(vi) The delegator should grant the adequate authority (e.g., to act, to make decisions, to
acquire and use necessary resources), to the subordinates to perform the tasks assigned to
them. It must be ensured that authority is equal to the responsibility.
(vii) There should be free flow of information (e.g., effective communication system) between
the superior and the subordinate to enable the latter to take decisions and understand the
nature of task to be completed and authority to be used.
(viii) An adequate system of control should be established to enable the delegator to maintain
accountability.
Q. 6. What is meant by decentralisation of authority ? Explain the merits and demerits
of decentralisation.
Ans. Meaning of Decentralisation of Authority. Decentralisation of authority refers to
systematic delegation or dispersal of authority at all levels of management and in all
departments of the organisation. An organisation is said to be decentralised if top
management retains authority for taking major
decisions and framing policies and for overall control and co-ordination of the organisation.
According to Louis A. Allen, "Decentrahsation is a systematic effort to delegate authority to
lower of the organisation"
In the words of Dalton E. McFarland, "Decentralisation is a situation in which ultimate
authority to command and ultimate responsibility for results is localised as far down in the
organisation as efficient management of the organisation permits."
According to Henry Fayol, "Everything that goes to increase the importance of the
subordinates role in the organisation is decentralisation."
Merits of Decentralisation :
(i) Reduction of workload. By decentralisation much of the responsibility is transferred
downwards and so the management people at higher level feel some relief. They can devote
more time and every to overall planning.
(ii) Facilitates growing and complex organisation. Decentralisation is needed when the
organisation grows in size and becomes complex.
(iii) Scope for diversification. Decentralisation is needed when organisation wants to
diversify its activities.
(iv) Greater specialisation. By decentralisation the full benefit of division of work can be
utilised leading to greater specialisation.
(v) Facilitates quick decision-making. Decentralisation facilitates quick decision-making at
the action centres.
(vi) Facilitates democratic management. Decentralisation facilitates democratic management
where each individual is respected for his inherent worth and constitution.
Demerits of Decentralisation :
(i) Difficulty of coordination. As a result of decentralisation various decisions are made at
different levels which may lack confirmty and so coordination is affected.
(ii) Expensive operation. Decentralisation is cost device and so it can be adopted in big
organisation.
(iii) Nonavailability of efficient managers. Decentralisation can be effectively introduced
provided sufficient number of cabable managerial personnel be available. Non-availability of
such men is a serious limitation.
(iv) Ineffective at the of emergency When the emergency occurs and decisions over general
policy have to be taken, decentralisation becomes a serious obstacle.
(v) Non-utilisation of expert staff. A decentralized structure may not permit full and
maximum utilization of more highly qualified personnel.
(vi) It may hamper the adoption of uniform policies and co-ordination of policies.
(vii) In such a set-up adjustment of changing economic conditions may become difficult.
Q. 7. Distinguish between Delegation and Decentralisation. Ans. Difference between
delegation of authority and decentralisation of authority.

Basic of Distinction 1. Delegation of Authority Decentralisation

Nature
Delegation of authority is the Decentralisation of authority is
s primary or basic concept. It is the secondary concept. It is a
something which is basically setting in the process of
involved in designing and delegation of authority, while
creating an organisation creating the organisational
structure. structure. It is upto the
philosophy of top management
to decentralise more or less
authority to managers at
middle or lower levels. In other
words, there can be no
decentralisation without
delegation whereas delegation
can be made without
decentralisation.

2. Elements The process of delegation of For effective decentralisation,

authority involves the the process of decentralisation
following steps: of authority involves the
following steps:

(i) Determination of results (i) Careful selection of

expected from the decisions for which authority is
subordinates. to be decentralised

(ii) Assignment of tasks to (ii) Formulation of suitable

subordinates. policies for the guidance of
subordinates in matters of
decision making.

(iii) Delegation of authority to (iii) Devising a system for

subordinates. training managers to cope with
the requirements of
decentralisation.

(iv) Fixation of (iv) Designing and operating a

responsibilities on the system of control for effective
subordinates. supervision of the functioning
of subordinates.

3. Number of persons In delegation of authority, In decentralisation of authority

involved only two persons are two groups are involved—top
involved, viz, the senior and level management and the
the subordinate. lower level managers.

4. Withdrawal of The authority delegated can be The authority, once

authority taken back if desired results are decentralised, is generally not
 not achieved.
5. Requirement Delegation of authority is a way
of organisational life i.e., without
delegation, no organisation can
run.
6. Choice Delegation of authority is
compulsory for most of the
enterprises with a view to create
an organisational structure.
7. Status Delegation is just an act or
process through which a senior
shares his authority with a
subordinate.
withdrawn.
Decentralisation of authority is
a way of growing or
expanding on organisation i.e.,
to cope Up with the
requirements of growth of an
enterprise, some minimum
decentralisation of authority
becomes a must. Delegation of
authority is optional; in that
the top management, may or
may not decentralise authority.
Decentralisation is a
philosophy under which top
management disperses the
authority at lower
management levels so that
they assume higher
management responsibilities.
 9. DYNAMICS OF GROUP BEHAVIOUR
Q. 1. What is a 'group'? Explain the various types of groups found in work
organisations.
Ans. Individuals form groups. They live in groups. They move in groups. They work in
groups. Groups are important. They influence work and work behaviour. They cannot be
ignorned. They exert significant influence on the organisation. They are inseparable from
organisation.
Meaning of Group. The dictionary meaning of the word group is "a number of individual
assembled together or having common interest."
According to Edgar Schein, "A group is any number of 'people who interact with one
another, are psychologically aware of one-another and perceive themselves to the a group"
M.E. Shaw defined a group "as two or more people who interact and influence one another."
Viewers in a theatre, passangers in train are not a group unless they interact for long and exert
some influence on each other.
Features of a Group :
1. It consists of two or more persons.
2. The members of a group interact with one another to jointly pursue common goals.
3. The members share a common set of norms.
4. Members of the group have differentiated roles among themselves. An organisation
consists of several types of groups. Every member of the organisation belongs to one or more
groups.
Types of Groups. Groups can be classified in many different ways on various basis.
Following are the basic groups :
1. Primary and Secondary. A group consisting of a few persons who share a sense of
common identity, common values, common interest and common goals, is called a primary
group. A family, a friendship group and a working group are examples of a primary group.
A secondary group is comparatively a large group consisting of several primary group. Its
members have loose inter-personal relations and a weak unity of purpose. It is less cohesive
than a primary group. A country, a village and an organisation are examples of secondary
groups.
2. Formal and Informal Groups. Formal groups are created as part of organisation
structure to accomplish organisational tasks. A work group in a plant is an example of formal
group. They are bound by hierarchical authority in the organisation. They have to follow
rules, regulation and policy of the organisation. Formal groups help in achieving goals
without any difficulties. They facilitate, coordination of activities and help informing logical
relationship among people and position. They create group unity.
Informal groups exist with the formal organisation and arise because of individuals' social
needs and desire to develop and maintain relations with people. Working at a plant or office
leads to formation of informal groups. They
work together and this leads to their interaction. Through interactions groups are formed.
These groups are spontaneous and emotional. Keith Davis has defined informal groups as,
"the network of persons and social relations which is not established or required for formal
organisation." Such informal group may take place through simple physical factors like
location or face to face situation in an office or a factory, or, it may develop out of some
common attitudes present among individual like common language, common homeland,
common political views, etc.
Q. 2. Describe the characteristic of informal groups.
Ans. Characteristics of Informal Groups :
1. Informal groups are formed on the basis of common social values and life style of their
members.
2. Such groups are relatively small in size.
3. These groups have strong inter-personal attraction and may resist changes in organisational
structure.
4. Their members share common goals, values and beliefs.
5. Every informal groups has its own culture which evolves over a period of time.
6. An informal group acts as agency of social control over the behaviour and performance of
its members through norms to which members are expected to comply.
7. Communication in an informal group is oral and face to face.
8. It constitutes an integral part of an organisation.
9. The atmosphere in an informal groups is natural and relaxed. Members generally feel 'at
home.'
10. Membership of an informal group is voluntary but involves some selection.
11. They do not have any formal structure.
12. Their goals may support or contradict formal organisational goals.
Q. 3. Define the concept of 'group dynamics'. Why do informal groups emerge in an
organisation ?
Ans. Concept of groups Dynamics. Group Dynamics refers to the 'froces operating in
groups'. It is concerned with the interaction and forces between group members in a social
situation Group dynamics is the field of enquiry that deals with the nature and development
of small groups, interactions among members and group and intergroup behaviour.
According to Kurt Lewin, "the term group dynamics refers to the complex of forces that
determine group formation, its size and structure, conflict and change, cohesiveness,
interaction and behaviour."
Keith Davis defines, "The social process by which people interact face-to face in small
groups is called group dynamic."
Group dynamics provides answer to the following questions :
— Why groups are formed ?
— How groups are formed ?
— How groups grow and decline ?
— How groups take decision and solve problems ?
— What forces operate in groups ?
— How groups change and adapt themselves ?
— How groups influence the behaviour and task performance of their members ?
— How groups achieve unity and handle conflicts ?
Reasons for Emergence of Informal Groups :
1. Social Needs. Human beings want to associate with one another. One can express his
feelings only through companionship. They join groups for the satisfaction of social needs
such as sense of belonging, need for acceptance, etc.
2. Identification. An individual gets more identified in small groups than in the total
organisation.
3. Common Interest. Individuals who share common interests often from a group to jointly
pursue their interests. For example, workers who have not received bonus may from a group
to demand bonus.
4. Source of Information. Individuals join together as a group to obtain information which
they otherwise do not get.
5. Sense of Security. People form a group protect their interest from outside pressures and
threats. Groups often resists management's demand for additional output, increased working
hours, and higher quality.
6. Proximity. Groups may develop out of some common attitudes present among some
individuals like common language, common homeland, common political views, etc.
Q. 4. Discuss the merits and demerits of informal groups/informal organisation. Also
discuss the management of informal groups.
Ans. Merits of Informal Groups :
1. Satisfaction. Informal groups provide social satisfaction and a sense of belonging to the
members. It provides them a sense of identity and self-respect an helps in solving their
personal problems and difficulties.
2. Job Satisfaction. Informal group provides 'human-touch' to formal organisation. It allows
people to satisfy their psychological needs. It creates a pleasant and satisfying work
environment. In this way, informal organisation exercises significant influence on job
satisfaction and productivity.
3. Source of Protection. Informal groups, specially labour union, act as a bulwork of
employees—against the undesirable practices and action of management.
4. Support to Formal Structure. Informal group provides support to the formal structure. It
blends with the formal organisation to make a workable system for getting the work done.
Formal structure tends to be inflexible and cannot meet every problem in a dynamic
environment. Informal organisation lends flexibility and dynamism to the formal structure.
5. Communication feedback. Through informal groups, management could get the reaction
of the employees of the organisation i.e., the communication feedback, on the communication
transmitted by it.
6. Management made alert and responsible. The fact of the existence of informal
organisation and the fear of their likely actions; makes the management more alert and
responsible—while designing its plans, policies and actions.
7. Training and development. Informal groups provide a basis and background for training
in leadership, at least to some members of the group.
8. Innovation and creativity. Informal groups and their leaders might often come out with
suggestions or recommendations for betterment of organisational working. If such
suggestions are accepted and implemented by the management, the same act as a source of
innovation and creativity on the part of the members of informal groups.
9. More Production and higher Productivity. By winning the 'cooperation' of informal
groups and their leaders management is assured of higher productivity on the part of the
workers—leading to higher production.
A properly motivated informal group can achieve much better results than a formal group.
Demerits of Informal Groups :
Informal groups are very effective and powerful. Some managers view than harmful and
disruptive to the interest of organisation. They suspect their integrity and consider as a virtual
threat.
Informal organisation can undermine and distort the formal organisation in the following
ways :
1. Conflicting Norms. Informal groups determine their own norms, standard of performance
which are below the physical capabilities of their members. These groups exercise social
pressures against members who produce above the unofficial standards.
Informal groups give priority to social and individual goals of its members which often run
counter to the goals and values of the formal organisation. As a result the efficiency of
operations is reduced and talents of workers are not properly utilised.
2. Resistance to Change. Informal groups are often source of resistance of change. An
informal group is bound by convention and custom. In order to maintaining equilibrium it
resists innovation and change in work methods. Conformity may make group members
reluctant to act independently and creatively.
3. Indiscipline. Informal group many-a-times invite and encourage rash and reckless
behaviour on the part of their members. They creates problem of indiscipline for the
organisation and management.
4. Rumour. The type of communication found in an informal organisation, is of a grapevine
nature; as there are no prescribed channels of communication. The grapevine communication
caries with itself, a natural possibility of spreading rumours; which might injure the interests
and intention of the management.
5. Role conflict. Informal groups try to meet the social needs of their members whereas
formal groups try to achieve organisational goal. An individual
faces role conflict when he has to meet the conflicting requirements of work group and
informal group.
6. Power Politics. Informal groups are often riddled with factionalism and power politics.
Members divert their concentration and time from job to indulge in faction fighting and petty
politics. Informal leader may turn the groups towards selfish or undesirable ends. Disputes
among group create problem for organisation.
7. Reduces predictability of human behaviour. Informal groups exert behavioural
influence' on members; because of their policies and action— even though, good at times.
This 'behavioural influence' reduces the predictability of human behaviour substantially on
the part of management. Due to lack of predictability of human behaviour management might
face problems, in various managerial contexts and situations.
Management of Informal Groups :
A manager can take the following steps to utilize the strengths of informal groups for
accomplishment of organisational objectives :
1. Manager should understand the formation structure, processes and behaviour of informal
groups. A proper understanding of the dynamics of groups and forces operating in groups will
enable managers to adopt a wider perspective.
2. Managers should follow, participative decision-making, two-way communication system,
effective leadership.
3. Managers should create a supportive environment in which groups can flourish and
develop positive attitude towards the organisation.
4. Group based approaches like group incentive system, group accountability for
performance, etc. should be followed instead of individual approaches.
5. Managers may promote unity of groups in activities which are beneficial to the
organisation. For example, leaders of informal groups may be taken into confidence in
proposal of organisational change and development.
Q. 5. What is meant by 'Group Cohesiveness'. Mention the factors which influence
group cohesiveness.
Ans. Group Cohesiveness. A group develops because it satisfies certain needs of its
members. The more needs it satisfies, the more attracted the members would feel towards the
group or the more attractive a group would be. Since members are able to satisfy some of
their needs, they remain attached to the group. This 'interpersonal glue' that makes the
members of a group stick together is know as group cohesion. In other words, Group
Cohesiveness means group unity. The success of a group depends on the degree of
cohesiveness or the extent to which members are close to one another. This depends on the
attraction and attachment the members have to the group gals.
Factors Influencing Group Cohesiveness :
Major factors which influence group cohesiveness are :
1. Individual Dependency on a Group. The greater an individual's
dependence on the group for need satisfication, the greater the group cohesiveness for him,
and the more true it is of the larger proportion of "members, the more group cohesiveness
exists in the group.
2. Group Size. The group cohesiveness partly depend upon the size of the group. Small
groups tend to be more cohesive than large groups. When there are relatively few members
they can interact and communicate more frequently and more openly. As a result of common
sentiments and mutual understanding cohesiveness among them increases.
3. Frequency of Interactions. Essentially group cohesiveness depends upon frequency of
interactions among members. If members are located close together and are in isolation from
other groups, they will develop greater cohesiveness because of constant face-to-face
interaction.
 10. LEADERSHIP
Q. 1. What is leadership? Discuss the significance of leadership in
management.
Ans. Leadership is the process of influencing the behaviour of others for the accomplishment
of common objectives. It is regarded as the most important element of directing function of
management. Leadership might be defined as the art of influencing the behaviour and
performance of followers (i.e., subordinates) towards the most enthusiastic attainment of
common objectives.
"Leadership is the ability of a manager to induce subordinates (followers) to work with
confidence and zeal" —Koontz and O'Donnel
"Leadership is the process by which an executive imaginatively directs, guides and influences
the work of others in choosing and attaining specified goals by mediating between the
individuals and the organisation in such a manner that both will obtain maximum
satisfaction." —Theo Haimann
The definitions given above reveal the following salient features of leadership :
1. Leadership presupposes the existence of followers.
2. Leadership is fundamentally a personal quality which motivates the followers to be with
the leader.
3. Leadership establishes the relationship between the leader and his subordinates.
4. Leadership deals with understanding the problems of his followers.
5. Leadership is a continuous and dynamic process of influencing behaviour.
6. Leadership is a managerial process through which goals-are achieved. Importance of
leadership. The following points highlight the importance
of leadership :
1. Effective direction. An organisation comes into existence with certain objectives. To
attain the objectives, the activities of the organisation must be directed. Direction of the
activities is effected through leadership. In short, effective leadership directs the activities of
an organisation towards the attainment of the specified organisational goals.
2. Source of motivation. Leadership is the motivating power to group efforts. Effective
leadership motivates the subordinates for higher productivity.
3. Confidence. Leadership creates confidence in the subordinates by giving proper guidance
and advice.
4. High morale. Good leadership increases the morale of the employees which, in turn,
contributes to higher productivity.
5. Development of team-spirit. Effective leadership promotes team-spirit and team work
voich is quite essential for the success of any organisation.
6. Encouraging initiative. A progressive, forward and democratic-minded leader always
encourages initiative on the part of the followers.
7. Overcoming resistance to change. A leader overcomes resistance,
if any, on the part of followers to organisational changes; through explaining to them the
utility of such changes to both—the enterprise and the employees.
Q. 2. Discuss the different styles of leadership.
Ans. Leadership styles. Leadership style is a typical behaviour pattern adopted by the leader
to influencing has followers or leading his people. An executive has to lead different types of
subordinates and has to adopt different styles for leading them at the workplace according to
situation. The style of leadership is based on the kind of control the leader exercises on a
group and their behaviour There are three leadership styles, viz. 1. Autocratic leadership style.
2. Democratic leadership style, and 3. Free Rein leadership style.
1. Autocratic or Authoritative style. It is also known as leader centered style. Under this
style of leadership there is complete centralisation of authority in the leader i.e., authority is
centered in the leader himself. He has all the powers to take decisions. He designs the work-
load of his employees and exercise tight control over them. The subordinates are bound to
follow his order and directions.
Advantages:
(i) Autocratic leadership style permits quick decision-making.
(ii) It provides strong motivation and satisfaction to the leaders who dictate terms.
(iii) This style may yield better results when great speed is required.
Disadvantages :
(i) It leads to frustration, low moral and conflict among subordinates.
(ii) Subordinates tend to shirk responsibility and initiative.
2. Democratic Style. Under this style, a leader decentralises and delegates his authority to his
subordinates. He makes a final decision only after consultation with the subordinates. Two
way communication channel is used. While delegating a lot of authorities to subordinates, he
defines the limits within which people can function. Democratic leaders have a high concern
for both people and work.
Advantages :
(i) Exchange of ideas among subordinates and leader improves job satisfaction and morale of
the subordinates.
(ii) Human values get their due recognition which develops positive attitude and reduces
resistance to change.
(iii) Labour absenteeism and labour turnover are reduced.
(iv) The quality of decision is improved.
Disadvantages:
(i) Democratic style of leadership is time consuming and may result in delays in decision-
making.
(ii) It is less effective if participation from the subordinates is for name sake.
(iii) Consulting others while making decisions go against the capability of the leader to take
decisions.
3. Free Rein or Laissez Fair style. Under this style, a manager gives complete freedom to
his subordinates. The entire decision-making authority is entrusted to them. There is least
intervention by the leader and so the group operates entirely on its own. There is free flow of
communication. In this style manager does not use power but maintains contact with them.
Subordinates have to exercise self control. This style helps subordinates to develop
independent personality.
Advantages:
(i) Positive effect on job satisfaction and moral of subordinates.
(ii) It gives chance to take inititative to the subordinates.
(iii) Maximum possible scope for development of subordinates.
Disadvantages:
(i) Under this style of leadership, there is no leadership at all.
(ii) Subordinates do not get the guidance and support of the leader.
(iii) Subordinates may move in different directions and may work at cross purpose which
may create problem for the organisation.
Free rein style of leadership may be appropriate when the subordinates are well trained,
highly knowledgeable, self-motivated and ready to assume responsibility.
Q. 3. "Leadership is situational." Comment on this statement.
Ans. 'Leadership is situational"—Situational theory of leadership.
This theory advocates that leadership is strongly affected by the situation from which a leader
emerges and in which he works. In other words the group, the problem and its environment
will affect the type of leadership. An important aspect of this theory is the interaction between
the group and its leader and the people tend to follow the person (known as leader) who is
capable of fulfilling their desires.
The leader recognises his followers' desires and follows such a method (depending on the
situation) that satisfies them. The main thrust of the situational theory is that the leadership
style may be effective under one situation and ineffective under the other. In other words, as
per this theory, there is no one best style of leadership universally applicable to all situations
and that the leader has to change his style of leadership according to a situation. If the leader
adopts the same style in all situations, he may not be successful. For example, Winston
Churchill was the most effective and successful Prime Minister of Britain during the period
of the Second World War, but he was a flop afterwards when the situation changed. In brief,
an effective leader, according to situational theory, is one who understands the forces of the
situation and emerges as leader. The variables in each situation must be analysed before an
optimum leadership style can be selected. In other words, different kinds of organisational
circumstances call for different kinds of leadership.
Leadership is a product of many faces that act and interact simultaneously. Every manager
must achieve some degree of integration of these varying and complex force otherwise he
will not be a successful leader. An integrated model of leadership has been proposed by
George Terry. This mode is presented in fig. 1 which shows that leadership is a combination
of four main variables:

Fig. 1: Leadership Variables

In short, leader, followers, organisation and environment are situational variables that
determine leadership.
Q. 4. Explain briefly "Managerial grid."
Ans. Managerial grid. Robert Blacks and Jane Mouton developed a distinctive approach to
the study of leadership-the managerial grid. They began their analysis to the focussing on the
two basic aspects of leader behaviour: (i) concern for production (task orientation) and (ii)
concern of people (employee orientation) as well as combinations of concern between the
two extremes. Each of these dimensions were measured on a scale that ranges from one (low)
to nine (high). The managerial grid identifies five leadership styles based upon two factors
(i.e., concern for people and concern for production) found in any organisation as shown in
the figure given below. In theory, using the 9-point system employed in the grid, 81 different
combinations of the concerns could be identified.
 Fig. 2 : Managerial Grid
Black and Mouton have described the five styles as follows:
1. The manager exhibiting 9, 1 (lower grid)- behaviour is described as a stern taskmaster, an
autocrat. His emphasis is on getting the job done. In other words, he emphasises a high
concern for production and efficiency but hardly has any concern for the employees.
2. The 1,9-manager emphasises a high concern for employees, but a minimum concern for
production.
3. The manager exhibiting 1,1 behaviour has hardly-any concern for people or for
production.
4. The 5,5-oriented manager -places some emphasis on the concern for people as well as
production. No strong commitment is made to either factor.
5. The 9,9-oriented manager emphasises a high concern for both-production and people; and
uses a participative team approach in getting work done.
The managerial grid depicts the way in which managers can combine concern for people with
concern for production. The grid directs our attention to the fact that in order to be effective, a
manager has to pay attention to the objectives of the people working in it.
Q. 5. What are the different approaches to leadership. Also explain qualities of a good
leader.
Ans. "Leadership" in essence refers to the quality of the behaviour of the
individuals whereby they guide people or their activities in organised efforts. Someone has
very appropriately put it—"a dynamic leader is a dynamo which, generates energy or power
which charges the activities of the group."
Leadership, in another sense, means the capacity of an individual to influence the thoughts
and actions of others in some useful direction. In the words of Koontz and O'Donnel,
"Leadership means the ability of a manager to induce subordinates to work with confidence
and zeal." In any case, if there can be one major factor responsible for the success or failure
of an enterprise, it is the presence or absence of dynamic and effective leadership. In an
organisation, the results of good, dynamic and effective leadership can easily be seen in
increased profits, improved productivity, greater efficiency, higher- employee morale etc.
Types of leaders:
1. Autocratic or authoritarian leader. He centralises authority and decision making to
himself.
2. Democratic leader. He welcomes the participation of the group in the formulation of the
policies and decision making.
3. Laissez faire leader. He depends largely on the group to establish its own goals and to
work out its own problems.
All these leadership philosophies have benefits and shortcomings. But it is popularly inferred
that democratic leadership is superior to authoritarian and laissez faire leadership.
Qualities of a Good Leader
Qualities of a good leader are as follows :
1. Intelligence. A Leader should be intelligent enough to examine problems in the right
perspective, and to take right decision at the right time in the interest of the organisation.
2. Communicative Skill. He must be able to communicate clearly, precisely and effectively.
He should have knowledge about the various types, methods and channels of communication.
3. Objectivity. He should be objective (i.e., free from bias) in his dealings with his
subordinates.
4. Knowledge of Work. He should have full knowledge of the work being performed under his
supervision.
5. Human Relations Skill. He should develop and maintain personal relations with his
followers.
6. Self-Confidence and Will-Power. He must have confidence in his own ability to lead others
and have the required will-power to meet the needs of every situation.
7. Sense of Responsibility. He should have a sense of responsibility towards the attainment of
organisational goals so that he can himself be a living example in front of his followers.
8. Sound Health. He should have sound health both mental and physical, stamina, balanced,
temperament and optimistic outlook.
9. Empathy. He should have the ability to look at things from others'
point of view. He should have capacity to appreciate others.
Q. 6. Write short note on Leadership Continuum.
Ans. Leadership Continuum. This approach is based on a research article brought out by
Robert Tannenbaum and Warren H. Schmidt. It helps in choosing a leader. It highlights the
range of possible leadership styles on a continuum. On one end of this continuum is a "boss
centred" (autocratic) leadership style whereas on the other end is just a "subordinate
centred" (free-rein) leadership style. As we move from one end to other, the degree of
control goes down in favour of freedom of the subordinates. This continuum can be shown
just as under:

Out of these various degrees

— number 1 means the manager himself or herself takes all the decisions and announces.
— number 2 means the manager takes the decision but then persuades his/her sub-ordinates
to accept these.
— number 3 means the manager floats the ideas and invites decisions to be taken by him.
— number 4 means the manager only puts forward the tentative decisions which may be
subject to modifications.
— number 5 means the manager only puts forward the problems involved in a situation and
invites suggestions and then takes decision.
— number 6 means the manager only fixes or lays down the broad limits within which the
decisions are to be taken by the subordinates.
— number 7 means the manager allows his subordinates to decide for themselves within the
limits laid down by him.
Q. 7. Distinguish between Leadership and Management.
Ans. Leadership vs. Management.
1. Relationship. Management implies to superior-subordinate relationship, such relationship
arises within the organisational context. On the other hand, leadership can occur anywhere
within or without organisation context.
2. Sources of influence. A manager is appointed and he obtains authority from his position.
He operates on the basis of his formal authority. On the contrary a leader is not always
appointed and he derives his power from his followers who accept him as their leader.
3. Command. A manager has command over the allocation and distribution of rewards
(Positive sanctions), e.g., promotion and punishment (negative sanctions) e.g., demotion. On
the contrary, a leader has command over social satisfaction and related task rewards.
4. Approach. A manager is a boss and a pusher of people. A leader is a friend and a puller of
his followers.
5. Accountability. A manager is accountable for his own behaviour as well as for the job of
his subordinates. His accountability for performance is clearly defined. But there is no clear-
cut accountability relationship in leadership as a leader is not accountable for behaviour in the
same way.
6. Concept. Management is a wider concept which also includes leadership i.e., every
manager is a leader. On the other hand leadership is a narrower concept, as every leader may
or may not be a manager. For example, Gandhiji was a leader but not a manager.
 11. MOTIVATION
Q. 1. Explain the concept of motivation. Describe its characteristics and significance.
Ans. Concept of motivation. The term motivation is derived from the word 'motive.' The
word 'motive' as a noun means an objective, as a verb this word means moving into action.
Therefore, motives are forces which induce people to act in a way, so as to ensure the
fulfilment of a particular human need at a time. Behind every human action there is a motive.
Therefore, management must provide motives to people to make them work for the
organisation.
Motivation may be defined as a planned managerial process, which stimulates people to
work to the best of their capabilities; by providing them with motives, which are based on
their unfulfilled needs.
"Motivation means a process of stimulating people to action to accomplish desired goods. —
William G.Scott
"Motivation is the process of attempting to influence others to do your will through the
possibility of gain or reward. " — Flippo
Motivation is, in fact, pressing the right button to get the desired human behaviour.
Motivation is no doubt an essential ingredient of any Organisation. It is the psychological
technique which really executes the plans and policies through the efforts of others.
Following are the outstanding features of the concept of motivation :
1. Motivation is a personal and internal feeling. Motivation is a psychological
phenomenon which generates within an individual.
2. Motivation is need based. If there are no needs of an individual, the process of motivation
fails. It is a behavioural concept that directs human behaviour towards certain goals.
3. Motivation is a continuous process, because human wants are unlimited, therefore
motivation is an ongoing process.
4. Motivation may be positive or negative. A positive motivation promotes incentives to
people while a negative motivation threatens the enforcement of disincentives.
5. Motivation is a planned process. People differ in their approach, to respond to the
process of motivation; as no two individuals could be motivated in an exactly similar manner.
Accordingly, motivation is a psychological concept and a complex process.
6. Motivation is different from job satisfaction. The process of motivation is illustrated in
the figure given next page :
 Fig. 1: Process of Motivation
Significance of motivation. Motivation is important in management on account of the
following reasons :
1. Soul of managerial process. Just as, when the soul is taken away from the body of a
living being, the living being is rendered 'dead', likewise, if motivation is removed from the
managerial process; the managerial process becomes meaningless.
In fact, there is a positive relationship between motivation and performance. The higher
is the motivation, the higher would the performance be and vice-versa.
2. Best attainment of common objectives. Motivated employees put in their best efforts
towards the attainment of common objectives of the enterprise. As such motivation facilitates
the best attainment of objectives in terms of time spent and efforts involved.
3. Best utilisation of resources. Human factor (being the only factor of production) is
responsible for the best utilisation of available resources. Motivated employees make the best
utilisation of available resources viz, materials, machines, technology and other physical
working conditions; leading to cost minimisation and profit maximisation.
4. Stability of work force. Motivation, directly and indirectly, results in the stability of work
force.
5. Reduced need for supervision. Motivated employees, in a way, are somewhat self-
starters. There is a reduced need of supervision over them.
6. Minimum resistance to change. Motivated employees appreciate the management's view-
point as to the introduction of organisational changes. Their resistance to organisational
changes is the minimum.
7. Corporate image. A company, that provides adequate opportunities to its employees for
the satisfaction of their needs, has a better image in the public.
Q. 2. Critically examine Abraham H.Maslow's "Need Hierarchy theory of Motivation".
Ans. Need Hierarchy theory of Motivation. Psychologist Abraham H.Maslow has
developed the theory of hierarchy of needs. The hierarchy is based on the following four
assumptions :
1. A satisfied need cannot serve as a primary motivator of behaviour, only an unsatisfied need
can influence behaviour and motivate people.
2. Human needs may be arranged in the hierarchy of their importance progressing from a
lower to a higher order of needs.
3. As soon as the person's needs are met on level, he moves up to the next level of needs. He
will focus on the first level need until it is satisfied at least minimally before moving to the
next.
4. If satisfaction is not (cannot be) maintained for a once satisfied need, it will become a
priority need again.
The Maslow's need hierarchy consists of five types of needs. These needs in the order of
priority, are :
1. Physiological needs
2. Safety needs
3. Social needs
4. Ego needs
5. Self-actualisation needs.
The first three needs (Physiological, Safety and Social) are the lower-level needs while the
next two needs (Ego and Self-actualisation) are the higher-order needs.
1. Physiological needs. These are the most basic needs that an individual aims to satisfy.
These are the needs for food, clothing, shelter and other basic necessities of life. The
strongest motivator, which can satisfy these needs, is money alongwith a healthy work
environment.
2. Safety needs. When an individual's physiological needs are satisfied, safety needs get the
most important priority as motivator. Security or safety needs could be subdivided into three
types :
(a) Economic security. A man wants economic security i.e., an assurance about the fulfilment
of basic needs, on a continuous or permanent basis.
(b) Physical security. These needs include protection against fire, accidents (including
industrial accidents), terrorism and other types of physical dangers.
(c) Social security. These include a need for security in old age, state of illness or permanent
incapacity caused by some disablement.
3. Social needs. As soon as the minimum safety needs are satisfied, the love needs (affiliation
or social needs) become dominant. At this stage people desire friendship, companionship and
a place in a group. Such needs are fulfilled by frequent interaction with fellow workers and
acceptance by others.
4. Ego needs. Ego or esteem needs may be self-esteem and esteem of others. The self-esteem
needs include self confidence, independence, while the latter include power over others,
prestige or reputation enjoyed in the workgroup, respect or recognition from others etc.
5. Self-actualisation needs. Maslow's highest need level, self-actualisation or self-realisation
refers to the desire for fulfilment i.e., the need to maximise the use of one's skills, abilities
and potential. This is necessary for continued self development and for being creative in the
broadest sense of the term.
The above listed needs have a definite sequence of domination as shown in figure below.
Second need does not dominate until first need is reasonably satisfied and third need does not
dominate until first two need have been reasonably satisfied and so on . Another point to note
is that once a need or a certain order of need is satisfied, it ceases to be a motivating factor.
 Fig. 2: Maslow's Need Hierarchy
Critical analysis. Maslow's theory should be regarded as a general guide to managers, for it
is a realistic concept, not an absolute explanation of all human behaviour. The cause of
motivation, the satisfaction of human needs seems to be quite logical but the theory suffers
from certain drawbacks which are :
1. The managers cannot easily ascertain the level of needs that influence the individual
behaviour because these needs keep on shifting very frequently from one level to another.
2. There can be people whose higher order needs are stronger than the lower order needs.
Inspite of that their lower level needs are not being satisfied. So, the hierarchy does not
always hold good in practice. Maslow himself accepts this fact.
3. It is not always true that at a particular point of time only one need influences the human
behaviour.
4. The need hierarchy is different for people belonging of different cultures, a fact which has
been ignored in this theory.
5. Any need, once satisfied, does not cease to be a motivating factor. The need behaviour
action is a continuous process and the lower order needs, even after having been satisfied
once, can prove to be a strong motivational force again.
6. The different needs at any point of time, in fact constantly interact and even overlap each
other.
Q. 3. Discuss McGregor's Theory X and Theory Y of motivation. Distinguish between
them.
Ans. McGregor's Theory X. This theory is based on the assumption of traditions which are
as under :
— Workers in an organisation basically dislike work and by nature they are indolent and
avoid work whenever possible.
— Workers as such mostly have to be pushed or effectively supervised, coerced or even
sometimes punished.
— Workers or people are usually lazy and have no ambition.
— Workers try to avoid responsibility and only desire security.
— Every worker is usually self-centred. He cares little for the organisational goals.
So McGregor said that if the managers believed in this theory, then they had to rely more on
discipline, punishment, close supervision, etc.
McGregor's Theory Y. McGregor's however, had as well realised that theory X's
assumptions about human behaviour are not always true and that management may not
always succeed by only direction and control. As such, he developed an alternate theory of
human behaviour, called Theory Y. This theory represents the democratic approach and is
based on assumptions such as :
— People are not by nature just lazy.
— If given proper conditions, they enjoy work.
— Work is as natural as play or even rest.
— Many of the people, if not all, have got a high degree of imagination and skill.
— Commitment to objectives is determined by the schemes of rewards.
— Close control, supervision and punishment are not always successful.
Distinction between Theory X and Theory Y

Theory X Theory Y

1. People dislike work. 1. Work is as natural as play if the

situation is positive.

2. People do not accept responsibilities. 2. People are ready to accept

responsibilities without fear.

3. People are not achievement oriented. 3. People are achievement oriented.

4. Lack creativity and resist change. 4. Creativity widely spread.

5. Focus on lower level (Physiological and 5. Motivation occurs at the higher order
safety) needs to motivate workers. needs as well as lower order needs.

6. 7. People must be closely controlled. 6. People can be self-directed and

Centralisation of authority and creative at work if properly motivated.

autocratic leadership. 7. Decentralisation and participation in

decision-making. Democratic
leadership.

Q. 4. Write a short note on : Herzberg's Two Factor theory.

Ans. Herzberg's Two Factor theory. Based on Herzberg's Motivation-Hygiene Model, an
important development in the field of motivation was the distinction between motivational
factors and the mere maintenance (or hygienic) factors. Herzberg's research was conducted
on about 200 engineers and accountants working in several firms in the Pittsburgh area of
USA. The maintenance factors are necessary only to maintain a reasonable level of
satisfaction among the employees. If these factors are absent, then most of the employees are
dissatisfied. But these factors themselves do not motivate the employees. For that purpose
motivational factors only work. These two types of factors have been so classified :
Maintenance of hygienic factors :
— Policy and administration of the enterprise
— Technical supervision
— Relations with supervisor
— Relations with subordinates and also peers
— Salary
— Job security
— Working conditions
— Personal life
— Status.
Motivational factors :
— Achievement
— Recognition
— Promotions or advancement
— Posibility or chances of growth
— Responsibility sharing
Out of these two types of factors, the first ones are considered to be more effective to make
the employees more dissatisfied when these are absent. So the presence of these factors.
(Maintenance or Hygienic) does not directly motivate the employees. These are called
Maintenance factors since these factors only help in maintaining a reasonable level of
satisfaction among the employees.
The second type of factors, more properly called "Motivational factors", really help in
motivating the employees. These factors certainly have direct effect on the employees. It is
also found in most organisations that even such motivational factors after some time just
become Maintenance factors. It is generally seen that once an employee gets one thing, then
he hopes to get another thing to motivate him.
Q. 5. Compare and contrast Maslow's theory and Herzberg's two-factor theory of
motivation.
Ans. Comparison of Maslow and Herzberg models. Both models
concentrate on the factors which motivate employees' behaviour to achieve higher output.
Maslow formulated the theory in terms of needs and Herzberg in terms of goals. However,
Herzberg has refined the need of hierarchy and developed a concept of work motivation (Job
oriented). The similarities and differences between the two models are shown in the figure
and table given below :

Maslow-Needs emphasised Herzberg-Goals emphasised

The above figures make it evident that motivational factors are equivalent to Maslow's higher
order level and hygiene factors are equalent to lower order needs.

Point of differences Maslow's theory Herzberg's theory

1. Arrangement of Hierarchical arrangement No such arrangement.

needs of needs.

2. Formulation In terms of needs. In terms of incentives.

3. Nature of theory Descriptive. Prescriptive.

4. Essence of theory Unsatisfied needs moti- Satisfied needs cause

vate individuals which performance.

cause performance.

5. Motivator Any need can be the Only higher order needs

motivator if it is relatively are motivators.

unsatisfied.

6. Applicability Need oriented—takes into Work-oriented—motiva-

account motivational prob- tional problems of profes-

 lems of all workers. sional workers.

Q. 6. "Theory Z is a comprehensive philosophy of management." Comment.

Ans. In 1981, Ouchi developed a new theory called Theory Z. This Theory Z provides a
management perspective that incorporates techniques from both Japanese and North
American management practices. Theory Z is an integrated model of motivation. Theory Z
suggests that large complex organisations are human systems and their effectiveness depends
on the quality of humanism used. There are three major features of Z type organisation—
trust, subtlety and intimacy. Mutual trust between members of an organisation reduces
conflicts and leads to team work. Subtlety requires sensitivity towards others and yields
higher productivity. Intimacy implies concern, support and disciplined unselfishness.
Main features of Theory Z :
1. Strong bond between the company and employees. Theory Z suggests life time
employment in the company as followed in Japan. Retrenchment, lay off etc. should be
avoided as far as possible.
2. Employees' participation. The employees must participate in decision-making. They
must be consulted by the management and their suggestions should be considered.
3. Mutual trust. According to Ouchi, trust, integrity and openness are essential ingredients
of an effective organisation. When trust and openness exist between, workers, work groups,
union and the management, conflict is reduced to the minimum and employees co-operate
fully to achieve the organisation's objectives.
4. Integrated structure. No formal structure is recommended by Theory Z. The organisation
structure should be based on team work as in case of a basket ball team where there are no
formal relationships and the players play together. There is no need of any chart or visible
structure in an integrated organisation.
5. Human resource development. Managers should develop new skills among employees.
According to Theory Z, potential of every person is recognized and attempts are made to
develop and utilise it through job enlargement, career planning, training etc.
6. Informal control system. Organisational control system should be made informal and
flexible. For this purpose emphasis should be on mutual trust and cooperation rather than on
superior-subordinate relationship.
From the above discussion, we can say that Theory Z is a comprehensive philosophy of
management. It is not merely a techniques of motivation, but it is a combination of
management principles and technique for obtaining maximum cooperation of employees. It
provides a complete transformation of managing people at work as compared to Theory X
and Theory Y. This theory is based on mutual trust between management and, workers, strong
bond between organisation and workers, involvement of employees in decision-making and
so on.
Theory Z has been called comprehensive philosophy of management. It does not mean that
it is the last word on motivation of people at work and their effective leadership. Theory Z is
criticised by many management experts on the following grounds:
1. Provision of lifetime employment to employees to develop a strong bond with the
organisation may fail to motivate employees with higher level needs. It merely provides job
security and may fail to develop loyalty among employees. Moreover, an employee may
leave the organisation when he gets higher emoluments and other benefits somewhere else.
Complete security of job may create lethargy among many workers. Employers also do not
like to
retain inefficient workers permanently.
2. Involvement of workers through participation in decision-making is very difficult. The
management may dislike this idea due to Theory X's assumptions about people, as the
workers may be reluctant to participate in decision-making because of fear of criticism and
lack of proper motivation.
3. Theory Z suggests organisation without any structure. But in a large organisation, the
absence of any structure may bring about chaos as nobody will know who is responsible to
whom.
4. Theory Z emphasises a common culture in the organisation. But it is not possible to
develop a common culture in the organisation because people differ in their attitudes, habits,
languages, religions, customs etc.
 12. COMMUNICATION
Q. 1. Define communication and explain its nature.
Ans. Communication is the process of sharing facts, ideas or emotions between two or more
persons.
"Communication means an exchange of facts, ideas, opinions, information or emotions by
two or more persons." —Newman and Summer
"Communication is the intercourse by words, letter or message, intercourse of thoughts or
opinions. It is the act of making one's ideas an opinions known to others." — Fred. G.
Meyer
"Communication is the process of passing information and understanding from one person to
another. " — Keith Davis
"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
continuouss process of telling, listening and understanding."
Nature of communication:
1. Communication is required in all managerial functions. However, it is an integral part of
the directing process; and assumes greater significance at the directing stage.
2. Communication is a function of every manager. Hence, it is a pervasive managerial
function.
3. Communication is a continuous process throughout the organisational life.
4. Communication is a two-way process. This emphasises on the feedback aspect of
communication i.e., the sender of the message must get the necessary response (or reaction)
of the recepient of the communication.
5. On the basis of system and nature, communication is bifurcated into two major categories :
(i) Formal communication and (ii) Informal communication.
6. On the basis of expression (or channels or methods), communication might be, oral or
written.
Q. 2. Discuss the process of communication. Also explain the importance of
communication.
Ans. Communication Process. Communication is considered as a process which has many
inter-related elements. According to John Kotter "communication as a process consisting of
sender transmitting information through media to a receiver who responds." The process of
communication consists of the following steps or stages :
1. Message. This is the first step of the process of communication, which being the subject
matter necessitates the need to start a communication process. The message might be a fact,
an idea, a request, a suggestion, an order or a grievance.
2. Sender. The person, who initiates the communication process, is known as the sender or
communicator.
3. Encoding. Encoding means giving a form and meaning to the message through expressing
it into words, symbols, graph, drawing etc.
4. Medium. It refers to the method or channel through which the message is to be conveyed
to the recipient. The channel is the link that connects the sender and the receiver.
5. Recipient. Technically, a communication is complete, only when it comes to the
knowledge of the intended person i.e., the recipient or the receiver.
6. Decoding. Decoding is the process by which the receiver draws meaning from the symbols
encoded by the sender. It is affected by the receiver's past experience, education, perception,
expectation and mutuality of meaning with grievance.
7. Feedback. Feedback implies to the reaction or response of the recipient to the message,
comprised in the communication. To complete the communication process, sending
feedbacks to communication, by the recipient to the sender is imperative.

Communication is a circular process, as illustrated in the above diagram.

Importance of communication. Communication is an indispensible activity in every
organisation. No organisation can function effectively without effective communication.
The importance of communication is clearly brought out by the following facts :
1. Communication, i.e., collection of facts, is an essential requirement of planning.
2. Effective direction requires effective communication between the managers and
subordinates.
3. It is quite essential for organising the activities in an organisation.
4. Communication is quite helpful for decision-making.
5. Effective communication increases managerial efficiency.
6. Communication helps in the smooth runing of an enterprise.
7. In order to achieve the objective of an enterprise, the efforts of all the members and
departments must be coordinated. It is through effective communication that the various
departments coordinate their activities to achieve the objectives of the enterprise.
Q. 3. Distinguish between formal and informal communication. Discuss the merits and
demerits of informal communication.
Ans. A communication channel is the route or path throug which messages are transmitted
from the sender to the receiver. Channels of communication may broadly be divided into
two groups. 1. Formal, and 2. Informal.
1. Formal Communication. Formal communication is one where the message travels
through the formal route laid down by the organisation. It is the official route through which a
message should pass. If 'A' wants to give certain message containing some instructions to 'E'
and between A and E are B, C and D (who form the official hierarchy, then the message takes
a route as shown below :
A→B→C→D→E
The formal communication ensures orderly flow of information. Formal communication
usually takes the form of written communication such as notes, memos, letters, reports and
statements.
2. Informal communication. Informal communication, which is often called Grapevine
communication, is the communication which takes place through the informal channels of
communication. In other words, it is the communication between the members of a group, not
on the basis of formal relationship, but on the basis of informal relationship among people at
the same or different levels. In short, it is the passing of information from one person to
another without any formal relationship.
Informal communication may be through written words, spoken words, gestures, nod or
smile.
Advantages (Merits) of informal communication :
1. It helps in achieving better human relations in the organisation.
2. It is faster, as it need not pass through the officially recognized channels.
3. It is more direct than formal communication.
4. It is flexible and dynamic and therefore reacts quickly to changing circumstances.
Therefore, the organisation can meet sudden problems promptly.
5. It provides an opportunity to workers for self expression. During periods of insecurity or
uncertainty, people can express their fears more freely through the grapevine.
6. It serves to fill the possible gaps in the formal communication.
7. It satisfies the urge of employees to know what is happening in the organisation. Workers
resort to informal communication when there are barriers in the formal communication.
Disadvantages (Demerits) of Informal communication
1. It is most unreliable type of communication. The manager using this channel may land
himself into serious trouble.
2. It on certain occasion spreads rumours and wrong information which proves harmful of the
organisation.
3. Since the source of information is not known, it is difficult to fix the responsibility for
incorrect statement.
4. There are chances of confidential information being leaked out through grapevine.
A manager using this channel should always be very careful because he cannot control it. He
must therefore restrain himself to use it and if necessary than should take necessary action to
minimise its ill-effects.
Difference between Formal and Informal communication

Formal Communication Informal Communication

1. The channels of formal communication 1. The channels of informal

are provided in the communication are not provided in the

2. organisation stricture. 2. organisation structure.

It is based on the formal authority It is based on the informal
responsibility relationship. relationships between individuals

based on common views, attitude,

likes and dislikes.

3. It is generally written. 3. It is generally oral.

4. It moves slowly. 4. It is quite fast.

5. The sender of the message is 5. The source of the message may

known. not be traced.

6. It is impersonal. 6. It is highly personal.

Q. 4. Explain the various barriers to effective communication. Suggest measures to

removing them.
Ans. Barriers to effective communication. Communication barriers refer to the obstacles or
problems that stand the way of effective communication. These communication barriers are
generally of the following types :
1. Organisational barrier. If the organisational structure is complex, involving layers of
supervision, long communication lines, the distance between the workers and the top
management increases. Communication, therefore, often breaks down.
2. Status barrier. Status, which refers to the relative ranking of a person in an organisation,
is a serious obstacle in organisational communication. Some individuals have higher status
than others. Persons of higher status do not talk freely with those of lower status.
Subordinates at lower levels do not feel free to talk to superiors. They pass on only what
superiors would like to listen and hold back unpleasant facts. Selectivity, thus becomes a rule
in organisational communication giving rise to a strong communication barrier.
3. Semantic barrier. In the communication process, the receiver is expected to understand
the message in the same way as the sendor. Words and symbols used in communication
process may mean differently to different persons. For example, profits may mean one thing
to a manager and quite another to a worker. People understand the same message in different
ways depending on their social and cultural backgrounds, education and experience.
4. Lack of concentration. When the receiver does not pay full attention to a message,
because of being overburdened with other important issues, in such situations, the very
purpose of the sender, in making a communication is defeated.
5. Perceptual barrier. Perception means the way one notices things. Many recepients have
their own perceptions and interpret messages in their own ways of thinking and to their own
advantages. Thus, perception leads to filtering of the message unconsciously.
6. Information overload. Managers are flooded with informations from different sources.
They may not always be able to regulate the flow of information. Effectiveness of
communication will be reduced if managers allow themselves to be inundated with
information. They may ignore or misinterpret some of the important messages. Time factor
may also create communication problems. In the process of expanding matter, some people
may get incomplete information.
7. Premature evaluation. Communication is hampered when the receiver makes judgement
about the worth of the message prior to receiving the entire communication. Such judgement
may be based on the past experience of the receiver. A manager may pay little attention to a
memorandum from the union leader because "he is always up against something."
8. Mechanical barriers. The flow of communication is also affected by mechanical barriers,
inadequate provisions made for transmitting messages, poor organisational layout, defective
communication network and media etc. under the communication system.
How to overcome communication barrier or How to make communication effective ?
Effective communication is vital to successful management. Barriers to communication can
be overcome by the following methods (principles):
1. Clarity of idea. The communicator should be clear about the message he wants to
communicate.
2. Simple language. The communicator should use the language which is understandable by
the receiver.
3. Completeness. The message must be comprehensive and adequate.
4. Careful selection of media and channel. The communication channel should be selected
and employed carefully. A judicious combination of formal and informal communication will
help in achieving effective communication.
5. Empathy in communication. 'Empathy' refers to projecting oneself into the viewpoint of the
other person. When the sender looks from the point of view of the receiver, much of the
problems will be avoided. The sender should be sensitive to the needs, feelings and
perceptions of the receiver so that communication can be effective.
6. Good listening. Hearing is passive and listening is active and is an intellectual process.
Good listening removes communication barriers.
7. Regulating the flow of information. Regulating the flow ensures an optimum flow of
information. The principle of 'Management by exception' may be followed so that managers
will not be overburdened and could concentrate on the message of high priority.
8. Feedback. It is imperative that the management should always pro-
mote a two-way communication for the full understanding of the message. In other words,
management must provide adequate facilities for the free flow of communication and follow-
up by establishing a good communication system.
9. Providing communication training. Effective communication can be achieved by providing
such training facilities to people working in the organisation. It will improve speaking skill,
listening skill and writing skill. Improvement of such skills results in effective
communication.
10. Providing the right organisational climate. Organisational barriers can be removed by
providing the right climate within the organisation to encourage effective communication.
 13. CONTROL
Q. 1. What do you mean by controlling ? Explain its objectives and importance.
Ans. Concept of control. Simply stated, control is the process of assuring the efficient
accomplishment of organisation's objectives. It is the process of ensuring that actual activities
conform to the planned. To control means to make things happen in desired ways, with proper
use of available resources and facilitate, by keeping the whole system on the right track
through timely removal of obstacles or problems and successful command over the forces of
uncertainty, complexity, and fast change. Controlling is the process through which manager
assures that actual activities conform to the planned activities. It is employed to make things
happen in accordance with the plans and programmes and rules and procedure laid down.
" Control consists in verifying whether everything occurs in conformity with the plans
adopted, the instructions issued and principles established. It has for its object to point out
weakness and errors in order to rectify them and prevent recurrence!' — Henry Fayol
" Control is checking current performance against predetermined standards contained in the
plans, with a view to ensure adequate progress and satisfactory performance, and also
recording the experience gained from the working of these plans as guide to possible future
needs." — E.F.L. Brech
"Controlling is measurement and correction of the performance of the subordinates to make
sure that the enterprise objectives and plans devised to attain them are being accomplished"
— Koontz and O'Donnell
Nature of Control:
Managerial control has the following features or characteristics :
1. Control is pervasive function of management. It is required at all levels of management in
every type of organisation.
2. Control is a dynamic process.
3. Control is a continuous activity. As long as an organisation exists, control continues to
exist.
4. Control is backward as well as forward looking process. It is a backward looking process
in the sense that it compares actual performance which has been or is being carried out with
the planned performance. It is a forward looking process in the sense that it improves future
planning by suggesting revision of existing plans and targets and adoption of new plans on
the basis of information derived from past experience. It looks at future through the eyes of
past. Therefore, control is both a backward and forward looking process.
5. Action or taking corrective steps is the essence of control.
6. Control depends on and contributes to other functions of management.
7. Control is related to people, things and actions.
8. It has various methods techniques and tools.
9. While planning is the first function of management controlling is the last one.
Objectives of Controlling. Control is exercised in the organisation for achieving the
following objectives :
(i) To ensure that each activity is being performed in a planned manner to achieve planned
objectives.
(ii) To locate deviations of actual performance of individuals, against the standards,
determined for them, in the plans.
(iii) To take suitable corrective actions as to improve the performance and to check
recurrence of the event.
(iv) To provide proper direction to group efforts as to achieve predetermine objectives.
Importance of Controlling. Controlling is a basic function of management. The
management process cannot be completed with performing the control function. No executive
can get things done without the process of control. There are various advantages of control
for which its importance has become very great in modern management. An efficient system
of control provides the following advantages :
1. Execution of plans. Control is the only means to ensure that the plans are being properly
implemented. It regulates actual operations to ensure that the goals are being achieved. By
keeping a close watch over performance at various levels, control tries to correct the
deviation between actual results and desired results. Mistakes are located promptly and
appropriate remedial action is initiated. Thus, it helps in achieving the objectives laid down in
the plan of action.
2. Improve efficiency. Effective control system helps to minimise wastages and losses. The
existence of an effective control system has a positive impact on the behaviour of employees.
They become cautions while performing their duties because they know that they are being
observed by their superiors.
3. Keep a balance in managerial activities. Control helps the top management for keeping the
various plans and programmes in balance through the master-budget, policy and
organisational manual and management consultants. This results in the effective utilisation of
financial resources which every organisation expects from the controlling functions.
4. Simplifies supervision. An effective control system simplifies supervision by identifying
deviations. In respect of a given job the manager can supervise his subordinates more
effectively.
5. Facilitates co-ordination. Control keeps all activities and efforts within their fixed
boundaries and makes them move towards goals through co-ordinated activities. Thus,
control facilitates coordination.
6. Maintaining discipline. An indirect advantage of controlling is to ensure disciplined
organisational life. In fact, the very fact of controlling induces people to abide by the rules of
the organisation, with a view to achieve planned performance.
7. Without control other functions of management cannot exist. Even planning itself has no
practicability without control. Dale and Michelon have said, "Planning and control are
complementary techniques, and both are essential to good management.
8. If there is proper control, delegation of authority can be carried out to fullest extent and
decentralisation is achieved which is necessary for a big enterprise.
Q. 2. Discuss in detail the process of control.
Ans. Process of control. The following steps are taken in the process of control:
1. Establishment of standards. The first step of the control process is to establish the
standards with which the actual results are to be evaluated. A standard is the criterion against
which actual performance can be compared. They should, therefore be stated clearly and
precisely. They should be accurate, acceptable, and practicable. Standards may be stated in
physical terms such as units of output, man-hours worked, etc. or in monetary terms such as
sales, cost, profit etc. Standards may also be of a qualitative nature e.g., company image.
While determine the standards proper range of deviation should be decided. Standards
indicate expected performance. As far as possible, standards should be set in quantitative
terms.
2. Measurement of performance. After establishment of standards, the next step is to
measure the actual performance. Performance should be measured in the same terms in which
standards have been established. Accurate and timely measurement of results requires an
effective system of reporting.
3. Analysis of variance. The actual performance is then compared with the standards. Such
comparison will reveal the deviations from the standards. Every significant deviation is
analysed to find out why it has occurred. This will help in finding out who are responsible for
deviations.
4. Taking corrective action. The final step in the control process is taking appropriate
actions so that deviations may not occur again and the objectives of the organisation are
achieved. The essence of control lies in the initiation and follow-up of corrective action. The
control process has been shown in the following Fig. 1.
Controlling Process

Fig. 1 : The Control Process

Q. 3. Discuss the relationship between planning and control as management functions.
Or
"No planning, no control". How for does this statement stands to be correct ?
Ans. Relationship between Planning and Control. The statement "No planning no
control" is absolutely correct. Planning is the basis of controlling. Planning and control are
closely inter-related. Controlling is impossible without planning and planning cannot be
successful without a proper system of control. Planning sets standards to achieve business
objectives. Control measures and assesses the actual performance and compares it with the
planned standards and suggests corrective measures to be taken to prevent recurrences of the
deviations. Control helps in remodelling plans so as to get maximum benefits at minimum
cost. Without a plan, control is blind because it does not know where to go and whether it is
going in the right direction or not. Without a plan, control is handicapped.
H.G. Hicks comments,"Planning is clearly a pre-requisite for controlling. It is utterly foolish
to think that controlling could be accomplished without planning. Without planning there is
no predetermined understanding of the desired performance." In fact planning without
corresponding control is likely to be a hollow hope.
On the other hand, planning without control is not a reality. Without control, even best
designed plans may go astray and thus will fail to obtain the desired results. Control ensures
the organisational activities and functions to be on the right track and be aligned with plans
and goals. Control makes plans meaningful and effective. Similarly, controlling is effective
only when it is specially tailored to plans.
Thus, it is correct to comment that planning is meaningless without control and control is
aimless without planning.
Weihrich and Koontz comment, "Planning and controlling may be viewed as the blade of a
pair of scissors, the scissors cannot work unless there are two blades." Without proper
planning, control is not possible because performance has to be measured against some
established criteria. Similarly, without control, realisation of plans is not possible in absence
of guidance to the right path leading to the success of plans.
This is why Weihrich and Koontz have stated as, "Planning and controlling are inseparable
—the Siamese twins of management. Any attempt to control without plans is meaningless,
since there is no way for people to tell where they are going, where they want to go (the result
of the task of control) unless they first know where they want to go (part of the task of
planning). Plans thus furnish the standards of control."
In short, there is a reciprocal relationship between planning and planning control as shown in
Fig. 2.

Fig. 2 : Interdependence of Planning and Control

Inspite of the close relationship between planning and control, the two differ from each other
in the following respects :
1. While planning is the first function of management controlling is the last one.
2. Planning aims at future. Plans represent the future course of action to be adopted under
specified conditions. They are prepared with and eye on the future. It is useless to plan for
whatever has happened. Control, on the other hand, seeks to evaluate performance. It is an
investigation of whatever has happened. Generally we say that "Planning is looking back and
control is looking ahead"
But in one sense planning is looking back and control is looking ahead. Plans are based on a
review of the past events. Control involves a review of performance but the corrective action
is for the future. We cannot control and correct the event. Which have already taken place.
The experience gained from these events can be used to avoid undesirable event in future.
Q. 4. What are the characteristics of a good (efficient) Control System ?
Ans. Essentials of a good Control System. Though different organisations may design their
control systems according to their unique and special characteristics or conditions, yet in
designing a good and effective control system the following requisites must be kept in mind :
1. Focus on objectives and needs. The effective control system should lay emphasis on
attainment of organisational objectives and therefore it should be designed in accordance with
practical needs of the enterprise.
2. Prompt indicator. An ideal control system should be able to detect and report significant
deviations as promptly as possible so that immediate necessary corrective action may be
taken.
3. Understandable and economical. Control tools and adopted techniques should be such as
are clearly understandable by the managers. They must know all the details and critical points
in the control device as well as its usefulness. Besides, the control system should be worth its
cost.
4. Forward looking. Control system should be future-oriented, making valuable forecasts to
the managers so that they become aware of the problems likely to confront them in future.
5. Control by functions and factors. Control should envelope functions such as production,
marketing, finance, human resources etc. It should also focus on four factors—quality,
quantity, time use and cost.
6. Flexible. It means that control system should be able to accommodate such modifications
or revisions as are made necessary in the wake of rapidly changing and complex
organisational environment.
7. Control by Exception. Control system should be selective and concentrate on key results
areas of the company. Everything is not to be controlled in order to save time, costs and
effort. Certain strategic or vital points in the working of an enterprise must be identified and
appropriate control devices should be designed at those stages.
8. Indicative as well as suggestive. Control system should not only be able to point out the
deviation, but it should also suggest corrective action that is supposed to check the recurrence
of variations or problems in future.
9. Correct action at correct time. An effective control system is that in which correct action is
taken at correct time.
10. Adequate freedom. The control system should enable the managers to fairly utilise their
talents, expertise and skills.
11. Consistent. It should be consistent with the size and structure of the organisation.
Q. 5. Write a short note on: Control by Exception.
Ans. Control by Exception or Management by Exception. The basic objective of control is
to derive the best work performance. It can be achieved only then when a close watch on all
the activities of the concern is made. But the activities of a typical business enterprise are so
numerous that to keep a watch on all of them is managerially impracticable. If control is to be
effective and economical, the management should faces its attention on those factors which
are critical for the performance. This is the principle of control by exception. According to
this principle, only significant deviation from standards require management's attention as
they constitute exceptions. An attempt to go through all deviations tends to increase
unnecessary efforts and decrease attention on important problems.
The principle of control by exception implies minor deviation from the standards may be
ignored or given less attention. In the words of L.R. Bittle, it is "a system of identification
and communication that signals the manager when his attention is needed, conversely it
remains silent when his attention is not required. The primary purpose of such system is, of
course, to simplify by the management process to permit a manager to find the problems that
need his action and to avoid dealing with those that are better handled by his subordinates"
Advantages. Control by exception offers the following benefits :
1. It saves the time of manager because he deals only with exceptional matters.
2. It focuses managerial attention on major problems.
3. It facilitates delegation of authority.
4. It is a technique of separating important information from unimportant information.
5. It keeps management alert to opportunities and threats by identifying critical problems.
6. It provides better yardsticks for judging results.
Limitations. Management by exception, however, suffers from the following limitations:
1. It requires a detailed system of recording and reporting of data.
2. It tends to multiply paper work.
3. It cannot be substitute for thinking and judgement.
4. It may provide a false sense of security.
5. It is very difficult to decide critical or exceptional deviation.
 14. MARKETING MANAGEMENT
Q. 1. Define marketing. Distinguish between marketing and selling.
Ans. Meaning of Marketing. Marketing occupies an important position in the organisation
of a business undertaking. The growth and survival of each enterprise depend only on the
efficient marketing of goods produced. If the marketing activities are not conducted
efficiently, the business unit cannot sell its products and all the efforts of production may not
bear fruits. As such, due emphasis is laid on the importance of marketing.
Definition of Marketing.
Marketing is a dynamic concept. Its meaning changes with social, economic and
technological changes. It has been defined by various experts in two different senses.
Production-oriented views. It is a traditional concept of marketing. This view is based on
the assumption that the product—whatever it be, 'will be acceptable by the customer.
According to the American Marketing Association, marketing is "the performance of
business activities that direct the flow of goods and services from producers to consumer or
users."
According to Clark, "Marketing consists of those activities which effect transfers in
ownership of goods and care for their physical distribution"
This view of marketing lay more emphasis on the product rather than on the consumers. It is
a narrow view of marketing to the following reasons :
— It highlights the place aspect of marketing and overlooks other aspects like product,
pricing and promotion.
— There is lack of customer—orientation. This view is based on the assumption that
customer will buy whatever is offered to them.
This view of marketing is inappropriate in the present day-business environment
characterised by intense competition and ever-changing needs and tastes of consumers.
Consumer oriented views. This a modern concept of marketing. According to customer
oriented views., 'marketing is related to the needs of customers. Customer's satisfaction is the
main objective of marketing.
"Marketing is so basic that it cannot be considered a separate function...it is the whole
business seen from the point of its final result, that is from the customer's point of view." —
Peter F. Drucker
"Marketing is the process of discovering and translating consumer wants into products and
services and then in turn marketing it possible for more and more people to enjoy more and
more of these products and services."
—H.L. Hanson
"Marketing is a total system of interacting business activities designed to plan, price,
promote and distribute wants satisfying products and services to present and potential
customers." — William J. Stanton
Distinction between Marketing and Selling
If the modern concept of marketing i.e., the customer-oriented approach is
accepted, it is felt necessary to distinguish between marketing and selling. Marketing is a
comprehensive, total process while selling is only partial in character. Marketing is a wider
term and it includes the functions of selling in the sense of distribution and dispersion of
goods and services.
"Marketing is a total system of business activities designed to plan, price, promote and
distribute want-satisfying goods and services to present and potential customers." —
William J. Stanton
Selling is normally concerned with transfer of goods and services to the customer of
prospective customers for the exchange of money. It is one of the important functions of
marketing. Selling includes all activities regarding passing of finished goods to the buyers.
From the above definitions of marketing and selling we can distinguish between marketing
and selling on the following lines :

Point of Difference Marketing Selling

1. Focus Marketing focuses on Selling focuses on seller's

customer's needs of want- needs, i.e., converting his
satisfying goods. goods into cash.

2. Scope Marketing is a comprehensive Selling includes the distribution

idea. As such, it has a wide of goods and services. It is the
scope. part of marketing. So it has
limited scope.

3. Sequence Marketing begins before actual Selling takes place after the
production takes place. production.

4. Emphasis Emphasis is given on product Emphasis is placed on sale of

planning and development to goods already produced.
match products with customers
needs.

5. Importance Customers is treated as a king. Product enjoys supreme

He is given supreme importance.
importance.

6. Aim or goals Marketing aims at profits Selling aims at profits through

through customer satisfaction. sales volume.

7. Principle Marketing is based on the Selling is based on the

principle of caveat vendor (left principle of Caveat emptor (left
the seller beware) the buyer beware)

Selling and Marketing Concepts contrasted

Q. 2. What is meant by 'Marketing Concept' ? Discuss its important features. Discuss its
significance for a modern business enterprise.
Ans. Marketing concept. In case of marketing, the philosophy of the business is called as
concept of marketing.
"Marketing concept is a philosophy of business management, based upon a company wide
acceptance of the need for customer orientation, profit orientation, and recognition of the
important role of marketing in communicating the needs of the market to all major corporate
departments." —C.P. Namara
Thus, marketing concept is the way of life in which all the resources of an organisation are
mobilised to create, stimulate and satisfy the consumer at a profit. Modern marketing
concept is consumer oriented.
Feature (Nature) of marketing.
An analysis of these definition reveals that marketing concept has the following
implications :
1. Customer-orientation. The entire system of business should be market or customer-
oriented. Customer's wants must be recognised and satisfied effectively.
2. Integrated marketing. Modern marketing has become an integrated process of
identification, assessment and satisfaction of human wants to achieve desired objectives.
3. Systems Approach. Marketing concept is a systems approach to marketing. It requires
intellegent combination of the four 'Ps' of marketing mix, namely, product, price, place
(channel of distribution) and promotion.
4. Marketing Research. The study of the market is no less importance marketing
information is collected through marketing research. Research is carried on to know the
nature of demand of consumers on the basis of the outcome of research, steps are taken to
reach proper goods to the customers.
5. Customer Satisfaction. The aim should be to maximise profit over the long run through
the satisfaction of customers' wants. According to Philip Kotlar, "Marketing concept is a
customer orientation backed by integrated marketing, aimed at generating customer
satisfaction as the key to satisfying organisational goals. Creation of customers and
satisfaction of their wants takes precedence over production."
Importance of Marketing concept. The adoption and use of the marketing concept provides
the following benefits :
1. Customer needs, wants and desires receive top consideration in all business activities.
When the firm produces the product which meets the requirement of the customers, the need
for promotion is reduced.
2. More attention is given to product planning and development.
3. Marketing system based on the marketing concept assure integrated view of 'business
operation and indicating interdependence of different departments of a business organisation.
4. Interests of the enterprise and society can be harmonised as profit through service
emphasised.
5. Long-term success is assured to an enterprise only of it recognises that the needs of the'
market are paramount.
6. It enables the firm to move more quickly to capitalise on market opportunities. Marketing
risk can be reduced only by knowing and proper understanding of the market.
However, marketing concept is not free from limitations. It does not recognised the wider
social dimension of marketing. It focuses attention solely upon satisfying consumers and
ignores other stakeholders like employees, investors, suppliers, the state and the Public at
large.
Q. 3. Define marketing mix. Discuss the components of marketing mix.
Ans. Marketing Mix. Marketing is considered to be an important art. The marketing
manager must make orderly arrangement of his activities. Its purpose is to conduct the
business on the way of both short-term and long-term success. For this, in order to adjust with
the dynamic condition he must design by mixing the various activities of marketing. In brief,
marketing mix is that mixture which is evolved out of assembling of important functions
of marketing. It is the part of systems approach which is applied in marketing management.
Marketing mix refers to the combination of four basic elements known as four P's-Product,
Price, Promotion and Physical distribution (Place).
"Material mix is the combination of the four inputs which constitute the core of a company's
marketing system-the product, the price structure, the promotional activities and the
distribution system." — Stenton
The various components of marketing mix are :
1. Product Mix.
2. Price Mix.
3. Promotion Mix.
4. Place Mix.
1. Product Mix. The sum total of the goods which are presented in the market, by an
enterprise for sale, is called the product mix. Product is the thing possessing utility. Product
mix refers to product planning and development. It refers to activities relating to product and
after-sales service to satisfy customer's needs. It includes decisions regarding the quality,
quantity of product, its size, features, branding, packaging, warranties, etc.
2. Price Mix. Goods are sold for the price. Price is the valuation placed upon the product by
the offerer. Price mix refers to the pricing objectives and pricing policies. It covers decisions
relating to the price charged for the product. These decisions consist of cost of production,
discount allowed, credit terms, etc. in a competitive market price cannot be determined
unilaterly. The pricing policies of a product should be cost-based, customer-based and
competition-based. Price mix is built up with different aspect of price determination of
saleable goods and services.
3. Promotion Mix. In order to get the support from the customers the enterprise can establish
communication with the market through promotion mix. The act of informing the potential
customers of the goods and its quality and utility is known as promotion. Promotion mix
refers to all marketing activities to increase the volume of sales of the product of an
enterprise. It consists of all means of marketing communication with a view to informing and
persuading the prospective buyers to buy a certain product. Promotion mix includes
advertising, personal selling, publicity and sales promotion. Decisions are to be taken on how
to use these means depending upon their suitability.
4. Place Mix (Distribution Mix). Here the distribution means the physical distribution. The
process through which goods are distributed from manufacturers to the ultimate. Consumers,
are called place or distribution mix. Place mix is concerned with linking the seller and buyer.
The choice of channels of distribution is determined by the need to provide goods at the right
time and at the right place to the customers. Channels of distribution may be direct such as
multiple shops, chain stores, mail-order-business, or indirect—wholesalers, retailers and other
middlemen. Selection of channel of distribution is determined by the nature of the product
and its market, custom of trade, availability of middlemen and tendency of the producers.
The above four elements of marketing mix are equal, interdependent and essential. The
marketing mix acts as the integrated marketing strategy and the four elements together
constitute the marketing strategy. The decisions on the four elements of marketing mix must
be properly co-ordinated and balanced in order to achieve an optimum marketing mix.
"The marketing mix acts as the integrated marketing strategy and the four elements together
constitute the marketing strategy."
Q. 4. What is Market Segmentation ? Explain its advantages and limitations.
Ans. Market Segmentation. Market consists of buyers, and buyers differ in one or more
respects. They may differ in their wants purchasing power, buying attitudes and buying
practices, geographical locations. This varied and complex
buyer behaviour is the man cause of Market Segmentation. A market segment is a meaningful
buyer group having similar wants. Each segment can be a group of people with similar or
homogeneous demand and this will enable the enterprise to have tailor made marketing mix
to each market segment. Segmentation is a consumer oriented market strategy.
"Market segmentation is the act of dividing a market into distinct groups of buyers who might
require separate products and/or marketing mixes. The company identified different ways to
segment the market develops profiles of the resulting market segments and evaluates each
segments attractiveness!'
— Philip Koter
"Market segments are grouping of customers according to such characteristics as—income,
ag'e, degree of urbanisation, race, geographic location or education." — Candiff & Still
Market segmentation is one of the most interesting and useful technique in marketing
management. It is a method for achieving maximum market response from limited
marketing resources. This is made possible by recognising the difference in the response
characteristics of various parts of the market. In a sense, market segmentation is the strategy
of 'divide and conquer'. Thus segmentation answer the following questions :
"To whom should the products be sold and what should be sold to him?"
Advantages of Market Segmentation. Market demand is haterogeneous and not
homegeneous. When difference in customer needs are properly analysed, such anyalysis may
reveal that certain customer needs remain unsatisfied. Business firms can use this opportunity
and exploit these needs. Hence, market segmentation is important:
(i) to define the market more precisely in terms of consumer needs;
(ii) to locate and compare marketing opportunities.
(iii) to formulate and implement marketing programmers effectively;
(iv) to create proper coordination between the products and consumer needs;
(v) to assess the competitive strength and weakness;
(vi) to use the available resources more profitably by catering to customer demand, remaining
unnoticed by competitors;
(vii) to define precisely the marketing objectives resulting in effective utilisation of available
resources.
In short, market segmentation helps matching of market opportunities to business resources.
Goods are produced as per the needs of a segment. It enhances marketing efficiency by
offering specific pricing, promotion and distribution as per different responses from each
segment.
Disadvantages of Market Segmentation
Market segmentation suffers from the following disadvantages :
1. Segmentation increases cost.
2. High level of inventory has to be maintained by both the manufacturer and the distributor.
3. Promotion and distribution expenditures increases when separate programmes are used of
different market segments.
4. When characteristics of a market segment change, investment made already might become
useless.
Q. 5. What is consumer behaviour ? Why is the study of consumer behaviour important ?
Discuss briefly the various factors influencing consumer behaviour.
Ans. Consumer Behaviour. Consumer behaviour is an integral part of human behaviour and
cannot be separated from it. It is extremely important for an effective marketing planning.
Consumer behaviour may be defined as, "the behaviour exhibited by people in buying and
using economic goods and services"
"Consumer behaviour is the study of how individuals make decisions to spend their available
resources (time money, effort) on consumption related items. It includes the study of what
they buy, why they buy, when they buy, how often they buy, it and how often they use it." —
Schiffman Kanuk
In simple words, consumer behaviour refers to the decision-making process by which
consumers interact with their enviornment and the actions they take in the market place. In
this process two elements are important:
(i) the thought process by which consumers decide what to buy, when to buy, etc. This may
be called buyer behaviour.
(ii) the settlement action—accepting or rejecting a product/service.
To understand the buyer (consumer), and to create a customer through this understanding, is
the main purpose of buyer behaviour studies.
Need for Understanding Consumer Behaviour
Proper knowledge of consumer behaviour is necessary because :
(i) Knowledge of consumer behaviour would provide base for planning and implementing
marketing strategies.
(ii) Marketer can satisfy consumers needs more efficiently when it is based on knowledge
about their behaviour.
(iii) By understanding the factors that influence the behaviour of consumers, marketers are in
a better position to predict how consumer will react to their efforts.
(iv) Knowledge of consumer behaviour helps in market segmentation and product
differentiation. It is also useful in the evaluation of marketing programmes.
(v) The efficiency with which the free enterprise system operates depends upon how well
business understands consumer. Consumer is a king of a business.
(vi) Knowledge of consumer behaviour is necessary for predicting consumer needs and
preference in a dynamic environment.
(vii) Knowledge of consumer behaviour is necessary for introducing new product and new
technology.
(viii) A firm which better understand its Customer can gain a competitive advantage in the
market.
Knowledge of the buyer and his buying motive and buying habits, is thus a fundamental
necessity for marketing management.
Factors Influencing Consumer Behaviour
Several factors determine the buying behaviour of consumer. These factors are inter-related
and inter-dependent. Some of these factors are :
1. Personal Factor. A buyer's decisions influenced by personal characteristics, such as age,
income, occupation, personality and life style, which are discussed below :
(i) Age. A person's age determines his needs and preferences. For example, children require
baby foods, toys, games, etc. Teenagers prefer higher education, trendy clothes, motorcycles,
latest models of car, etc.
(ii) Income. Income level determines buying power of a person. Borrowing power and saving
also influence the capacity to buy. For example, easy finance has boosted the demand for
houses and cars.
(iii) Life Style. Life style means pattern or way of living of a person which can be judged
through his activities, interest and opinions. A person may reside in a HIG flat. He may have
costly furniture and car. He may have his dinner only in Five Star Hotels. He shall buy only
branded clothes. His hobby may be playing billiards. With the above activities, we can judge
the life style of a person. Hence he will choose products and services according to his life
style.
(iv) Occupation. A person's behaviour depends upon his occupation. The occupation of a
person decides his ability to buy. Hence his need satisfaction depends on his occupation
which provides him the means. A company's Managing Director will prefer expensive suits,
air travel, separate cottage etc.; a worker would prefer economic dresses, bus travel etc.
(v) Personality. Personality of an individual also determine his buying behaviour. Personality
is described in terms of such traits as self-confidence, dominance, autonomy, sociability,
defensiveness and adoptability. A person to maintain his personality will decide his
purchasing accordingly. It follows that a knowledge of personality as an individual difference
factor can help the marketing managers understand, predict, and even influence the buying
behaviour of consuming public.
2. Social Factors. Social factors refers to social class to which a consumer belongs. The
influence of various social factors on consumer behaviour is as follows :
(i) Family. Consumer belongs to a family. The family life cycle explain how a consumer's
buying behaviour is influenced. For example, buying pattern of rich family is different from
that of a poor family.
(ii) Demographics. Age, education, language, sex, income, occupation are important
demographic factors.
(iii) Reference Group. Reference groups are the social, economic or
professional groups that have a direct or indirect influence on the person's attitude or
behaviour. An individual consumer buys those items which his or her reference group buys.
The purchases of fashion garments and dresses by young generation are mostly influenced by
their reference groups.
(iv) Role and Status also influence consumer's buying behaviour. Roles are the activities of
the person in a group. A women plays the role of wife, mother, sister in a family. She plays
the role of an employee in an organisation. She may also play the role of a director of a
multinational company. Each roles carries a status. People will choose products that will
communicate their status to the society.
3. Cultural Factors. Cultural factors refer to the behaviour of people as a group. Are they
competitive, youth-oriented, adaptable to change ? But it is a fact that culture is difficult to be
changed. Culture is one of the factors to be studied for understanding consumer behaviour.
Culture influences eating habits, food preferences, dress style of people. For example, Hindus
revere the cow and therefore, do not eat beef. Culture shapes the pattern of consumption and
pattern of decision-making.
4. Psychological Factors. These refer to the motives of a buyer. Psychology of an individual
influences his buying habits and choice of brand. Psychological factors are as follows :
(i) Self Concept. As consumer, we buy those product and services which are fit for our self-
image.
(ii) Belief and attitudes. A belief is a descriptive that a person holds about something. Every
consumer has certain attitudes towards products and holds some beliefs. For example, a
consumer may have the belief that products sold in malls are over-priced but their quality is
fine. Markets should understand the attitudes and beliefs of customers.
(iii) Perception. Perception is the process by which a consumer receives, organises and
impterprets the market environment. Since a consumer is exposed to numerous products and
advertisement, he focuses only on those which are suitable for him.
(iv) Learning. Learning refers to changes in behaviour brought about by practice of
experience. A consumer may decide to buy only branded products in future because of bad
experience with an unbranded product.
(v) Motivation. Motivation is the driving force which makes the person to act. A human being
is motivated by needs. When these needs are bucked by purchasing power it becomes a want.
Buyer behaviour, hence is stimulated by motivation.
Q. 6. What is 'product life cycle'? Explain the various stages in the life-cycle of a
product. What market strategies should be follow by a firm during different stages of
product life-cycle ?
Ans. Product Life Cycle (PLC). It cannot be expected that a product will be acceptable to
the customers uniformily for ever. In human life there are ups
and downs. Similarly the product has also it ups and downs. The human life flows through
different stages from birth to death. So also is the case of the product, it passes through
different stages—introduction, growth, maturity, saturation and declining. These stages in the
life of a product are collectively known as product life-cycle. The length of the cycle and the
duration of each stage may very from product to product, depending on the rate of market
acceptance, rate of technical change, nature of the product and ease of entry.
Sales volume and profit level change from stage to stage as shown in Fig. 1. Every stage
creates unique problems and opportunities and therefore, requires a special marketing
strategy.
 Fig. 1 : Product Life-Cycle.
A brief description of each stage and the marketing strategy required for it, is given below :
1. Introduction Stage. The first phase of a life-cycle of a product is its introduction. At this
stage the product is put on the market. In this stage sales revenue begins to grow but the rate
of growth is very slow. Profit may not be there as there is low sales volume, higher
production and distribution costs. It may require heavy advertisement and sales promotion.
The characteristics of the stage are :
— (i) high cost, (ii) low volume of sales, (iii) low profit and (iv) absence of competition.
The following strategies may be adopted to introduce a product successfully.
— 'Money back' gurantee may be offered to encourage the people to try the product.
— Attractive gifts as may be, offered to customers.
— Attractive discount to dealers.
— Some unique feature built into the product.
2. Growth Stage. At this stage product is accepted by consumers and the traders. During the
growth stage, the rate of increase of sales turnover is very rapid. Profits are high on account
of large scale production and rapid sales turnover.
The main characteristics of this stage are— (j) increase as demand and the product being
increasingly well-consumed; (ii) mass-production; (iii) reduction in cost of production,
selling and distribution; (iv) acceleration in the scale competition, and (v) increase in both
sales valume and profit.
During the growth stage, following strategies may be adopted :
— New versions of the product may be introduced to satisfy the requirements of different
types of customers.
— Brand image of the product is created through advertising and publicity.
— Distribution channels are strengthened to make the product easily available where-ever
required.
— The price of the product is made competitive.
— Better Customer service.
3. Maturity Stage. Through the developing stage the product reaches maturity stage i.e., at
this stage the product gains full maturity. Business faces severe competition in the market. As
such advertisement, sales promotion and other efforts are made to encounter the competition
successfully. Increase marketing expenditure and falling prices (in the battle for market share)
will reduce profits. Additional expenditure is involved in product modification. Heavy
expenditure is incurred on promotion to create brand loyalty. Marketers have to adopt
measures to stimulate demand and face competition through additional advertising and sales
promotion.
In order to prolong the maturity stage, a firm may adopt the following strategies :
— The product is differentiated from the rival products.
— Brand image of the product may be emphasised.
— New markets may be developed.
— New uses of the products are developed.
4. Decline Stage or Saturation. At this stage the effectiveness of the product decreases
further in the market. It may be gradually displaced by some new innovation. Sales drop
severly, competition dwindles, and even then product cannot stand in the market. At this stage
price becomes the basic weapon of competition and it is necessary to control advertising and
sales promotion expenditures. This saturation stages is most critical for marketing
effectiveness.
5. Abandonment Stage. Ultimately, the firm abandons the product in order to make better
use of its resources. As preferences of customers change, new and more innovative products
replace the abandoned products.
Q. 7. Explain in brief the functions to be performed in the process of marketing.
Ans. Marketing Functions. The marketing function of a business organisation encompasses
those activities necessary to move goods and services from the producer to consumers in
manner that satisfies both the needs of the organisation and the needs of the customers or
consumers.
Broadly speaking, marketing consists of three process. First is concentration which implies
gathering at a central point products and materials acquired from
different places. Second is dispersion which involves dispersion of goods from the central
point to ultimate users at different places. The third process is equalisation by which a
balance is created between the demand and supply of goods. The various functions involved
in this process are discribed in Fig. 2.
 Fig. 2 : Classification of Marketing Functions.
I. Functions of Exchange. The process of transfering goods from the seller to customer is
known as function of exchange. This process involves buying assembling and selling :
1. Buying and assembling. Buying is the first step in the process of marketing. It refers to
buying of raw materials and components by producers and finished goods and services by
dealers. It requires planning of purchases, search for sellers and buying of goods in right
quantity and quality at the right time and right place. Economy and efficiency in a buying
function on the part of manufacturers or traders will enable them to earn more profits.
Assembling involves collection of same type of goods bought from different places under a
common roof.
2. The purpose of all marketing activities is to sell the goods or services. Selling means
finding customers, obtaining orders and transferring the goods to them for value or money. It
is the heart of marketing.
II. Physical Distribution. This function relates to the process of transporting goods from the
place of seller to the place of buyer. This includes two main functions :
1. Transportation
2. Storing and Warehousing
1. Transportation. It is the process of physically moving the goods and services from the
place of production to the actual place of
consumption. It helps in assembling and dispersing the goods, widens the market and
determines scales of production. A good transport system creates place utility.
2. Storing and Warehousing. Storing is an important function of marketing it refers to holding
and preservation of goods till they are finally delivered to the buyer. Raw materials are stored
and preserved till they are finally used in production process. Storage creates time utility. It
ensures regular supply. Warehouses are Private, Public and Bonded.
III. Facilitating Function. These functions make the market process easy and include
marketing reserach, product planning and development, pricing, promotion, standardisation
and Grading, Branding, packaging and risk-taking.
1. Marketing Research. Marketing research is a systematic and intensive investigation of all
phases of marketing on a continuous basis with a view to have better understanding and
knowledge about the present and future marketing problems. According to American
Marketing Association, "Marketing research is the gathering, recording and analysing of all
facts about problems relating to the transfer and sale of goods and services from producer to
consumer." It has a direct impact on the selling activities of a business concern.
2. Product Planning and Development. It is an important function of both marketing and
production. Product planning and development involves what to produce ? how to produce ?
when to produce ? and for whome to produce ? It consists of planning about the type and
design of product. It also involves the development of new products and improvement of the
existing products in the light of the consumers' needs and their satisfaction.
3. Pricing. It refers to determining and fixing the price of a product or service. The sale of
product or service depends to a great extent on its price. So it should be very carefully fixed
after considering all influencing factors such as the cost of production, market competition,
nature of the product and its demand, etc. Price should cover not only the cost of production
but also a fair profit margin.
4. Promotion. In marketing process, the term promotion is used to refer to the process of
informing prospective buyer about products, services and the firm and stimulating them to
patronise the firm. Advertising, salesmanship and sales promotion techniques are used to
promote products and services.
5. Standardisation & Grading. Standardisation refers to the process of setting up basic
measures or standards two which the product must conform, and taking steps to ensure that
the goods actually produced adhere to these standards.
Standards are determined with regard to the shape, size, quantity, quality, colour or other
special or general features of a product. Standardisation has now been accepted as an ethical
basis of marketing.
Grading is the process of separating products into different lots in accordance with the
specified standards.
6. Branding and Packaging. Branding has becomes an inseparable part of modern mass-
selling process. It is the process of assigning a distinctive brand name or symbol to a product
in order to differentiate it from the competitive products. It helps to give a separate identity to
the product. It facilitates advertising and price control.
Packaging refers to wrapping, compressing, filling or creating, putting the goods in this,
bottles, boxes, containers for protecting the goods from damage and for easy handling. The
needs of the wholesalers, retailers and consumers should be kept in view while deciding
packing and packaging.
7. Risk-taking. In marketing, there are innumerable risks which are to be assumed either by
the seller or by somebody else. These risks may be due to change in demand and prices, loss
in storage and transportation, fire and floods, and loss due to natural hazards, etc. It is
insurance which helps to cover the risks in the exchange of goods and services. Insurance
facilitates the smooth exchange of goods by covering risks in storage and transportation.
Business firms can cover the risks on the payment of a nominal premium to the insurance
company and recover the loss, if any.
Q. 8. Write a short note on : Importance of marketing.
Ans. Importance of Marketing. In modern business world, the importance of marketing
cannot be over-emphasised. The magnitude of business success is dependent on the effective
role of marketing. P.F. Drucker has quoted— "Marketing is the foundation of business."
Business activities are carried on with profit motive. Every business firm aims at
maximization of profits for its survival and growth, since growth is life. Proper marketing
planning help in enhancing profits by increasing the volume of sales through advertisement
and sales promotion activities.
Marketing generates revenue for business. Following points highlight the importance of
marketing :
(i) Marketing is the base of all business activities.
(ii) It serves as a source of revenue for a business firm.
(iii) It helps to satisfy the needs and wants of people.
(iv) It improves the standard of living of people.
(v) It determines the pattern of consumption in society.
(vi) It bridges the gap between production and consumption.
(vii) It creates employment opportunities and provides employment to a large number of
people.
(viii) It facilitates the optimum utilisation of resources.
(ix) It is helpful in stabilising prices.
(x) It plays important role in the development of entrepreneurial and managerial talent in the
country.
(xi) It plays a very important role in a developing economy like ours. A rapid pace of
economic development is possible by adopting modern methods of marketing.
 15. FINANCIAL MANAGEMENT
Q. 1. What is financial management ? Discuss its objectives.
Ans. Meaning of Financial Management. In simple words, financial management means
raising of adequate funds at the minimum cost and using them effectively in business. In
other words " Financial Management deals with planning, organising, directing and
controlling financial activities like procurement and utilisation of funds of an enterprise"
"Financial Management involves the application of general management
principles to a particular financial operation " — Howard and Upton
"Financial Management is concerned with the efficient use of an important
economic resource, namely capital fund." —Solomon Ezra
Financial Management includes the following four tasks :
(i) Estimation of financial requirements for the business and laying down investment plans.
(ii) Determination of capital structure and study of different types of securities, their relative
importance in the capital structure of the enterprise, their relative proportion and ways and
means through which they could be obtained.
(iii) Procurement of financial resources.
(iv) Management of earning to the best advantage of the enterprise.
Objectives of Financial Management. The firm has to take investment and financing
decisions on a continuous basis. To make optimum and wise decisions, a clear understanding
of the objectives is a must. The overall objective of financial management is to provide
maximum return to the owners on their investment. This is known as wealth maximisation.
Though various objectives of financial management can be enumerated, such as, maintenance
of liquid assets, optimum procurement and utilisation of funds, adequate return to
shareholders, building up reserves to meet the growth target etc. These objectives can be
broadly classified into two groups :
1. Profit Maximisation, and
2. Wealth Maximisation
1. Profit Maximisation. Economists believe for a long time that earning maximum profit is
the sole aim of any business organisation, because that will lead to optimum allocation of
resources also. Actions that increase the firm's profits are undertaken and those that decrease
profit are avoided. In other words, according to this criterion the financial decisions
(investment, financing and dividend) of a firm should be oriented to the maximisation of
profit i.e., select those assets, projects and decisions which are profitable and reject those
which are not profitable.
The rationale behind profit maximisation objective is simple. A business firm is a profit
seeking organisation.
— Profit is test of economic efficiency.
— It is assumed to lead efficient allocation of resources.
Limitations of profit maximization objective :
(i) Profit is a vague concept, in that, it is not clear whether profit means —
— Short-run or long-run profits,
or — Profit before tax or profit after tax.
or — Rate of profit or the amount of profit.
(ii) Profit-maximization objective is lop-sided. This objective overemphasizes only on the
interest of owners. Interest of other parties like workers, creditors, consumers and the society
as a whole are ignored, under this concept of profit maximisation.
2. Wealth Maximisation. Wealth maximisation objective is a widely recognised criterion
with which the performance of a business is evaluated. Since wealth of owners is reflected in
the market-value of shares; wealth maximisation means the maximisation of the market price
of shares. Accordingly, wealth maximisation is measured, by the market value of shares.
Wealth maximisation objective suggests that a financial manager must select those decisions,
which create more wealth for the owners.
In view of the following reasons, wealth maximisation objective is considered superior to the
profit maximisation :
(i) It is based on the concept of cash flows; which is more definite than the concept of profit.
Moreover, management is more interested in immediate cash flows than the profits-a major
part of which may be hidden in credit sales-still to be realised.
(ii) Wealth maximisation objective is consistent with the long-term profitability of the
company.
(iii) The wealth maximisation objective of automatically fulfils many other objectives. As
equity shareholders get share from residual income only i.e., they are given dividend only
after the claims of suppliers, employees, lenders, creditors and any other legitimate claimant.
Therefore, if the shareholders are gaining, it automatically implies that all other claimants are
also gaining.
The wealth maximisation does not mean that finance manager should involve in manipulative
activities to bring rise in price. The rise in price must come with the growth of the firm, with
increase in overall profits and with satisfaction of all the parties associated with the business.
Q. 2. Discuss the scope of Financial Management.
Ans. Scope of Financial Management. The scope of financial management is very vast,
which includes several short-term and long-term decisions. Short-term financial decisions
influence the liquidity and profitability of the firm. They are related mainly to the
management of working capital. Long-term financial decision are concerned with financing
the enterprise, investments of funds and administration of earnings.
Broadly speaking, financial management covers three major decision areas, viz. investment,
financing and dividend.
1. Investment Decision. Investment decision is the vital business decision area where a
finance manager has to decide about total amount of assets to be held in the enterprise and
make-up of these assets. Investment decisions can be categorised in two group—long-term
investment and short-term investment decision. Decisions relating to the former are referred
to as capital budgeting and those relating to latter are referred to as working capital decisions.
Long-term investment decision is the most crucial financial decision of an enterprise because
the growth, productivity, success of the enterprise in long-run depends upon such decision.
2. Financing Decision. Financing decision relates to the composition of relative proportion
of various source of finance. While taking this decision, the financial management considered
the merits and demerits of the different sources of finance. The finance manager is required to
obtain a balanced capital structure for the company so as to maximise the market price per
share.
There are two important source of financing: (a) Debt, and (b) Equity. Debt is fixed interest
source of financing and equity is variable dividend source of financing. It, thus, becomes
important for financial manager to decide the appropriate mix of debt and equity in such a
way as to maximise the shareholders wealth.
3. Dividend Decision. Dividend decision relates to the appropriation of profit earned. In
other words, it relates to dividend policy of the company. The finance manager has to decide
whether the company should distributes all profits or retain them, distribute a portion and
retain the balance. Profits should be retained and ploughed back in the business for the
growth and expansion of business. Prudent finance manager takes dividend decision in the
light of investors' preferences, liquidity position of the company, stability of earnings of the
company, stability of earnings of the company, need to repay debt, control and similar other
factors. The dividend policy of the company should lead to the maximisation of the market
value per share.
Q. 3. Explain the various sources of business finance.
Ans. Raising of Funds. Business operations require funds of various sorts at different times.
These may be obtained from a number of different sources, on different terms, and for
different purposes. A business enterprise can rase funds from two main sources—
(a) owned funds, and (b) borrowed funds.
(a) Owned funds refer to the funds provided by the owners. In a sole proprietorship, the
proprietor himself provides the owned fund. In a partnership firm, the funds are contributed
by partner as capital are called owned funds. In a joint stock company funds raised through
the issue of shares and reinvestment of retained profits are called owned funds.
(b) Borrowed funds refer to the borrowings of a business firm. Borrowed funds are in the
form of loans. In a joint stock company borrowed funds consist of the finance raised from
debenture holders, public deposits, financial institutions and commercial banks.
 Fig. 1: Sources of Finance
The problem of finance in case of sole proprietorship and partnership concern is not felt
much, for they are run on small-scale basis. Joint stock companies which are managed on a
large-scale basis, require vast-amount of capital and therefore, they have to depend for
finance on various sources. Companies require finance for three purposes viz, (i) for
financing fixed capital, (ii) financing working capital, (iii) financing extension and
improvements.
Financing of Fixed Capital. For financing fixed capital, a company may depend on the
following sources : (i) Share capital, (ii) Debentures, (iii) Public deposits, (iv) Ploughing back
of profit, and (v) assistance from financial and development corporations.
Financing of Working Capital. Working capital requirements are raised through (i) Public
deposits, (ii) issue of shares and debentures, (iii) loans from banks.
Financing of extension and improvement. The sources of finance for financing extension
and improvements are (i) issue of shares and debentures, (ii) Ploughing back of profits, and
(ii) assistance from financial corporations.
As we know there are two basic methods of raising capital by a company viz., (i) raising of
owned capital, and (ii) raising of borrowed capital. While the owned capital is raised by issue
of shares, the borrowed capital is raised by the issue of debentures, acceptance of deposits
from the public, loans from financial institutions.
All the financial requirements of a company can also be broadly classified into long-term,
medium-term and short-term finance. Some funds are required for long periods for the
purpose of acquiring fixed assets (Financing of fixed capital). Some funds are required for a
period of three to five years as, for example, for a heavy advertisement compaign or for
carrying out a complete overhaul machinery (Financing of extenstions and improvements).
Some funds are required for a short period, for example, funds required in order to carry on
day-to-day work (working capital).
Equity shares, preference shares, ploughing back of profits and debentures are generally used
for long-term finance.
Public deposits, commercial banks and financial institutions are the main sources of medium
term and short finance.
The various sources of finance are disccussed as follows :
1. Equity Shares. Shares which are not preference shares are known as equity shares. They
do not carry any preferential right. Dividend on equity shares is paid after the dividend on
preference shares has been paid. At the time of winding up, equity capital can be paid back
only after every claim including those of preference shareholders has been settled.
Merits of Equity Shares :
(i) These shares are a good source for providing long-term finance to the company, because
equity capital is paidback only if the company is wound up and that too after the claims of
preference shareholders have been meet.
(ii) Equity shares do not impose any obligation on the company to pay fixed dividend to the
equity shareholders.
(iii) A company with an ample equity base is viewed considerable favour by the creditors and
others who do business with it.
(iv) The face value of an equity share is generally quite low, such as Rs. 10. Therefore, equity
share have a wide appeal.
(v) As equity shares have no charge on the asset of the concern the company can easily raise
funds in the future by other methods like issue of preference shares or debentures.
(vi) Equity shares are the ideal investment for bold investors. They get hansome dividend and
the value of their holding appreciates during boom periods.
Demerits of Equity Shares :
(i) Excessive issue of equity shares may lead to over-capitalisation.
(ii) As control of the company is left in the hands of equity shareholders, the affairs of the
company can be manipulated by the powerful group of equity shareholders.
(iii) If the company issue only equity shares, it cannot get the benefits of trading on equity.
(iv) Higher dividends on equity shares during prosperous periods push up their market values
and generally lead to unhealthy speculation.
2. Preference Shares. Preference shares are those shares which carry certain priorities in
respect of the payment of dividend and return of capital and are subject to some restrictions in
regard to voting rights. The rate of dividend on these shares is fixed and the dividend must be
paid to them before paying any dividend on other shares.
Merits of Preference Shares :
(i) No legal obligation of pay dividend. So, there is no financial burden on the company.
(ii) Preference shares are better suited for conservative investors, who care more for security
of investments and certainty of income.
(iii) The management can return control over the company by issuing
preference shares to outsiders because the preference shareholders can vote only in
resolutions directly affecting them.
(iv) They enable the company in raising long-term funds without creating any change over its
assets.
Demerits of Preference Shares :
(i) Because of the issue of the preference shares, the rights of equity shareholders over all the
assets of the company are diluted.
(ii) Issues of these shares restrict the flexibility of the company in certain cases.
(iii) These shares fail to attract those investors who are interested in controlling the
management of the company and are willing to take risk.
(iv) The existence of preference shares may affect the creditworthiness of the company.
(v) The holder of this share get a fixed rate of dividend, even of the company makes a large
amount of profit.
3. Retained Profits or Ploughing of Profits. An existing company can retain a part of its
earning (profits) in the business. These earning can be ploughed back in business for future
expansion, replacement of fixed assets and for modernisation and diversification. This is the
cheapest way of financing since it has no cost, nor dividend or interest is payable on it. In
turn, the equity shareholders stand benefited as the rate of dividend goes up due to increase in
profitability.
Merits of Retained Earnings :
(i) A company with adequate surpluses can follow a stable dividend policy.
(ii) No charges or mortage is created on the companys assets. The company is free to use its
assets for raising loan in future.
(iii) It is the cheapest way of financing since no interest or dividend is payable on such
capital.
(iv) Ploughing back of own profits will lead to low costs, higher business, quicker
improvement and increased profitability. Under these circumstances, shareholders surely
stand to gain by the enlarged earning capacity of the companies.
(v) Retained earning as a source of finance do not affect the control of the existing
management.
(vi) Corporate savings accelerate the rate of capital formation in the country.
(vii) Retained earnings help in following a stable dividend policy. The company can pay
normal rate of dividend to the equity shareholders even in the year/s. When there is very little
profit or no profit.
Demerits of Retained Earnings :
(i) Accumulated profits may lead to over-capitalisation if the management capitalises than in
the form of bonus shares.
(ii) A company having huge retained earnings may prompt its Directors to indulge in
specialisation.
(iii) Retained funds are kept by the Directors for the benefits of the company. But in reality,
such funds may not be used in the interest of the company and may serve the personal
interests of the Directors.
(iv) The investors cannot receive the proper amount of dividend since a portion of the profits
is retained.
4. Debentures. The most usual form of borrowing by a company is by issue of debentures. A
debenture may be defined as an acknowledgement of a debt by a company. It is to be noted
that debentureholders are the creditors of the company. The obligation of a company towards
its debentureholders is similar to that of a borrower. The debentureholders are entitled to
periodical payment of interest at a fixed rate and are also entitled to redemption of their
debentures as per terms of debenture issue. Their rights depend upon the type of debentures
issued by the company.
Characteristics. The main features of debentures are as follows :
(i) A debenture is usually in the form of a certificate issued under the common seal of the
company.
(ii) Debentures represent borrowed funds.
(iii) Interest on debentures is paid at a fixed rate.
(IV) Interest payable every year irrespective of whether there are profits or not.
(v) Debentures do not carry voting rights.
(vi) Debentures are generally repayable after a specific period of time. Merits of Debentures
:
(i) Debentureholders earn a stable income.
(ii) Debenture financing does not result in dilution of control since debentureholders are not
entitled to vote.
(iii) Debentures provide an opportunity to a company to trading on equity, if the rate of return
on investment (ROI) exceeds the rate of interest payable on debentures.
(iv) A company can repay the funds raised through debentures when it does not require the
funds any more. This facility of redemption avoids the danger of over-capitalisation. It keeps
the financial structure flexible.
(v) Interest on debentures is an allowable expenditure under the Income-Tax Act. Hence, the
incidence of tax on the company is decreased.
(vi) Large amount of finance can be raised by issue of debentures from cautions and orthodox
investors who prefer safety of investment and a fixed return. In tight money conditions,
debentures are the best source of finance.
Demerits of Debentures :
(i) Repayment of principal and payment of interest are obligatory. Failure to meet these
payments may cause a great deal of embarrassment.
(ii) Debentures do not carry voting right. So, the debentureholders have no say against any
injustice.
(iii) The credit-worthiness of a company which has issued a large amount of debentures is
low. Borrowings from banks and financial institutions becomes difficult.
(iv) The assets of the company are mortgaged with debentureholders as a security against
their loans. As a result, the company cannot borrow money from financial institution on easy
terms and conditions.
(v) During times of low earnings, very little profits might be left after payment of interest on
debentures. The company may not be able to pay enough dividends and the market. Value of
its shares may go down.
5. Public Deposits. The deposits made by public with the joint stock companies are known as
public deposits. Public deposits provide medium-term finance to the corporate sector. The
reputed companies that enjoy public confidence can mobilise huge funds through this source.
Raising funds through inviting public deposits is quite popular in India. The receipt of public
deposits is governed by the rules made by the Central Government under the Companies Act.
The Companies receive public deposits at different rates of interest for different periods.
Merits of Public Deposits :
(i) The methods of public deposits simple as compared to raising loans from banks since, in
the latter case, various formalities have to be complied with.
(ii) The rate of interest is lower compared to the interest charged by banks for banks loans.
(ii) Public deposits are not usually secured by any change on the company's assets.
(iv) Administrative cost of deposits is lower than that involved in the issue of shares and
debentures. The procedure of inviting public deposits is simple and lesser formalities are
involved.
(v) This method makes the capital structure of the company flexible, because the deposits can
be repaid when they are not required.
(vi) The control of the existing management remains unaffected; because public deposits do
not enjoy voting rights.
Demerits of Public Deposits :
(i) New companies cannot depend on this source of financing since the public will be hesitant
to keep their investment with such companies as they know little about them.
(ii) To attract public money the company may have to offer higher rate of interest and this
may prove uneconomical and expensive.
(iii) Public deposits are available for a short period. It is not advisable to depend upon them
for long-term financing.
(iv) Depositors do not get any security for their investment. Management may use the
deposits as it likes.
(v) The system of collecting funds through public deposits may prove
injurious for the growth of a health capital market. Too much reliance on public deposits may
adversely affect the supply of industrial securities to the general public.
(vi) Public deposits are called 'fair weather friends. They are uncertain in periods of
depression and dangerous at critical juncture. Withdrawal of deposits at an uncertain period
may cause great inconvenience to the company.
6. Institutional Finance. Institutional finance means finance raised from financial
institutions other than commercial banks.
Financial institutions are an important source of raising long-term finance. They are also
known as development banks. They help in development of new undertakings by providing
long-term funds and technical managerial guidance. These institutions include the following :
(i) Industrial Finance Corporation of India. (IFCI)
(ii) National Industrial Development Corporation.
(iii) Industrial Credit and Investment Corporation of India Ltd.
(iv) Industrial Development Bank of India. (IDBI)
(v) Unit Trust of India. (UTI)
(vi) State Financial Corporations.
(vii) Small Industries Development Bank of India.
These institutions do not compete with the conventional institutions; rather they supplement
them.
Merits of Special Financial Institutions :
(i) Both owned as well as loan capital are available. Public financial institutions also provide
undertaking facilities.
(ii) New companies which may find it difficult to raise finance from the public can get it from
these institutions.
(iii) These institutions finance various development schemes like modernisation, expansion
plans without having any averse effect on the financial structure of the company.
(iv) Alongwith finance, a company can get expert advice and guidance for the successful
planning and administration of projects.
(v) The rate of interest is low and repayment procedure is simple.
(vi) Loans and guarantees in foreign currency and deferred payment facilities are available
for the import of required machinery and equipment.
(vii) As these institutions grant loan after thorough investigation, this will increase the credit
worthiness of a company.
7. Commercial Banks. Commercial banks generally provide short-term credit to the
corporate sector. They extend short-term loans only on the strength of the various types of
securities offered by the business enterprises. These short-term facilities are provided in the
form of (i) Bank overdraft, (ii) Cash credit, (iii) Bank loan, (iv) Discounting of Bills.
Q. 4. Distinguish between :
(i) Share and Debenture.
(ii) Equity Share and Preference Share.
Ans. (i) Distinction between a Share and a Debenture :

Basic of Distinction Share Debenture

1. Nature Share is part of owned Debenture constitutes a

capital. loan (Debt capital)

2. Status Status of shareholders is The status of debenture-

that of owners. holders is that of credi-

tors.

3. Reward Reward is the payment of Reward is the payment of

dividend. interest.

4. Rate of Return The rate of dividend may The rate of interest is

vary from year to year fixed.

depending upon the profit

of the company and the

decision of directors.

5. Priority as to pay- Payment of dividend gets Payment of interest gets

ment of interest/ no priority over the priority over payment of

dividend payment of interest. dividend.

6. Priority as to repay- Payment of share capital Payment of debentures is

ment of principal is made after the repay- made before the payment

during winding up ment of debentures. of share capital.

7. Voting rights Shareholders generally Debenture-holders do

enjoy voting rights. not have any voting rights

(expect at their class-

 meetings)

8. Convertibility Equity shares can never Debentures can be con-

be convertible. verted into shares.

9. Floating charge No charge on assets Generally a charge on assets.

10. Risk associated High risk Low risk.

with investment

(ii) Distinction between Equity Share and Preference Share

Basic of Distinction Equity Share Preference Share

1. Order of dividend Payment of equity dividend Payment of preference

Payment is made after the payment dividend is made before

of preference dividend. the payment of equity

dividend.

2. Return of Capital At the time of winding up Repayment of preference

of the company; Repay- share capital is made

ment of Equity share capi- before the repayment of

tal is made after the repay- equity share capital.

ment of preference share

capital.

3. Rate of dividend Rate of equity dividend Rate of preference divi-

may vary from year to year dend is fixed.

depending upon the deci-

sion of directors and mem-

bers.

4. Accumulation of In case of an equity share, In case of a preference

dividend arrears of dividend cannot shares, arrears of divi-

accumulate in any case. dend may accumulate.

5. Convertibility It cannot be convertible. It may be convertible.

6. Voting Rights Equity shareholders enjoy Preference shareholders

 voting rights. do not have any voting

rights except at their

class meetings.

7. Redemption Equity shares are Redeemable preference

irredemable during the life shares are redeemable of

of the company. during the life time of the

company.

Q. 5. Write notes on :
(A) Venture capital,
(B) Lease Finance,
(C) Methods of issuing corporate securities.
Ans. (A) Venture Capital. Development of entrepreneurship demands combination of three
vital factors :
— Innovative ideas.
— Competency in project preparation and implementations.
— Project financing.
There may be a many people with good project ideas. These ideas, however, do not get
translated into commercially viable practical projects in the absence of the other two factors.
Many young technocarts and others with innovative ideas suffer because of this. In this
context that the venture capital can play an important role in the industrial development by
providing the two missing links.
Venture capital is the risk capital which is required to launch and
operate a business venture in the initial stage.
Under SEBI (Venture Capital Funds) Regulation 1996, a venture capital fund is defined as "a
fund established in the form of a trust or company including a body corporate under these
regulations which :
(i) has dedicated pool of capital,
(ii) raised in a manner specified in the regulation.
(iii) invests in venture capital undertaking in accordance with these regulations.
Venture Capital is a source of long-term finance to provide equity capital to ventures
adopting latest technology.
Several Venture Capital Funds/Companies have been established in India IFCI Venture
Capital Funds (IVCF) Ltd. ICICI Venture Funds Management Company Ltd. Venture Capital
Fund of IDBI, National Venture Fund for Software and IT industry (NVFSIT) are some
popular Venture Capital Funds in India.
The main objective of this source is to provide equity finance to ventures using new
technology in order to commercialise the technology and develop new entrepreneurs in
setting up new units, Besides financing high technology, venture capital facilitates the growth
of industries.
Venture Capital is a high risk—high return business. The high risk is due to the fact that
projects are untested and are undertaken by novics. The targeted long-term returns from
Venture Capital Investment are normally high. Venture Capital investment is necessarily a
long-term investment.
The concept of venture capital originated in USA. Where three are about 600 venture capital
firms. Now it has become a global concept in the field of finding technology based industrial
projects.
(B) Lease Finance. A lease is a form of financing used by a firm to acquire the use of
assets. A lease is an agreement between the leasing company (called lessor) and the user
(called lessee), under which the former undertakes to buy the capital equipment for use by the
latter. The lessor remains owner of the asset during the specified period.
The Indian Accounting Standard .17 defines a lease as follows :
"A lease is an agreement where by a lessor conveys to the lessee, in return for rent, the right
to use an asset for an agreed period of time".
Lessor is their owner of the asset and lessee uses the assets in consideration of lease rentals
paid to the lessor.
Under a lease, the lessor retains ownership of the equipment. Lessee can use the equipment
by making monthly payments. He can of the purchases the equipment at the end of the lease
term for its marked value or less.
Types of Leasing. Various types of lease finance are as follows :
1. Operating lease. Under an operating lease, the lessee acquires the right to use the asset for
a short period e.g., a week or month. The lease may be renewed after the expiry of the period.
It is a suitable arrangement where assets are likely to become obsolete because of new
technology. For example, model of Computers change quickly because of new developments
operating lease is relatively more expensive.
The basic features of operating leases are as follows :
(i) The lease is cancellable by the lessor prior to its expiration;
(ii) The lessor provides service, maintenance, insurance etc.; and
(iii) The sum of all the lease payments by the lessee does not necessarily fully provide for the
recovery of the asset's cost.
2. Financial Lease. This lease enables the lessee to retain the asset after the end of the
stipulated basic period. This lease is for a basic term during which the agreement cannot be
cancelled. The length of the basic term depends on the economic life of the asset which is
shorter than the expired life of the asset. This arrangement enables the lessee to use the asset
after the expiry of the basic period, or alternatively the lessee may buy the asset at a
negotiated price on the termination of lease. Financial lease is suitable for land and building
and for very expensive equipment.
3. Sale and lease back. It is an arrangement under which the owner of the asset may sell it to
the leasing company and lease it back. Such an arrangement is adopted when the firm faces
shortage of funds.
4. Leveraged lease. Here, the lessor buys the asset to be leased by using borrowed funds or
loan from a lender. This debt amount is serviced out of lease rentals. In fact there are three
parties; the lessor, the lessee and the lender which may be a commercial bank or financial
institution. Leverage lease is suitable for very large assets such as a ship or an aeroplane.
Merits of Lease Finance :
(i) Easy Finance. Leasing is the easiest method of financing fixed asset. No mortagage or
hypothecation is required.
(ii) Liquidity. The lessee can use the asset to earn without investing money in the asset. He
can use his funds for working capital needs.
(iii) Use of Assets. The lessee gets the asset for productive purpose without any investment.
(iv) Flexibility. Leasing arrangement is more flexible. The amount and schedule of rentals can
be adjusted by the lessor to accommodate the genuine needs of the lessee.
(v) Tax Saving. Lease rentals are a part of expenditure and so are deductible from taxable
income of the lessee.
(vi) No risk of obsolescence. The risk of obsolescence of the asset due to technological
changes is to be borne by the lessor.
Demerits of Lease Finance :
(i) The lessee is not the owner of the asset. He gets only the right to use it. The asset may be
taken back as per provision of the agreement.
(ii) The lessee has to pay lease rentals on a regular basis to the lessor.
(iii) The lessee cannot make alternations or improvement in the asset without the prior
approval of the lessor.
(iv) Although lessee is not the owner, he is still responsible for maintaining the equipment as
specified by the terms of the lease (in case of finance lease) failure to do so can prove costly.
(C) Methods of issuing Corporate Securities. A public company may
employ any one or more of the following methods for raising funds by the issue of new
shares and debentures :
1. Public Issue or Initial Public Offer. Under this method, the issuing company issues a
prospectus to the public inviting offers for subscription.
''Advertisements are also given in the leading newspaper. In prospectus company provides
details about the purpose for which funds are being raised, past financial performance of the
company, background and future prospects, of the company. The investors who are interested
in the securities apply for the securities. As per Companies Act, 1956, it is obligatory for a
public limited company to file a copy of prospectus or a statement in lieu with the Registrar
of Companies before issue of prospectus. The prospectus must be drafted and issued as per
the provisions of the Companies Act and the guidelines of SEBI. Otherwise, it may lead to
civil and criminal liabilities. After receiving application for securities, the companies makes
allotment of securities keeping in view the prescribed requirements.
Public issue or direct selling of securities is the most common method of selling new issues
of securities. This method enables a company to raise sufficient funds from a large number of
investors widely scattered throughout the country. This method is suitable for reputed
companies which wants to raise large capital and can bear the heavy costs of a public issue.
2. Offer for Sale. Under this method new securities are offered to the investing public not
directly by the issuing company but by an intermediary who buys over the entire lot of
securities at a fixed price and results to the public at a higher price.
3. Private Placement. Private place of shares implies issue and allotment of shares to a
selected group of persons. In other wards, an issue, which is not public issue but offered to
selected group of persons, is called 'Private Placement of Shares'. Private placement of
securities is an extremely cost effective method of raising finance as compared to a public
issue.
4. Right Issue. Where a company decides to issue additional shares to the existing
shareholders of the company, such an issue is called "rights issue" and such shares are known
as "right shares."
5. Preferential Issue. This is the practice followed by a company to make preferential
allotment of securities to selected persons, who are normally the promoters, etc. at a pre-
determined price.
This method is quite convenient and economical.
 16. HUMAN RESOURCE MANAGEMENT
Q. 1. Define Human Resource Management and explain its nature.
Ans. Concept of Human Resource Management. Human beings are not considered now
simply wage earning labour but an asset, a purposeful resource of the organisation. Human
Resource Management or HRM is the management of this pusposeful resource. The speedy
changes in technology and economy are undergoing. The recent scenario of economic
liberalisation and process of globalisation increased the importance of human resource
management by mani-fold.
HRM is a process of bringing people and organisation together so that the goals of each are
met. It is that part of the management process which is concerned with the management of
human resources in an organisation. It tries to secure the best from people by winning their
wholehearted cooperation. In fact HRM is an art of procuring, developing and maintaining
competent workforce to achieve the goals of an organisation in an effective and efficient
manner.
"Human Resource Management is the recruitment, selection, development, utilisation,
compensation and motivation of human resources of the organisation?
— French Wendell
"Human resource management is that part of the management function which is primarily
concerned with the human relationships within an organisation. Its objective is the
maintenance of those relationships on a basis which, by consideration of the well-being of
the individual, enables all those engaged in the undertaking to make their maximum personal
contribution to the effective working of the undertaking."
— British Institute of Management
In short, HRM is concerned with the most effective use of people to achieve organisational
and individual goals. It is way of managing people at work, so that they give their best to the
organisation.
Nature of Human Resource Management
HRM has the following features :
1. A part of Management Discipline. HRM is a part of management discipline. It is not a
discipline in itself but is only a field of study. HRM, being a part of management process,
draws heavily from management concepts, principles and techniques and apply these in the
management of human resources.
2. Universal Existence. HRM is pervasive in nature. It is present in all enterprises. It
permeates all levels of management in an organisation.
3. Concerned with People. HRM is all about people at work, both as individuals and groups.
It tries to put people on assigned job in order to produce goods results. The resultant gains are
used to reward people and motivate them towards further improvement is productivity.
4. Action oriented. HRM focuses attention on action, rather than on record keeping, written
procedures or rules. The problems of employees are solved through rational policies.
5. Directed towards Achievement of objectives. HRM is directed towards achievement of
organisational objectives by providing tools and techniques of managing people in the
organisation effectively.
6. Integrating mechanism. HRM tries to build and maintain cordial relation between people
working at different levels in the organisation. It tries to integrate human assets in the best
possible manner for achieving organisational goals.
7. Development oriented. HRM intends to develop the full potential of employees. The
reward structure is turned to the needs of employees. Training is provided to improve the skill
of employees. Every attempt is made to use their talents fully in the service of organisational
goals.
8. Continuous Process. HRM is not a one short deal. It cannot be practised only one hour
each day or one day a week. It requires constant alertness and awareness of human relations
and their importance in every day operations.
9. Comprehensive Function. HRM is concerned with managing people at work. It covers all
types of people at all levels in the organisation. It applies to workers, supervisors officers,
manager and other type of personnel.
Q. 2. State the objectives of Human Resource Management.
Ans. Objectives of Human Resource Management. In order to achieve organisational
objectives integration of employer's interest and employee interest in necessary. In this light,
the objectives of HRM may be summarised as follows :
(i) To provide, create, utilise and motivate employees to accomplish organisational
(ii) To secure integration of individual and groups in securing organisational effectiveness.
(iii) To create opportunities, to provide facilities, necessary motivation to individual and
group for their growth with the growth of the organisation by training and development,
compensation etc.
(iv) To employ the skills and ability of the workforce efficiently i.e., to utilise human
resources effectively.
(v) To increase to the fullest the employee's job satisfaction and self actualisation; it tries
to prompt and stimulate every employee to realise his potential.
(vi) To create a sense and feeling of belongingness team sprit and ecourage suggestions
from employees.
(vii) To help maintain ethical policies and behaviour inside and outside the organisation.
(viii) To maintain high moral and good human relation within the organisation.
(ix) To manage change to the mutual advantage of individuals, groups, the organisation
and the society.
(x) To ensure that, there is no threat of unemployment, inequalities, adopting a policy
recognising merit and employee contribution, and condition for stability of employment.
Q. 3. Discuss the importance of Human Resource Management.
Ans. Importance of Human Resource Management. Human resources are the valueable
assets of the corporate bodies. They are their strength. To face the new challenges on the
fronts of knowledge, technology and changing trends in global economy needs effective
human resource management. Significance of HRM can be seen in three contexts :
organisational, social and professional.
Organisation Significance. HRM is of vital importance to the individual organisation as a
means for achieving their objectives. It contributions to the achievement of organisational
objectives in the following ways :
— Good human resource practice can help in attracting and retaining the best people in the
organisation.
— Developing the necessary skills and right attitudes among the employees through training,
development, performance appraisal, etc.
— Securing willing cooperation of employees through motivation, participation, grievance
handling, etc.
— Effective utilisation of available human resources.
— Ensuring that enterprise will have in future a team of competent and dedicated employees.
Social Significance. Social significance of HRM lies in the need satisfaction of personnel in
the organisation. Since these personnel are drawn from the society, their effectiveness
contributes to the welfare of the society. Society, as a whole, is the major beneficiary of good
human resource practice.
— Employment opportunities multiply.
— Eliminating waste of human resources through conservation of physical and mental health.
— Scare talents are put to best use. Companies that pay and treat people well always race
ahead of others and deliver excellent results.
Professional Significance. Professional significance of HRM lies in developing people and
providing healthy environment for effective utilisation of their capabilities. This can be done
by :
— Developing people on continuous basis to meet challenge of their job.
— Promoting team work and team spirit among employees.
— Offering excellent growth opportunities to people who have the potential to rise.
— Providing environment and incentives for developing and utilising creativity.
Q. 4. Discuss the main functions of Human Resource Management.
Ans. Functions of HRM. HRM is a process which works within the context of organisation
as a system. It consists of several inter-related functions. These functions are common to all
organisations. These functions of human resource management may broadly be classified into
two groups, v.z., (1) Managerial Functions, and (2) Operating Functions.
(1) Managerial Functions. The basic managerial functions comprise
planning, organising, directing and controlling.
1. Planning. This function is primarily concerned with accessing manpower requirements of
present and future to meet the organisational objectives Having assessed the requirement, the
next step is to assess the gap between the availability and requirement and action plans to fill
up deficiencies. Manpower policies, strategies and action plans are part of this function. In
regard to HRM, planning is process setting up of objectives and course of action of
transforming raw individual on selection of highly motivated and empowered employees.
2. Organising. For the implementation of plans, a sound organisation structure is required
organising is the process of allocating tasks among the members of the group establishing
authority responsibility relationship among them and interpreting their activities towards the
common objectives. In this way, a structure of relationship among jobs, personnel and
physical factors is developed. Creation of proper structural framework is the primary task of
human resource manager in the organising function.
3. Directing. The involves following three activities :
— Leading the team/group.
— Motivating employees.
— Communicating ideas, information and instruction.
Directing function is very important for improving productivity and peace in the organisation.
Directing also help in building sound individual and human relation in the organisation. A
Directing is the heart of management process because it is concerned with initiating action.
4. Controlling. This function deals with checking, verifying and regulating to ensure that
everything occurs in conformity with the plans adopted and the instructions issued. Such
monitoring helps to minimise the gap between desired results and actual performance. In the
area of HRM control function has excellent scope in recruitment, selection, performance
evaluation, promotion, motivation, morale, safety and welfare measures.
(2) Operating Functions. These functions are concerned with specific activities of
procuring, developing, compensating and maintaining an efficient workforce.
1. Procurement Function. This function is concerned with securing and employing the right
kind and proper number of people required to accomplish the organisational objectives. It
consists of the following activities :
(a) Job Analysis
(b) Human Resource Planning.
(c) Recruitment
(d) Selection
(e) Placement
(f) Induction or orientation functions.
2. Development Function. This function comprises the following activities :
(a) Training.
(b) Executive Development
(c) Career Planning and Development
Human resource development is the process of improving the knowledge, skills, aptitudes
and values of employees so that they can perform their duties more effectively.
3. Compensation Function. It refers to providing equitable and fair remuneration to
employees for their efforts to the attainment of organisational objectives. It consists of the
following activities :
(a) Job Evaluation
(b) Wages and Salary Administration.
(c) Bonus
4. Integration Function. This function deals with reconciling the goals of the organisation
with those of its members. Integration involves motivating employees through various
financial and non-financial incentives, providing job satisfaction, handling employees
grievance, collective bargaining, workers participation in management, developing sound
human relations, employees counselling etc.
5. Maintenance Function. This function is primarily concerned with protecting and
promoting the physical and mental health of employees. For this purpose several types of
fringe benefits like housing, medical aid, educational facilities, conveyance facilities etc. are
provided by management to their employees. Social security measures like provident fund.
Pension, gratuity, group insurance, etc. are also arranged. Health safety and welfare measures
are designed to preserve the human resources of the organisation.
Q. 5. What are Human Relations ? Explain the main elements of Human Relations.
Ans. Human Relations. It is the process of interaction among human beings. Human
relations is an area of management practice in integrating people into work situation in
a way that motivates them to work together productively, co-operatively and with
economic, psychological and social satisfaction.
In the words of Keith Davis, human relation is an area of management practice which is
concerned with the integration of people into a work situation in a way that motivates them to
work together productively, co-operatively and with satisfaction and achieve organisational
goals.
Hawthrone experiments laid the foundations for humans relations movement in
management. Elton may emphasised the importance of human factor in work situation. He
and his associates conducted the famous Hawthrone Studies during 1924-1932.
Human relations model heavily relied on social contracts at the workplace for motivation.
The human relation approach is based on the following ideas :
1. The Individual. By nature, each person is unique. He brings certain attitudes, beliefs,
values, skills etc. to the job situation. What motivates one
employee (individual) may not motivate another. Therefore, an individual is motivated by not
only economic factors but by several social and psychological factors. Because of individual
differences, organisational philosophy begins with the individual. Only a person can take
responsibility and make decision. A group is ineffective unless the individuals act therein.
2. The Work Groups. Work is a social exercise and most workers get satisfaction in social or
informal groups. The norms of such group decide to a great extent the attitudes and
performance of workers. Therefore, manager should maintain good inter-personal and inter-
group relation for achieving better result i.e., maximum productivity.
3. The Leader. As the leader of work group, a manager/supervisor should provide healthy
working environment in which employees are allowed to have a say in the decision-making
process. He can earn more respect and obedience by adjusting to various personalities and
situations.
4. The Work Environment. A healthy and positive work environment enables employees to
satisfy their needs as well as to achieve organisational goals. Positive work environment
includes well defined goals, performance linked rewards, feedback on performance, open
communication participative decision making etc.

Fig. 1: Human Relations Model

A human relation model represents an attempt an improving employee morale and motivation
through an improved two-way communication and through employee participation in the
decision-making process. Human relations seek to emphasis 'employee' aspects of work
rather than technical or economic aspects. It also seeks to make employment and work
conditions less impersonal.
Q. 6. What do you understand by the term employer-employee relations ? Explain the
objectives of employer-employees relations.
Ans. Employer-employee relations are as old as the industry itself. "Employer-employee
relation's" pose one of the most delicate and complex problem to modern industrial society.
Industrial progress of an economy can not be achieved without the cooperation of workers
and industrial harmony. Therefore, it in the interest of all to create and maintain good
relations between employers and employees.
Employer-employee Relations. The term 'employer-employee relations'
has been used in two different sense. In a narrow sense, it refers to relation between
employers and employees in industrial organisation.
According to Dale Yoder, the terms employer-employee relations refers to the whole field of
relationship among people, human relationship that exist because of the necessary
collaboration of men and women in the employment process of modern industry.
"Employer-employee relations are an integral aspects of social relations arising out of
employer-employee interaction in modern industries.
—V.B. Singh
In the broad sense, the term employer-employee relations also includes the relation between
the various unions (Employer and Employee) between the state and the unions as well as
those between the employers and the Government. Relations of all these associated in
industry is known as employer-employee relations.
"Employer employee relations comprise relationship between the State on the one hand and
the employers and employees organisations on the other hand and the relationship among the
occupational organisation themselves."
—I.L.O.
Features. Features of employer-employee relations :
1. Employer-employee relations are the outcome of the employment relationship in industry.
There are two parties in these relations :
(i) Employer, and
(ii) Employee.
2. Employer-employee relations include both individual relations as well collective relations.
Individual relations mean relation between employer and employees. Collective relations
mean relations between employer associations and trade unions as well as the role of State in
regulating these relations.
3. The concept of employer-employee relations is complex and multidimensional.
4. Employer-employee relations is a dynamic and developing concept.
5. These relations do not function in a vacuum. These are rather the composite result of the
attitudes and approaches of employers and employees towards each others.
6. The basic objective of employer-employee relations is to maintain harmonious relationship
between management and labour.
7. Three main parties are directly involved in employer-employee relations :
(i) Employers
(ii) Employees
(iii) Government
Objectives of Employer-employee Relations. The main objectives of employer-employee
relations are given below :
1. To develop and maintain harmonious relations between management and labour. This is
essential for higher productivity of labour and industrial progress.
2. To safeguard the interest of labour as well as management by securing the highest level of
mutual understanding and goodwill between all section in industry.
3. To avoid all forms of industrial disputes so as to ensure industrial peace by providing better
working environment and living standards to worker.
4. To raise a productivity in an era of full employment by reducing the tendency of
absenteeism and high labour turnover.
5. To establish and maintain industrial democracy through labour participation in
management, so that the personality of every individual is fully recognised.
Thus, the maintenance of good human relationship is the main aim of employer-employee
relations because in the absence of such relationships we cannot think about industrial
growth.
Q. 7. What are the causes of poor Employer-employee relations. Give you suggestions
for improving them.
Ans. Causes of Poor Employer-employee Relations. Employer-employee relations are not
satisfactory in the field of production. It is visible from frequent strikes, gheroa, lockout and
other forms of industrial disputes. Main causes of poor employer-employee relations are as
follows :
1. Economic Causes. Low wages and low allowances such as house rent allowance, medical
allowance, etc. are the main reasons for unhealthy relations among management and labour.
The continuous rise in prices of essential commodities have reduced the real wages of
workers. This forces them to demand for higher wages to increase their standard of living.
Employer-employee relation often get tension over the questions of bonus, its amount, time
and mode of payment.
2. Organisational Cause. Ineffective communication system, non-recognition of trade
unions, unfair practices, violation of collective agreement and standing orders and labour
laws are the organisational causes of poor relations in industry.
3. Social Cause. Unhealthy working environment is the main social cause. Factory system
and supervision have made worker a subordinate to the machine. Worker has lost sense of
pride and satisfication in the job. Tensions and disputes in society break-up of joint family
system, growing intolerance have also lead to poor employer-employee relations.
Dissatisfaction with job and personal life problems also creats industrial disputes.
4. Psycliological Causes. Lack of job security, poor organisational culture, non-recognition
of merit and performance, etc. are the psychological causes of poor industrial relations.
5. Political Causes. Political leaders have used union as powerful weapons to build inside a
plant/industry with a view to satisfy their own interest.
Political nature of trade unions, multiple unions and inter-union rivalry weaken trade union
movement. In the absence of strong and organised trade unions, collective bargaining
becomes uneffective interest.
Measures for Improving Employer-employee Relations :
There is always scope for improvement. Therefore, once the harmonious industrial relations
are established, the efforts must be made to maintain and further improve them. For the
improvement of employer-employee relations following measures should be taken :
1. Sound Human Resource Policies. Sound personnel policies should be formulated in
consultation with the representative of employees reviewed periodically, communicated to all
the members of the organisation and implemented uniformly throughout the organisation.
2. Constructive Attitudes. Both management and labour unions should adopt positive
attitude towards each other. Management should recognise union as the spokesmen of worker
grievances and as custodian of their interests. The employer should consider workers as equal
partner in a joint venture.
3. Collective Bargaining. Collective bargaining is a process in which the representative of
employees and employers negotiate on any dispute relating to employees and reach an
agreement amicably avoiding confrontation. Anything can be settled through negotiations
may it be rise in wages, payment of bonus or leave rules, working hours, working conditions,
etc.
4. Participative Management. Worker's participation in management should be encouraged.
Management should convience workers of the integrity and sincerity of he organisation.
Management should encourage right type of leadership. A strong union is an asset to the
enterprise.
5. Responsible unions. Worker unions should adopt responsible behaviour rather than
political approach to employer-employee relations. A strong, democratic and responsible
union alone can ensure that workers honour the agreement with their employer.
6. Employee Welfare. Employers should recognise the need for the welfare of the workers.
They must ensure fair wages, satisfactory working conditions, opportunities for training and
development, and other necessary facilities for labour.
7. There should be effective two-way communication between the management and
employees so that the basic policies and procedures relating to industrial relations are known
to everyday in the organisation and to the union leader. Proper communication is particularly
important. When a new decision is to be introduced or an existing decision is to be changed.
Proper communication helps in minimising resistance to change, eliminating unnecessary
misunderstanding, and thus, inavoiding a deterioration in industrial relations.
 17. MANAGEMENT OF CHANGE
Q. 1. What do you understand by planned change ? Discuss its nature.
Ans. Concept of Planned Change. Change is a natural process in human life, and since
people constitute an organisation, it cannot remain isolated from the effect of changes.
Changes may be either necessitated by the pressure of external forces or brought by
deliberate and conscious efforts of the management. The later type of change is called the
vocational or planned change.
Planned change implies deliberate alteration in the existing organisational system for some
desired results, e.g., profitability, employee satisfaction, improvement in the image of the
organisation, etc. The change may involve alteration in the structural relationship and in the
role of people in the organisation. Planned change can be both structural and behavioural.
According to Warren Bennies, "Planned change encompasses the application of systematic
and appropriate knowledge to human affairs for the purpose of creating intelligent action
and chances.
Nature of planned change. The planned change has the following characteristics :
1. Planned change is always deliberate, systematic and rational in nature. These changes are
results of innovative and creative thinking of a manager.
2. Planned change aims it coping with changing envionment and achieving new sets of goals
of the organisation.
3. These changes result in both forms—internal as well as external environment.
4. Planned change is natural and inevitable. An organisation faces this problem regardless of
its size. Every organisation makes some structural changes in response to changing
environment or to internal forces.
5. Planned change has certain objectives e.g. to increase profitability, to meet competition to
improve employee satisfaction, to expand and diversify operations, etc.
6. Planned changes may have both positive as well as negative aspects. If they have positive
aspect, they are more readily accepted by the employees otherwise the employees of the
organisation may resist them.
7. Planned changes are difficult, expensive and at times painful also. Due to such changes, the
employees may be compelled to surrender their comfortable and convenient work habits.
Similarly some of the loyal employees may lose their jobs.
8. A planned change disturbs the existing equilibrium between an organisation and its
environment. It leads to a new equilibrium.
9. Planned change may focus on the structure, processes, technology, people and
organisational goals, depending on the nature and magnitude of change.
10. Planned change requires change agents, i.e., people who act as catalysts and taken on the
responsibility of managing the change. These are managers, supervisors, or any other
employee or owners or outside agents like consultants and friends.
Q. 2. Discuss the Process of Planned change.
Ans. Process of Planned change. Main steps in the process of managing change are given
below :
1. Identifying need for change. First of all, the need for change in the organisation is
recognised. The management should carefully analyse the external and internal forces
demanding changes. The information regarding change comes from the external environment
and internal control system. After this, it is necessary to lay down the objectives of change.
This will help in determining the time, pace and quantum of change.
2. Determination of elements to be changed. After identification of objectives of change, it
is necessary to decide the elements which require to be changed. Change may be required in
the following elements : structure, technology and people.
3. Planning the change. This is perhaps the most crucial phase in the management of
change. It involves finding answer to questions like when to bring change; who will be
affected by change; how to introduce change and who will introduce change. The time of
introducing change must be favourable to the organisation.
4. Force-field analysis. At this stage, the managers should identify the two types of forces :
(i) driving forces which favour change and (ii) restraining forces which oppose change. The
strength of these forces should be judged if the change is to be introduced effectively.
The implications of force-field analysis are given below :
(i) When driving forces are stronger than restraining forces, the management should push the
driving forces and overpower restraining forces to implement the change.
(ii) When the restraining forces are stronger than driving forces, management may postpone
the change.
(iii) When the driving and restraining forces are equal in strength, management may push the
driving forces to implement the change.
5. Workers' participation. The management should discuss the proposed change with the
subordinates and allow them to participate in the new programme. Participation ensures
commitment from members.
6. Implement of change. The implementation of new programme involves the application of
various interventions suitable for the change. For example, a training programme may beheld
to change the attitude and behaviour of people. While implementing change, several
problems might have to be faced— (i) Resistance to change has to be overcome, (ii) Change
may disrupt the existing system of control. (iii) Change may upset the balance of powers in
the organisation.
It becomes, therefore, necessary to motivate change, to provide effective leadership. The
management can also use group dynamics for the introduction of change.
7. Follow-up and feedback. Follow-.up action is also necessary to see that change taking
place as planned. The feedback information from each and every department affected by the
change may be constantly monitored if the change is to be introduced effectively.
Q. 3. Explain why people resist change in an organisational setting ? How should a
manager handle change in his organisation ?
Ans. Causes of Resistance to change. As change is a natural process the resistance to
change is also a nature phenomenon.
Some of the important reasons why people resist change in organisation are as follows :
1. Fear of Economic Loss. People resist change when they perceive that they will loose
some economic benefits. Some examples of economic loss are given below :
— Fear of technological unemployment
— Fear of reduced work hours and consequently reduced monetry benefits.
— Fear of demotion and consequently less pay.
— Fear of increased work load without corresponding increase in there wages.
2. Obsolescence of Skills. It is possible due to change old skills and techniques may become
usless. For example, an experienced accountant may resist the introduction of a computer due
to the fear that his experience will become useless and it might affect his salary and position
in the organisation.
3. Problem of adjustment. Perhaps most important factor for resistance to change is the
problem of adjustment. Every individual tries to maintain a sort of equilibrium. When change
comes, it requires people to make adjustments so as to cope with the new situation. People
seek status quo because after establishing equilibrium, they may not life it to be disturbed.
Status quo gives them more satisfaction because the present equilibrium has been achieved
by eliminating those forces which create discomforts. When change is introduced, this
equilibrium does not remain as satisfactory as it was before the change. New methods of
production may create various problems because people have to engage themselves again in
the process of forming a new equilibrium.
4. Fear of Unknown. Change causes uncertainty and risk during the transition period. The
unknown poses a constant threat to people because the impact of change in unknown.
5. Ego Defensiveness. Sometimes people resist change because it hurts their ego. For
example an ego defensive branch manager may resist even a good suggestion from salesman
because he feels that his ego may be deflated if he accept his suggestion.
6. Social Displacement. Introduction of change often causes social displacement of people
by breaking-informal groups and relationships. When the friendship with fellow-members is
interrupted, employees will appose changes.
7. Threat to Power and Influence. When people at higher level consider change as a
potential threat to their position and influence they resist it.
8. Peer Pressure. People may resist change because the group to which they belong opposes
the change. Every group has its own norms and puts pressure on its members to resist change.
9. Organisational Structure. Somethimes it becomes difficult to introduce change due to
organisational structure. In other words organisational structure do not accept change.
For example, a typical bureaucrat where in jobs are narrowly defined, line of authority are
clearly spell out, and the flow of information is stressed from top to bottom. In such an
organisation new ideas do not get approval.
10. Other considerations. Some employees may consider every change in the benefit of the
company and management itself rather than their fellow workers or even the general public.
Hence, they resist the change.
Strategies to Manage Changes. The management can use the following strategies to
overcome resistance to change by the people and to introduce change successfully.
1. Education and Communication. One of the most easy techniques to overcome resistance
to change is to educate people, train them to adopt change, counsel them and communicate to
them the various aspect of change.
While communicating change, a manager should explain.
— What the change is ?
— When it is to be introduced ?
— How will it be implemented ?
— Why is the change needed ?
— What is the basic objective of change ? and
— How will the change be beneficial to all ?
2. Participation and Involvement. A simple technique of overcoming resistance to change is
to ask people to participate in change process (or programme). Participation ensures
commitment from members. When people are asked to involve, they themselves weigh pros
and cons of change, the benefit accrued to them after introducing change, and willingly
participate in the change programme and make it a success.
3. Facilitation and Support. A change agent should listen to subordinates, their viewpoints
and provide emotional support to them while coping with change.
4. Negotiation and Agreement. When some persons is organisation are resisting change, the
better way of overcoming such resistance is through negotiation and agreement. A change
agent may offer incentives to resistors for tackling the resistancge problem.
5. Manipulation and Co-optation. Manipulation involves conscious structuring of events
and the very selective use of information. Co-opration implies giving people a meaningful
role in designing and implementing change programmes. Management may resort to
manipulation when all other techniques fail to overcome resistance to change.
6. Coercion. Managers may force people to go along with a change by explicit or implicit
threats involving loss of jobs, denial of promotion, and the like. They may also dismiss or
transfer employees who stand in the way of change. Such coercive methods are risky and
may make it more difficult to gain support for future change efforts.
7. Group Dynamics. Forces operating within groups may be used to overcome resistance to
change. A group can be effective in changing the attitudes and behaviour of its members
when it is attractive to the members and they have a strong sense of belonging to the group.
Resistance to change is not always bad. It is beneficial because it provides an opportunity for
the resistors to understand the importance of change. When
they are convinced by the importance of change, they participate well in the change
programme and make it successful.
Q. 4. Why does the need for planned change in an organisation arise ?
Ans. Need for Planned Change. Changes in organisations are a must whether done
deleberately and successfully or unwillingly. Environment is dynamic. Consistent changes are
taking place all around us, every time. Change occur on government regulations, on
technology, on fashion, consumer preference, market conditions and customer expectations.
The forces of changes arise from both within and outside the organisation.
1. External Forces. Every organisation exists and operates in an environment. Environment
is dynamic. Changes occur frequently in the environment, e.g., economic, social, political
changes. An organisation must change in order to adjust itself to the new environment. Some
of the external pressures are as follows :
(i) Market Situation. Competition is an essential part of modern market. Competitors
introduce new products, better services, scientific advertisement, etc. The needs and habits of
consumers also change day by day. Organisation must change to survive and grow in such
market.
(ii) Technology. Technology adds a third dimension in industry, the other two being capital
and labour. Technology is advancing at rapid strides. No industry can afford to log behind in
the technology of their product and services. Upgradation of technology is a continuous
process. Organisation can ignore technological developments at the cost of their survival.
(iii) Population Dynamics Changing age distribution of population may cause shortage of
skilled people and may accentuate different life styles. Geotrophic movement of people may
require changes in marketing strategies.
(iv) Economic instability also requires necessary change.
(v) Political and Legal System. Relations between business and government are improving.
Legal provisions related to corporate sector are being changed rapidly. Transnational
corporations and other international development are forcing organisations to change their
structure and plans for better results.
2. Internal Forces. Pressure for changes also originate within an organisation. These are as
follows :
(i) Deficiencies in the existing system. Always remember that nothing is permanent. Changes
are necessary when the present structure is not capable of achieving organisational objectives.
(ii) Other Changes. Need for improving productivity and quality of working life, scarcity of
certain resources, e.g., power, need to avoid inertia, etc. are other internal sources of change.
Change is the life of an organisation. It can take place at all levels such as individual level,
group level and organisational level affecting individual, group and organisation.
 18. MANAGEMENT OF CONFLICT
Q. 1. What is organisational conflict ? Describe its nature.
Ans. Organisational Conflict. Conflict is a part of every organisation. In simple words,
conflict implies class between individuals and groups due to opposing ideas, perception,
goals, interest and values.
"Conflict in the organisation consists of opposing behaviour between two or more people or
groups who have incompatible goals" —Wendell French
" Conflict is a process in which an effort is purposefully made by one person or unit to block
another that results in frustrating the attainment of others goals or the furthering of his or
her interests" — Robbins
Conflict can take many forms. When it involves more than one person, it may take the form
of opinion. Conflict affects the behaviour of employees, their performance and job
satisfaction. Conflict arise because of disagreement. Conflict can exist between two managers
or executives of two different departments or two groups of employees of the same
organisation.
Features of conflicts ;
1. Conflict occurs when two or more parties pursue mutually exclusive goals, values or
events.
2. Conflict refers to deliberate behaviour. If one party does block the achievement of goals of
other deliberately, it does not amount to conflict.
3. There is difference between conflict and competition. In conflict one party sees an
opportunity to interfere with the other's opportunity to acquire resources of perform activity.
In competition, both parties may try to win but neither party actively interferes with the other.
4. Conflict can exist between two managers or executives of two different departments or two
group of employees of the same organisation.
5. Conflict is the opposite of co-operation.
6. Conflict is a dynamic process. It indicates a series of events.
7. If handled properly, a minimum level of conflict is necessary for the health of organisation.
Q. 2. Discuss the causes of conflicts. How should they be resolved ?
Ans. Causes of Conflicts. The causes of conflicts are as follows :
Difference in Goals. Various groups differ in their views about organisational goals because
of the following reasons :
(i) There are difference in sub-goals of various groups.
(ii) Individuals who are members of different groups differ in family background, culture,
education, training etc.
(iii) Pattern of ineraction among the group members may lead to differentiation of goals.
Conflicts also arise when individuals are not able to reconcile their personal goals with the
goals of the organisation.
2. Different in Perceptions. Differences in perceptions of people arise because of difference
in their background, education, training, culture etc. Such
161
differences in habits, cultural background, life-style and status level may create conflicts.
Conflicts will arise when different people at the same issue in different ways. Lack or
inadequacy of information may also affect perception.
3. Divergent Role. If a person has to work in more than one capacity, he may face role
conflict. For example, if a person is a supervisor as well as trade union leader, he represents
both management and labour. A supervisor has to considered the interest of both workers and
the management. Ambiguities in the role which people are to play are also causes of conflict.
4. Task Interdependence. Organisational conflicts also arise when the tasks of two groups
are inter-dependent and one group fails to meet the task demands of another group. Conflicts
between production department and marketing department is an example of such
interdependence.
5. Scarcity of Resources. Inter-personal conflicts is likely to arise when individuals compete
for scarce resources. For example, if three qualified employees compete for one higher
vacancy, conflict may create among them.
6. Organisational Reward System. Inter-group conflicts also arise because of the way in
which an organisation monitors group performance and distributes rewards-both economic
and non-economic. If the rewards system allows only one group to accomplish its goal at the
cost of other group, there are bound to be conflicts and even power struggle among the
groups.
7. Difference in Status. Each individual occupies a certain position or status in the society
and in the organisation. Sometimes status differences also block communication, which lead
to inter-individual conflict. For example, a high level executive may consider it below status
to go to a junior executive to seek some clarification.
Resolving of Conflict:
The following methods may be adopted for resolving conflicts :
1. Problem Solving. This method is best to remove misunderstanding. Under this method, an
attempt is made to bring the conflicting parties together and to share the mutual problem. The
focus in on sharing of information to avoid misunderstanding between them and to find out
areas of common interest. Question of who is right or who is wrong should be avoided.
2. Smoothing. It is the technique of suppressing differences existing between parties to the
conflict and emphasise common interest. Sharing of opinions certainly removes
misunderstanding and both parties realise that they are not far apart.
3. Compromise. Compromise is a well accepted technique for resolving conflict. It is process
of bargaining where the parties negotiate on the basis of give and take to arrive at some
agreement. There is no question of who is winner and who is loser because each party is
expected to sacrifice something in exchange for getting something. Compromise is
commonly used where the conflict involves differences in goals values or attitudes. This is
quite effective method of conflict resolution between management and workers.
4. Confrontation. The various actions enumerated above may not bring resolution of conflict
between parties if they take very rigid stand. In such a case, the parties are left to
conforntation to settle the conflict themselves. This strategy may result into win-lose
situation. The parties concerned may settle there score by applying their strength against each
other. On party's gain is another party's loss. Parties use weapons like arguments and fights to
win over each other. This technique is used when both parties adopt a very rigid stand.
5. Avoidance. Another method of overcoming conflict is its avoidance. It involves
withdrawal of parties from the picture of the conflict. When parties to the conflict fail to
arrive at mutually agreed solution. They may detach themselves from the conflict believing
that avoidance is better than wasting time and energy on childish arguments. It is a deliberate
decision to take no action or to stayout of a conflict situation. In this situation, conflict is
neither resolved nor eliminated.
Q. 3. Explain the functional and dysfunctional aspects of conflict in an organisation.
Ans. Functional Aspects of Conflict. Modern management experts feel that optimum level
of conflict is necessary for an organisation. Conflict can yield positive and negative
consequences for an organisation. Advantages or functions of conflict are as follows :
1. Stimulation for change. Conflicts bring about changes. They bring injustice,
inefficiencies and other defects to surface. The corrective measure can be taken through
appropriate changes.
2. Creativity and Innovation. Conflicts create awareness in respect of the problem faced by
the organisation, they can then be solved on time. The thinking process generated by conflict
may lead to innovations in policies and procedures.
3. Release of Tension. Conflicts provides an opportunity for releasing tension which may
otherwise remain suppressed. People can express their tension and frustrations through
conflict.
4. Group Cohesiveness. Group cohesiveness means group unity. Conflict brings about group
cohesiveness among the members of the group as every member cooperates to meet the
pressure of the conflict situation. As a result, there is greater loyality to the group.
5. Test of Capabilities. In fact conflict is a test of the ability of people to learn and develop.
It provides challenge to them. If they face challenge successfully, they will feel satisfied and
highly motivated.
6. Better Decisions. During the conflict episode, the parties may put forward their views and
also different alternatives. All these helps in taking better decisions by the groups.
7. Conflict. When a conflict occurs, it might help us identifying the weakness in the system.
Once the management comes to know about the weaknesset, it can take proper action to
remove it.
Dysfunctional Aspects of Conflict.
The positive effects of conflict are few and limited but negative effects are many and serious.
The main dysfunctions (dangers) of conflict are given below :
1. Tension and Stress. Conflict affects the physical and mental health of people by creating
tension and stress. Intensive conflict generates feeling of anxiety, guilt, frustration and
hostility. It becomes difficult to create coordination in the organisation when conflict arise.
2. Diversion of Energy. Conflict diverts efforts towards destructive activities. People try to.
focus more on their personal goals rather than on organisational goals.
3. Disequilibrium. Conflict creates disequilibrium in the organisation. The contributions of
individual are not according to their inducements because some of their energies are used in
conflicting behaviour. No organisation can exist in disequilibrium for long.
4. Loss of Dynamic staff. In case of inter-individual conflicts particularly, some dynamic
personnel may leave the organisation, if they fill to resolve the conflict in their favour. In this
situation, organisation will be the sufferer in the long-run.
5. Distorted communication. Perceptions get distorted because each group develops
negative perceptions towards the other. During the period of conflict members avoid
interactions with each other. As a result communication gap exists.
Keeping in view the positive or functional aspects of conflict, try to avoid unnecessary
conflicts by positive steps so that energy, time and capacity of members may be used for the
growth and development of organisations.
 B.Com. 1st Year
BUSINESS ORGANISATION—2000
(PAPER—I)
(Regular)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maximum Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. Define 'Business Environment' and explain its features. Also discuss the need for
understanding business environment.
Ans. See Q. 5 & 6, Page 12.
Q. 2. Define entrepreneurship. Explain the characteristics of entrepreneurship.
Ans. See Q. 2, Page 18.
Q. 3. What is Business Process Outsourcing (BPO) ? Explain its advantages.
Ans. See Q. 1, Page 29.
Q. 4. Define organising and discuss various steps in the process of organising.
Ans. See Q. 1, Page 57.
Q. 5. Define Human Resource management and explain its nature.
Ans. See Q. 1, Page 147.
Q. 6. Define management and discuss the functions of management.
Ans. The term 'management' yields to a number of interpretations and as such a precise
definition of management is difficult to be arrived at. Different experts have defined
management from different points of view.
"Management is establishing an effective environment for people operating in formal
organisationl group." —Koontz and O'Donnel
"Management is the art of knowing exactly what you want your men to do and then seeing
that they do it in the best and cheapest way."
—James L. Ludney
"Management is the co-ordination of all resoruces through the process of planning,
organising, directing and controlling in order to attain stated objectives" — F.W. Taylor
In short,
1. Management is concerned with getting things done through and with people.
2. Management is directing the efforts of people to achieve the goals of the organisation.
3. Integration of men, material and machine to achieve the goal's the cornestone of
management.
4. Development of people is an essential aspect of management.
Functions of Management. See Q. 1, Page 38.
Q.7. What do you mean by delegation of authority ? Explain briefly the principles of
delegation.
Ans. See Q., 2 & 3, Page 76 & 77.
Q. 8. Distinguish between the following :
(a) Formal and Informal Communication;
(b) Equity share & Preference share.
Ans. (a) See Q. 3, Page, 108.
(b) See Q. 4, Page 142.
Q. 9. (a) Discuss the scope of Financial Management.
(b) Discuss the relationship between planning and control as management functions.
Ans. (a) See Q. 2, Page 134.
(b) See Q. 3, Page 114.
Q. 10. Write short notes on any two of the following :
(a) Concept of motivation;
(b) Limitations of Planning,
(c) Consumer Behaviour.
(d) Leadership Styles.
Ans.(a) See Q. 1, Page 97.
(b) See Q. 5, Page 43.
(c) See Q. 5, Page 125.
(d) See Q. 2, Page 40.
 BUSINESS ORGANISATION—2000
(PAPER—I)
(External)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maxim urn Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. Define organising. Explain the principles of organising.
Ans. See Q. 1, Page 57 and Q. 6, Page 61.
Q. 2. (a) Define 'Business Environment' and explain its features.
(b) What do you understand by 'Business System' ? Describe its characteristics.
Ans. (a) See Q. 5, Page 12.
(b) See Q. 1, Page 5.
Q. 3. (a) Give reasons for the rapid growth of Service Sector in India.
(b) Write a short note on venture capital.
Ans.(a) See Q. 4, Page 31.
(b) See Q. 5 (a), Page 143.
Q. 4. (a) Define Marketing. Distinguish between marketing & selling.
(b) What is 'Product life cycle'. Explain the various stages in the life cycle of a product.
Ans.(a) See Q.1, Page 119.
(b) See Q. 6, Page 127.
Q. 5. Write notes on any two:
(a) Process of communication;
(b) Importance of controlling;
(c) Planned change;
(d) Objective of Human Resource Management.
Ans.(a) See Q. 2, Page 106.
(b) See Q. 1, Page 113.
(c) See Q. 1, Page 156.
(d) See Q. 2, Page 148.
Q. 6. Define management. Explain various functions of management.
Ans. See Q. 6, 2000 (Regular).
Q. 7. (a) "Planning is looking ahead." Discuss.
(b) Distinguish between strategic and operational planning.
Ans. (a) Planning is looking Ahead. Planning always means looking ahead or planning is
futuristic function. Planning is never done for the past. Planning is done in advance to
achieve a goal in future. Since future is uncertain, planning has to be done carefully so that
future changes do not fail the plans. Effective techniques of forecasting help planners in
predicting the future and discounting it to the present.
(b) See Q. 7, Page 47.
Q. 8. (a) Describe the various principles of delegation of authority.
(b) What is leadership ? Discuss various styles of leadership.
Ans. (a) See Q. 3, Page 77.
(b) See Q. 1 & Q. 2, Page 89, 90.
Q. 9. (a) Discuss the 'Need Hierarchy Theory of Motivation'.
(b) Discuss control by exception.
Ans.(a) See Q. 2, Page 98.
(b) See Q. 5, Page 117.
Q. 10. Write notes on any two:
(a) Benefits of Departmentation;
(b) Matrix organisation;
(c) Common barriers in communication process;
(d) Sources of finance.
Ans. (a) See Q. 2, Page 67.
(b) See Q. 1, Page 70.
(c) See Q. 4, Page 109.
(d) See Q. 8, Page 135.
 BUSINESS ORGANISATION—2001
(PAPER—I)
(Regular)
MODIFIED AS PER THE NEW SYLLABUS
Time: 3 hours . Maxim urn Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. Define Business system and explain its features. State briefly the various sub-
systems of business system.
Ans. See Q. 1 & Q. 2, Page 4 & 7.
Q. 2. Discuss fully the various entrepreneurial decisions which must be taken while
promoting a new business enterprise.
Ans. See Q. 10, Page 26.
Q. 3. Write notes on the following :
(a) E-Commerce;
(b) Objectives of Financial Management.
Ans. (a) See Q. 5, Page 32.
(b) See Q. 1, Page 133.
Q. 4. (a) What is organisational conflict ? Describe its nature.
(b) State the comparative advantages of shares over debentures as a source of capital.
Ans. (a) See Q. 1, Page 161.
(b) See Q. 3, Page 135.
Q. 5. Write notes on any two :
(a) Marketing mix;
(b) Product life cycle;
(c) Marketing concept;
(d) Market segmentation.
Ans.(a) See Q. 3, Page 122.
(b) See Q. 6( Page 127.
(c) See Q. 2, Page 121.
(d) See Q. 4, Page 123.
Q. 6. Define Planning and explain its significance. What are the main limitations of
planning ?
Ans. See Q. 2, Page 40 and Q. 5, Page 43.
Q. 7. Distinguish between :
(a) Functional Departmentation and Product Departmentation.
(b) Delegation and Decentralisation.
Ans. (a) See Q. 4, Page 69.
(b) See Q. 7, Page 81.
Q. 8. What is a 'group' ? Explain various types of groups found in work organisations.
Ans. See Q. 1, Page 83.
Q. 9. Define Motivation and explain its nature. Discuss fully the importance of motivation.
Ans. See Q. 1, Page 97.
Q. 10. Write notes on any two :
(a) Functions of Management;
(b) Group Cohesiveness
(c) Democratic Leadership;
(d) Importance of Controlling.
Ans. (a) See Q. 1, Page 38.
(b) See Q. 5, Page 87.
(c) See Q. 2, Page 90.
(d) See Q. 1, Page 112;
 BUSINESS ORGANISATION—2001
(PAPER—I)
(External)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maxim urn Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. What do you mean by E-commerce ? What are its benefits ?
Ans. See Q. 5, Page 32.
Q. 2. Write notes on any two :
(a) Group Dynamics;
(b) Different types of Departmentation;
(c) Market segmentation;
(d) Causes of conflicts.
Ans. (a) See Q. 3, Page 84.
(b) See Q. 1, Page 63.
(c) See Q. 4, Page 123.
(d) See Q. 2, Page 161.
Q. 3. (a) Describe the advantages and disdavantages of retained profits as a source of
finance.
(b) State the objective of Human Resource Management.
Ans. (a) See Q. 3, (Point 3), Page 138.
(b) See Q. 2, Page 148.
Q. 4. Distinguish between (any two):
(a) Policy & Rule.
(b) Shares and Debentures.
(c) Policy and Procedure.
(d) Strategic Planning and Operational Planning.
Ans. (a) See Q. 10 (i), Page 49.
(b) See Q. 4 (i), Page 142.
(c) See Q. 10 (ii), Page 50.
(d) See Q. 7, Page 47.
Q. 5. What is consumer behaviour ? Discuss briefly the various factors influencing
consumer behaviour.
Ans. See Q. 5, Page 125.
Q. 6. (a) Discuss the role of decision-making in management.
(b) Discuss in brief the functions of management.
Ans. (a) See Q. 12, Page 54.
(b) See Q. 1, Page 38.
Q. 7. Write notes on any two:
(a) Human Relations;
(b) Types of Plans;
(c) Style of Leadership;
(d) Process of control.
Ans. (a) See Q. 4, Page 151.
(b) See Q. 7, Page 47.
(c) See Q. 2, Page 90.
(d) See Q. 2, Page 114.
Q. 8. Distinguish between (any two) :
(a) Matrix organisation and Project organisation;
(b) Formal and Informal organisation structure;
(c) Delegation of Authority and Decentralisation of Authority.
Ans. (a) See Q. 3, Page 72.
(b) See Q. 5, Page 60.
(c) See Q. 7. Page 81.
Q. 9. (a) What are the merits and demerits of Networking Organisation ?
(b) Explain the importance of motivation in a Business Organisation.
Ans. (a) See Q. 4, Page 73.
(b) See Q. 1, Page 97.
Q. 10. Define Communication. What are the common barriers to communication in an
organisation ? How can they be overcome ?
Ans. See Q. 1, Page 106 and Q. 4, Page 109.
 BUSINESS ORGANISATION—2002
(PAPER—I)
(Regular)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maximum Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. Explain basic considereations in setting up a Business Enterprise.
Ans. See Q. 10, Page 26.
Q. 2. What are the problems in integration among sub-systems of the business system ?
Give suggestions for achieving integration.
Ans. See Q. 3, Page 9.
Q. 3. (a) Write a short note on Formal organisation.
(b) How does E-commerce operate ?
Ans. (a) See Q. 4, Page 59.
(b) See Q. 11, Page 37.
Q. 4. (a) What are the basic principles underlying planning ?
(b) Discuss the various steps in the process of planning.
Ans. (a) See Q. 3, Page 41.
(b) See Q. 4, Page 42.
Q. 5. Write notes on any two of the following :
(a) Organisational Conflict.
(b) Various types of groups.
(c) Process of Planned change.
(d) BPO.
Ans. (a) See Q. 1, Page 161.
(b) See Q. 1, Page 83.
(c) See Q. 2, Page 157.
(d) See Q. 1, Page 297.
Q. 6. Define management and discuss the functions of management.
Ans. See Q. 6, 2000 (Regular).
Q. 7. What is delegation of authority ? Discuss the various principles of delegation. How
can delegation be made more effective ?
Ans. See Q. 3, Page 77 and Q. 5, Page 78.
Q. 8. (a) Discuss the main functions of Human Resource Management.
(b) Discuss the relationship between planning and control as management functions.
Ans. (a) See Q. 4, Page 149. .
(b) See Q. 3, Page 114.
Q. 9. What do you understand by leadership ? Explain different styles of leadership.
What is the importance of leadership in modern business ?
Ans. See Q. 1, Page 89 and Q. 2, Page 90.
Q. 10. Write notes on any two :
(a) Nature and importance of motivation;
(b) Importance of communication;
(c) Objectives of Financial Management;
(d) Public Deposits.
Ans. (a) See Q. 1, Page 97.
(b) See Q. 2, Page 106.
(c) See Q. 1, Page 133.
(d) See Q. 3, (Point 5), Page 140.
 BUSINESS ORGANISATION—2002
(PAPER—I)
(External)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maximum Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. (a) Define business system and discuss its characteristics.
(b) Define 'Business Environment' and explain its features.
Ans. (a) See Q. 1, Page 5.
(b) See Q. 5, Page 12.
Q. 2. (a) Describe the services which may be outsources.
(b) Describe the qualities of a successful entrepreneure.
Ans.(a) See Q. 2, Page 30.
(b) See Q. 3, Page 20.
Q. 3. (a) What is meant by 'Group Cohesiveness'. Mention the factors which influence
group cohesiveness.
(b) Discuss the causes of conflicts.
Ans. (a) See Q. 5, Page 87.
(b) See Q. 2, Page 161.
Q. 4. Distinguish between any two of the following :
(i) Matrix organisation and Project organisation.
(ii) Formal and informal organisation.
(iii) Policy and Procedure.
(iv) Share and Debenture.
Ans.(i) See Q. 3, Page 72.
(ii) See Q. 5, Page 60.
(iii) See Q. 10, Page 50.
(iv) See Q. 4, Page 142.
Q. 5. Write short notes on any two of the following :
(i) Importance of Motivation.
(ii) Process of communication.
(iii) Nature of Human Resource Management.
(iv) Benefits of Departmentation.
Ans.(i) See Q. 1, Page 97.
(ii) See Q. 2, Page 106.
(iii) See Q. 1, Page 147.
(iv) See Q. 2, Page 67.
Q. 6. What is delegation of authority ? Explain its principles and difficulties.
Ans. See Q. 2, Page 76, Q. 3, Page 77 and Q. 5, Page 78.
Q. 7. (a) Discuss the role of Planning in Management.
(b) What do you understand by the term employer-employee relations ? Explain it
objectives.
Ans. (a) See Q. 5, Page 43. (Only Need and Importance of Planning.)
(b) See Q. 6, Page 152.
Q. 8. (a) Discuss the methods of issuing corporate securities.
(b) Write a short note on Venture Capital.
Ans. (a) & (b) See Q. 5 (c) & 5 (b), Page 143.
Q. 9. Distinguish between any two of the following :
(a) Entrepreneur and Manager.
(b) Marketing and Selling.
(c) X and Y Theory of Motivation.
Ans. (a) See Q. 4, Page 21.
(b) See Q. 10 (i), Page 49.
(c) See Q. 5, Page 119.
Q. 10. Write short notes on any two of the following :
(a) Marketing Mix;
(b) Objectives and Importance of Control;
(c) Leadership styles;
(d) Importance of Communication.
Ans. (a) See Q. 3, Page 122.
(b) See Q. 1, Page 112.
(c) See Q. 2, Page 90.
(d) See Q. 2, Page 106.
 BUSINESS ORGANISATION—2003
(PAPER—I)
(Regular)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maxim urn Marks: 75
Note: Attempt Five questions. All questions carry equal marks. Q. 1. Define 'Business
Environment'. Explain the need for understanding business environment.
Ans.(a) See Q. 5 & 6, Page 12.
Q. 2. Describe various sources of rasing long-term capital used by joint stock company.
Ans. See Q. 3, Page 135.
Q. 3. (a) Define Marketing. Distinguish between Marketing & Selling.
(b) What is Market Segmentation ? Explain its advantages.
Ans.(a) See Q. 1, Page 119.
(b) See Q. 4, Page 123. ,
Q. 4. Define the concept of 'Group Dynamics'. Why do informal groups emerge in an
organisation ? Ans. See Q. 3, Page 84.
Q. 5. Write short notes on any four :
(a) Feasibility Study;
(b) Need for Planned change;
(c) Application of E-commerce;
(d) Functional Aspects of conflict;
(e) Business System;
(f) Financial Management.
Ans. (a) See Q. 1 (iv), Page 17.
(b) See Q. 4, Page 160.
(c) See Q. 10, Page 36.
(d) See Q. 3, Page 163.
(e) See Q. 1, Page 5.
(f) See Q. 1, Page 133.
Q. 6. (a) Describe the functions of management.
(b) Discuss the process of decision-making in management.
Ans. (a) See Q. 1, Page 38.
(b) See Q. 12, Page 54.
Q. 7. What do you mean by process of delegation of authority ?
Explain its elements and how it is made effective.
Ans. See Q. 2, Page 76 and Q. 5, Page 78.
Q. 8. Explain the various steps planning process and describe the limitation of planning.
Ans. See Q. 4, Page 42 and Q. 5, Page 43.
Q. 9. Describe the term control. Explain its importance. Describe essentials of a good
control system.
Ans. See Q. 1, Page 112 and Q. 4, Page 116.
Q. 10. Write short notes on any four :
(a) Qualities of a good leader;
(b) Informal communication;
(c) Maslow's need hierarchy;
(d) Human Resource Management;
(e) Formal organisation;
(f) Policies.
Ans. (a) See Q. 5, Page 93.
(b) See Q. 3, Page 108.
(c) See Q. 2, Page 98.
(d) See Q. 1, Page 147.
(e) See Q. 4, Page 59.
(f) See Q. 6, (Point 3), Page 46 and Q. 9, Page 49.
 BUSINESS ORGANISATION—2003
(PAPER—I)
(External)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maximum Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. (a) What do you mean by E-commerce ? What are its benefits.
(b) Define 'Business System'. Explain the relationship of Business System with other
sub-systems.
Ans. (a) See Q. 5, Page 32.
(b) See Q. 1, Page 53 and Q. 2, Page 7.
Q. 2. What is 'Product life-cycle' ? Explain the various stages in the life-cycle of a
product. What marketing strategies should a firm follow during different stages of
product life-cycle ?
Ans. See Q. 6, Page 127.
Q. 3. (a) What is organisational conflict ? Describe its nature.
(b) What do you understand by Planned Change ? Discuss its nature.
Ans. (a) See Q. 1, Page 161.
(b) See Q. 1, Page 156.
Q. 4. Discuss the various sources of finance available to Indian industries.
Ans. See Q. 3, Page 135.
Q. 5. Write short notes any two of the following :
(a) Concept of Entrepreneurship.
(b) Business Plan.
(c) Business Process outsourcing.
(d) Reasons for the rapid growth of Service Sector in India.
Ans. (a) See Q. 2, Page 18.
(b) See Q. 10, Page 26.
(c) See Q. 1, Page 29.
(d) See Q. 4, Page 31.
Q. 6. Explain the functions and significance of Management.
Ans. See Q. 1, Page 38.
Importance or Significance of Management.
In the words of Drucker, "Management is the dynamic life-giving element in every
organisation. It is the activating force that gets things done through people'. Without
management an organisation is merely a collection of people, machinery, and material. With
management, the resources of production remain resources and never turn into products. The
importance of management dervies from its key functions.
1. It is management that determines the goals of an enterprise, keeping in view the available
resources.
2. It helps in the accomplishment of the goals of the organisation.
3. It helps in the utilisation of human and non-human resources in the best possible manner
and combination so that any kind of wastage is avoided and the resources are utilized to
their fullest extent.
4. Through effective management, costs are reduced, output is increased, and the enterprise
makes higher profits.
5. Management helps an organisation to grow in a stable manner.
Q. 7. Distinguish between 'Delegation of Authority' and 'Decentralisation of Authority'.
Explain the various principles of Delegation of Authority.
Ans. See Q. 7, Page 81 and See Q. 3, Page 77.
Q. 8.(a) What are the benefits of departmentation.
(b) What is matrix organisation ? Explain its advantages.
Ans. (a) See Q. 2, Page 67.
(b) See Q. 1, Page 70.
Q. 9. What do you mean by controlling ? Explain its objectives and importance.
Ans. See Q. 1, Page 112.
Q. 10. Write notes on any two of the following :
(a) Significance of Planning;
(b) Project organisation;
(c) Leadership styles;
(d) Formal and Informal communication.
Ans. (a) See Q. 5, Page 43.
(b) See Q. 2, Page 72.
(c) See Q. 2, Page 90.
(d) See Q. 3, Page 108.
 BUSINESS ORGANISATION—2004
(PAPER—I)
(Regular)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maximum Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. (a) What is Business Process Outsourcing (BPO) ? Explain its advantages.
(b) Define 'Business System'. Explain its sub-systems.
Ans. (a) See Q. 1, Page 29.
(b) See Q. 1, Page 5 and Q. 2, Page 7.
Q. 2. (a) What do you understand by planned change. Discuss nature.
(b) Discuss the merits and demerits of informal groups.
Ans.(a) See Q. 1, Page 156.
(b) See Q. 4, Page 85.
Q. 3. What is Financial Management ? Discuss its objectives.
Ans. See Q. 1, Page 135.
Q. 4. Explain in brief the functions to be performed in the process of marketing.
Ans. See Q. 7, Page 129.
Q. 5. Write notes on any two of the following :
(a) Matrix Organisation.
(b) Nature of Human Resource Management.
(c) Sources of Capital;
(d) Decision-making.
Ans. (a) See Q. 1, Page 70.
(b) See Q. 1, Page 147.
(c) See Q. 3, Page 135.
(d) See Q. 12, Page 54.
Q. 6. Define briefly functions of Management.
Ans. See Q. 1, Page 38.
Q. 7. (a) Explain the elements of Planning.
(b) Different types of departmentation.
Ans. (a) See Q. 6, Page 45.
(b) See Q. 1, Page 63.
Q. 8. What is meant by Delegation of Authority ? Explain briefly the principles and
limitations of Delegation of Authority.
Ans. See Q. 1, Page 75, Q. 3, Page 77 and Q. 3, Page 78.
Q. 9.(a) What do you understand by planned change ? Discuss its nature.
(b) Explain the various styles of leadership.
Ans. (a) See Q. 1, Page 156.
(b) See Q. 2, Page 90.
Q. 10. Wtite mates on any two of the following :
(a) Process of Control;
(b) Formal and Informal organisation;
(c) Formal and Informal Communication;
(d) Maslow's theory of Motivation.
Ans. (a) See Q. 2, Page 114.
(b) See Q. 5, Page 60.
(c) See Q. 3, Page 108.
(d) See Q. 2, Page 98.
(PAPER—I)
(External)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maximum Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. (a) Define Business System and explain briefly its various subsystems.
(b) Define entrepreneurship. Explain the characteristics of entrepreneurship.
Ans. (a) See Q. 1, Page 5 and Q. 2, Page 7.
(b) See Q. 2, Page 18.
Q. 2. Define marketing mix. Discuss the components of marketing mix.
Ans. See Q. 3, Page 122.
Q. 3. Explain the various sources of business finance.
Ans. See Q. 2, Page 153.
Q. 4. Define the term of 'Group Dynamics'. Why do informal groups emerge in an
organisation ?
Ans. See Q. 3, Page 84.
Q. 5. Write notes on any two of the following :
(a) Organisational conflict;
(b) Human Resource Management;
(c) Causes of Poor Employer-employee relations.
(d) BPO.
Ans. (a) See Q. 1, Page 164.
(b) See Q. 1, Page 147.
(c) See Q. 7, Page 154.
(d) See Q. 1, Page 29.
Q. 6. Explain the functions of management.
Ans. See Q. 1, Page 38.
Q. 7. What do you understand by planning ? Explain the significance and process of
planning.
Ans. See Q. 2, Page 40, Q. 4, Page 42 and Q. 5, Page 43.
Q. 8. What do you understand by decentralisation of authority ? How is it different
from delegation of authority ? What are the factors that influence decentralisation of an
authority in an organisation ?
Ans. See Q. 7, Page 81 and Q. 6, Page 79.
Also read the following :
Factors Determining the Degree of Dcentralisation of Authority :
1. Costlines of the Decision. Costlines of decision usually determines the extent of
decentralisation. The more costly the decision to be made, the
more likely that the decisions will be made at the upper levels of management. Quality
control and financial aspects are usually centralised. Managers do not like to delegate
authority for crucial decisions as they are ultimately responsible for it.
2. Management Philosophy. The philosophy of top management influences the degree of
decentralisation. On many occasions, the top managers retain authority as they are not
desirous of giving in activities which they enjoyed before the expansion of the business.
3. Availability of Managers. A real shortage of managers would limit the extent of
decentralisation. Delegation of authority presupposes the availability of qualified and trained
managers. While non-availability of qualified managers may limit the scop of
decentralisation of authority, decentralisation itself is the key to the development of future
managers.
4. Decentralisation of Performance. It is another important factor affecting the extent of
decentralisation. Decentralisation of performance depends upon such factors as availability of
raw materials and labour force, climate conditions, nature of work, local goodwill emanating
from local performance, etc. Decentralisation of performance increases the possibility of
decentralisation of authority.
5. Size. The larger the size of a business concern, the greater is the degree of decentralisation.
There is no question of decentralisation of authority in one-man enterprises.
6. History of the enterprise. Firms that have been built under the personal leadership of
owners are likely to minimise decentralisation. On the other hand, concerns created through
combination or group leadership tend to emphasise decentralisation.
7. Uniformity of action. Greater is the need for uniformity of policy or action, greater is
likely to be the degree of centralisation. That is why pricing, wage fixation and public
relations are more centralised than production and sales.
8. Control techniques. Delegation does not absolve a manager of his responsibility.
Decentralisation is, therefore, greater when techniques available for controlling subordinates'
actions are effective.
Q. 9. What are the causes of poor Employer-employee relation. Give your suggestions
for improving them.
Ans. See Q. 7, Page 154.
Q. 10. Write notes on any two of the following :
(a) Theory X' and 'Theory Y' of motivation;
(b) Autocratic and democratic leader;
(c) Process of control;
(d) Barriers to communication.
Ans. (a) See Q. 3, Page 101.
(b) See Q. 2, Page 90.
(c) See Q. 2, Page 114.
(d) See Q. 4, Page 109.
 BUSINESS ORGANISATION—2005
(PAPER—I)
(Regular)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maximum Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. What is business system ? What are the problems in integration
among sub-systems of business system ? Give suggestions for achieving
integration.
Ans. See Q. 1, Page 5 and Q. 3, Page 9.
Q. 2. What are owned funds ? Describe in brief various sources of owned funds.
Ans. See Q. 3, Page 135.
Q. 3. What is Market Segmentation ? Explain its advantages and limitations.
Ans. See Q. 4, Page 123.
Q. 4. (a) What is Business Process Outsourcing (BPO). Explain its advantages.
(b) Describe the threats to E-commerce.
Ans.(a) See Q. 1, Page 29.
(b) See Q. 8, Page 35.
Q. 5. Write notes on any two of the following :
(a) Causes for the rapid growth of Service Sector in India;
(b) Planned change;
(c) Group Dynamics;
(d) Organisational conflict.
Ans. (a) See Q. 4, Page 31.
(b) See Q. 1, Page 156.
(c) See Q. 3, Page 84.
(d) See Q. 1, Page 161.
Q. 6. (a) Discuss the various steps in the process of planning.
(b) What are the limitations of planning in a business ?
Ans. (a) See Q. 4, Page 42.
(b) See Q. 5, Page 43.
Q. 7. What is meant by delegation of authority ? Explain its principles. Distinguish
between delegation and decentralisation of authority.
Ans. See Q. 2, Page 76, Q. 3, Page 77 and Q. 7, Page 81.
Q. 8. (a) Distinguish between formal and informal communication.
(b) "Theory Z is a comprehensive philosophy of management'.
Comment.
Ans. (a) See Q. 3, Page 108.
(b) See Q. 6, Page 103.
Q. 9. (a) What is leadership ? Explain different styles of leadership
(b) Write a short note on : Control by Exception.
Ans. (a) See Q. 1, Page 89 and Q. 2, Page 90.
(b) See Q. 5, Page 117,
Q. 10. Write notes on any two of the following :
(a) Nature and significance of motivation;
(b) Human Relations;
(c) Process of control;
(d) Decision-making process.
Ans. (a) See Q. 1, Page 97.
(b) See Q. 4, Page 151.
(c) See Q. 2, Page 114.
(d) See Q. 12, Page 54.
 BUSINESS ORGANISATION—2005
(PAPER—I)
(External)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maximum Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. (a) State briefly the various decisions which an entrepreneur is required to take in
the promotion of a business enterprise.
(b) Give reasons for the rapid growth of Service Sector in India.
Ans. (a) See Q. 10, Page 26.
(b) See Q. 4, Page 31.
Q. 2. What is consumer behaviour ? Why is the study of consumer behaviour
important ? Discuss briefly the various factors influencing consumer behaviour.
Ans. See Q. 5, Page 125.
Q. 3. (a) Explain the objectives of Financial Management.
(b) Explain retained earnings and discuss its merits as a source of finance for a business
enterprise.
Ans. (a) See Q. 1, Page 133.
(b) See Q. 3, (Point 3), Page 138.
Q. 4. (a) Discuss business system as a part of Economic System.
(b) Give reasons for the rapid growth of Service Sector in India. Ans.(a) See Q. 4, Page
10.
(b) See Q. 4, Page 31.
Q. 5. Write short notes on any two :
(a) Features of Business System;
(b) Venture Capital;
(c) Marketing Mix;
(d) Qualities of a successful entrepreneure;
(e) Planned change.
Ans. (a) See Q. 1, Page 5.
(b) See Q. 5 (A), Page 143.
(c) See Q. 3, Page 122.
(d) See Q. 3, Page 20.
(e) See Q. 1, Page 156.
Q. 6. Define planning and explain the various steps in the planning process. Discuss the
significance of planning.
Ans. See Q. 2, Page 40, See Q. 4, Page 42 and Q. 5, Page 43.
Q. 7. (a) Explain the various steps in the process of organising and discuss the
significance of organising.
(b) Distinguish between delegation and decentralisation.
Ans. (a) See Q. 1, Page 57 and Q. 2, Page 58.
(b) See Q. 7, Page 81.
Q. 8. (a) Explain Maslow's Need Hierarchy Theory of Motivations.
(b) Explain leadership and discuss and functions of leadership.
Ans. (a) See Q. 2, Page 98.
(b) See Q. 1, Page 89.
Also read the following :
Functions of Leadership. A leader has to perform the following functions :
1. A leader has to build morale in his followers. Though this a difficult task, it is one of the
primary functions of a manager.
2. A leader has to create enthusiasm in the subordinates to achieve the business goals. For this
he has to understand feelings and attitudes of people at work.
3. A leader has also to perform the function of a teacher who has to guide his subordinates.
4. A leader has to look after the welfare of the people working in the organisation by caring
for their needs and feelings.
Q. 9. (a) Discuss the steps involved in controlling.
(b) "No Planning, no control". Comment.
Ans. (a) See Q. 2, Page 114.
(b) See Q. 3, Page 114.
Q. 10. Write short notes on any two :
(a) Functions of Management;
(b) Preparation of Business Plan;
(c) Matrix Organisation;
(d) Informal Groups;
(e) Informal Communication.
Ans. (a) See Q. 1, Page 38.
(b) See Q. 10, Page 26.
(c) See Q. 1, Page 70
(d) See Q. 3, Page 84.
(e) See Q. 3, Page 108.
 BUSINESS ORGANISATION—2006
(PAPER—I)
(Regular)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maximum Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. (a) Define Business System and discuss its characteristics.
(b) What do you mean by E-commerce ? What are its benefits ?
Ans. (a) See Q. 1, Page 5.
(b) See Q. 5, Page 32.
Q. 2. What is Financial Management. Discuss the scope of Financial Management
Ans. See Q. 1, Page 133 and Q. 2, Page 134.
Q. 3. Define marketing mix. Discuss the components of marketing mix.
Ans. See Q. 3, Page 122.
Q. 4. (a) What do you understand by planned change ? Discuss its nature.
(b) What is organisational conflict ? Discuss its nature.
Ans. (a) See Q. 1, Page 156.
(A) See Q. 1, Page 161.
Q. 5. Distinguish between any two of the following :
(a) Marketing and Selling;
(b) Formal and informal communication;
(c) Shares and Debentures;
(d) Functional Departmentation and Product Departmentation.
Ans. (a) See Q. 1, Page 119.
(b) See Q. 3, Page 108.
(c) See Q. 4 (i), Page 142.
(d) See Q. 4, Page 69.
Q. 6. Define management and discuss briefly the functions of management.
Ans. See Q. 6, 2000 (Regular).
Q. 7. What is meant by delegation of authority? Explain its principles. Distinguish
between delegation and decentralisation of authority.
Ans. See Q. 2, Page 76, Q. 3, Page 77 and Q. 7, Page 81.
Q. 8. What do you understand by leadership ? Explain different styles of leadership.
What is the importance of leadership in modern business ?
Ans. See Q. 1, Page 89 and Q. 2, Page 90.
Q. 9. What are the causes of poor employer-employee relations. Give your suggestions
for improving them.
Ans. See Q. 7, Page 154.
Q. 10. Write notes on any two of the following :
(a) Importance of planning;
(b) Project Organisation;
(c) Importance of Communication;
(d) Control by exception.
Ans. (a) See Q. 5, Page 43.
(b) See Q. 2, Page 72.
(c) See Q. 2, Page 106.
(d) See Q. 5, Page 117.
 BUSINESS ORGANISATION—2006
(PAPER—I)
(External)
MODIFIED AS PER THE NEW SYLLABUS
Time : 3 hours Maximum Marks: 75
Note: Attempt Five questions. All questions carry equal marks.
Q. 1. (a) What is business system ? Explain the features of business system.
(b) Explain the need for understanding business environment.
Ans. (a) See Q. 1, Page 5.
(b) See Q. 6, Page 12.
Q. 2. (a) Describe the various services which may be outsources.
(b) What do you mean by E-commerce ? What are its benefits.
Ans. (a) See Q. 2, Page 30.
(b) See Q. 5, Page 32.
Q. 3. What is meant by 'Marketing Concept' ? Discuss its importance.
Discuss its significance for a modern business enterprise.
Ans. See Q. 2, Page 131.
Q. 4. Discuss the various sources of business finance.
Ans. See Q. 3, Page 135.
Q. 5. Write short notes on any two of the following :
(a) Human Resource Management;
(b) Organisation conflict;
(c) Planned change;
(d) Networking organisation.
Ans. (a) See Q. 1, Page 147.
(b) See Q. 1, Page 161.
(c) See Q. 1, Page 156.
(d) See Q. 4, Page 73.
Q. 6. (a) Explain the concept of Motivation. Describe its significance.
(b) What are the functions of management ?
Ans. (a) See Q. 1, Page 97.
(b) See Q. 1, Page 38.
Q. 7. Define Planning. Explain the advantages and limitations of planning.
Ans. See Q. 2, Page 40 and Q. 5, Page 43.
Q. 8. (a) Distinguish between delegation of authority and decentralisation of authority.
(b) Distinguish between formal organisation and informal organisation.
Ans. (a) See Q. 7, Page 81.
(b) See Q. 5. Page 60.
Q. 9. (a) "Communication is a two-way process." Comment.
(b) Explain Maslow's need hierarchy theory of motivation.
Ans. (a) See Q. 2, Page 106.
Also read the following :
Generally we say that "management is a two-way traffic; it is based an effective machinery of
communication." Two-way communication made possible by feedback, has a back-and-forth
pattern. In two-way communication, the sender sends the message and receiver's response
comes back to the sender.
Tow-way communication is better than one-way communication in the following respects :
1. Two-way communication is more accurate than one-way communication. The feedback
allows the sender to refine his communication so that it becomes percise and accurate.
2. Receiver's self confidence is higher in two-way communication because he can get
clarification from the sender in case of doubt.
(b) See Q. 2, Page 98.
Q. 10. Write notes on any two of the following :
(a) Principle of organising;
(b) Significance of leadership;
(c) Process of control;
(d) Control by Exception.
Ans. (a) See Q. 5, Page 61.
(b) See Q. 1, Page 89.
(c) See Q. 2, Page 114.
(d) See Q. 5, Page 117.
 B. COM. I YEAR—2007
BUSINESS ORGANISATION AND MANAGEMENT
(PAPER—I)
(Regular)
Time : 3 hours Maximum Marks: 55
Attempt any Five questions. All questions carry equal marks.
Q. 1. Define business system. Discuss the various sub-systems of
business. Also describe the interaction between the various sub-systems
of business. 11
Ans. (a) Business System : See Q. 1, Page 5.
Sub-systems of Business : See Q. 2, Page 7.
Q. 2. (a) Explain the basic considerations in setting up a business
enterprise. 6
(b) Explain the process of managerial planning. What are its
benefits ? 5
Ans. (a) Basic consideration in setting up a Business Enterprise :
See Q: 10. Page 26.
(b) Process of Managerial Planning : See Q. 4, Page 42.
Benefit/Importance of Planning : See Q. 5, Page 43.
Q. 3. (a) What is matrix organisation ? Under what circumstances it is most useful ? 6
(b) What do you understand by 'delegation of authority' ? How can delegation be made
more effective ? 5
Ans. (a) Matrix oreganisation : See Q. 1, Page 70.
(b) Delegation of Authority : See Q. 2, Page 76.
Effective Delegation : See Q. 5, Page 78.
Q. 4. What do you understand by leadership ? Explain the different styles of leadership.
What is the importance of leadership in modern business ? 11
Ans. Leadership : See Q. 1, Page 89 & Q. 2, Page 90.
Q. 5. Define communication. What are the common barriers to communication in an
organisation ? How can they be overcome ? 11
Ans. (a) Communication : See Q. 1, Page 106.
Barriers to communication : See Q. 4, Page 109.
Q. 6. Explain the term 'Consumer-behaviour'. What is its significance ? Discuss briefly
the various factors influencing consumer-behaviour. 11
Ans. Consumer Behaviour : See Q. 5, Page 125.
Q. 7. Define Human Resource Management. Discuss the main functions of Human
Resource Management. 11
Ans. Human Resource Management: See Q. 3, Page 147.
Q. 8. What do you understand by the term 'Change' ? Why do people
resist change in an organisational setting ? How should a manager handle change in his
organisation ?. 11
Ans. Meaning of change : See Q. 1, Page 156.
Causes of Resistance to change : See Q. 3, Page 158.
Q. 9. Write short notes on any two of the following : 5½, 5½
(a) Sources of Authority;
(b) Bounded Rationality;
(c) Network Organization;
(d) Product-Life-Cycle.
Ans. (a) Sources of Authority. Some important theories, explaining the origin of authority,
could be briefly described as follows :
(i) Formal Authority Theory. This theory explain the primary source of authority. It states-
that authority lies with or is associated with ownership.
In a corporate enterprise, the ultimate authority for the administration and management of the
company, lies with the 'Board of Members'. Who represent the collective ownership of the
company. From the 'Board of Members', substantial authority is delegated to the 'Board of
Directors' which represents the top must organ of company management. From the Board of
Directors, authority is passed on in a hierarchical manner to the Chief Executive/General
Manager. Departmental Heads and so on till the lowest level of Management. (ii) Acceptance
Authority theory. According to this theory, authority is that which is accepted by the
subordinates of the manager, possessing formal authority. Authority of a superior depends on
the willingness of his subordinates to accept it. The authority becomes meaningless unless
those affected accept it and respond to it. If the subordinates do not accept authority, it is not
real and does not exist.
(iii) Competence Authority theory. This theory states that authority of a manager originates
from the competence of the manager, in a particular field of specialisation. For example, an
engineer, a Chartered Accountant or tax consultant has authority over others, not because of
his formal status but, more particularly because of his competence in a specific field of
specialisation.
(b) Bounded Rationality. Simon has introduced a new concept, which is bounded
rationality. The concept of bounded rationality refers to "boundaries or limits that exist in
any problem (situation) that necessarily restrict the manager's view of the world. Such
boundaries include limits to any manager's knowledge of all alternatives as well as such
elements as prices, costs and technology that cannot be changed by the decision maker."
Consequently the manager hardly strives to reach the optimum solution but realistically
attempts to reach a satisfactory solution to the problem at hand.
According to Simon, modern managers act within bounded rationality. The central feature of
the principle of bounded rationality is Simon's contention that the so-called 'administrative
man' does not follow an exhastive process of evaluation of the various options open to find a
course of action that is satisfactory. This, Simon calls, is 'satisfying' and he describes it in the
contrast
to the action of 'economic man', who selects that best possible option from among those that
are available.
(c) Network Organisation. See Q. 4, Page 73.
(d) Product-life-cycle. See Q. 6, Page 127.
Q. 10. Distinguish between the following (any two) : 5½,5½
(a) Formal and informal groups;
(b) Venture capital and lease finance;
(c) Equity shares and preference shares;
(d) McGregor's theory 'X' and theory 'Y'.
Ans. (a) Distinction Between Formal and Informal groups :
(i) Formation. Formal groups are deliberately designed and structured and managed in a
preplanned manner, whereas informal groups emerge spontaniously and nuturally out of
formal structure.
(ii) Purpose. The main purpose of each formal groups is to achieve predetermined
organisational goals, but informal groups are aimed at satisfying social and personal needs of
members.
(iii) Size. Formal groups are invariably large in size as against informal groups which tend to
be smaller in the size.
(iv) Leadership. Leadership in a formal group is supported by formal authority and power
position held by the leader", but in an informal group, it is based on competence, personality,
abilities and acceptance by group members.
(v) Relationship. Pattern of relationships in a formal group is strictly based on rationality,
legality and contract but personal, social and emotional factors govern the pattern of
relationship in informal groups.
(b) Venture capital and lease finance. See Q. 5, Page 143..
(c) Equity shares and preference shares. See Q. 4 (ii), Page 143.
(d) McGregor's theory' X' and theory 'Y'. See Q. 3, Page 101.
 B.COM. I YEAR—2007
BUSINESS ORGANISATION AND MANAGEMENT
(PAPER—I)
(External)
Time : 3 hours Maximum Marks: 75
Attempt Five questions in all. All questions carry equal marks.
Q. 1. What do you understand by business system ? Describe its various features. State
briefly the various sub-systems of a business system.
Ans. Business System. See Q. 1, Page 5.
Sub-systems of a Business System. See Q. 2, Page 7.
Q. 2. (a) What is outsourcing ? What is the need and importance of outsourcing of
certain services rather than performing itself?
(b) What entrepreneurial decision are required to be taken while setting up a new
business enterprise ?
Ans. (a) Outsourcing. See Q. 1, Page 29.
(b) Entrepreneurial Decisions. See Q. 10, Page 26.
Q. 3. (a) Discuss the various functions which constitute the process of management.
(b) Explain the various steps involved in planning process.
Ans. (a) Process of Management. See Q. 1, Page 38.
(b) Planning Process. See Q. 4, Page 42.
Q. 4. What do you mean by delegation of authority ? Explain its limitations. How can it
be made effective ?
Ans. Delegation of Authority. See Q. 2, Page 76 & Q. 5, Page 78.
Q. 5. (a) Define communication. What are the common barriers to communication in an
organisation ? Explain.
(b) "Planning is looking ahead and control is looking back". Do you agree with this
statement ?
Ans. (a) Communication. See Q. 1, Page 107.
Common barriers to Communication. See Q. 4, Page 109.
(b) Planning is looking ahead and control is looking back. Planning and controlling are
interdependent and interrelated activities. Planning without control is useless and control
without planning is meaningless.
Planning aims at future. Plans represent the future course of action to be adopted under
specified conditions. They are prepared with and eye on the future. It is useless to plan for
whatever has happened. Control, on the other hand, seeks to evaluate performance. It is an
investigation of whatever has happened. Generally we say that "Planning is looking ahead
and control is looking back'. But in one sense planning is looking back and control is looking
ahead. Plans are based on a review of the past events. Control involves a review of
performance but the corrective action is for the future. We cannot control and correct the
event which have already taken place. The experience gained from these events can be used
to avoid undesirable event in future.

Fig. 1 : Inter-dependence of Planning & Control

Q. 6. (a) What do you understand by project organisation ? Give its advantages.
(b) Discuss the steps involved in controlling.
Ans. (a) Project Organisation. See Q. 2, Page 72.
(b) Steps involved in Controlling. See Q. 2, Page 114.
Q. 7. What is product-life-cycle ? Explain the various stages in the life cycle of a
product. What marketing strategies should a firm follow during different market
stages ?
Ans. Product-life-cycle. See Q. 6, Page 127.
Q. 8. (a) Discuss the advantages and disadvantages of retained earnings as a source of
finance.
(b) What are 'Debentures' ? Discuss the merits and demerits of raising funds by issue of
debentures.
Ans. (a) Advantages and Disadvantages of Retained Earning as a Source of Finance. See
Q. 3, (Point No. 3), Page 138.
(b) Debentures. See Q. 3, (Point No. 4), Page 139.
Q. 9. (a) What do you understand by the term 'Human Resource Management' ?
Explain in brief the functions of Human Resource Management in an organisation.
(b) Why do people resist change ? Suggest measures to overcome resistance to change.
Ans. (a) Human Resource Management. See Q. 1, Page 147 & Q. 4, Page 149.
(b) Causes of Resistance to Change. See Q. 3, Page 158.
Q. 10. Write short notes on any two of the following :
(a) Formal and informal groups;
(b) Span of control;
(c) Decentralisation of authority;
(d) e-commerce.
Ans.(a) Formal and informal groups. See Q. 1 (Point No. 2, Types of Groups), Page 83.
(b) Span of Control. It is also called span of management or span of supervision. It gives
answer to the question of what is the need of
divisionalization and departmentalization and the levels within them. According to Theo
Haimann, it states that "a manager can effectively supervise only a certain number of
subordinates and not more."
Factors Determining Span of control. Various factors affect the span of control. Some
important factors are : (i) Ability of Managers, (ii) Availability of time; (iii) Efficiency of
subordinates; (iv) Nature of work; (v) the Degree of Decentralization; (vi) Control technique;
(vii) Organization's policies, (viii) Dynamics and complexity of Enterprise, (ix) Effectiveness
of communication system.
(c) Decentralisation of authority. See Q. 6, Page 79.
(d) e-commerce. See Q. 5, Page 32.
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 B.COM. I YEAR—2007
BUSINESS ORGANISATION AND MANAGEMENT
(PAPER—I)
(Regular & External)
B.COM. I YEAR—2008
BUSINESS ORGANISATION AND MANAGEMENT
(PAPER—I)
(Regular)
Time : 3 hours Maximum Marks : 55
Attempt any Five questions. All questions carry equal marks.
Q. 1. Why should firms study their business environment ? Explain
the impact of different components of business environment on business enterprises. 11
Ans. Need for understanding Business Environment: See Q. 6, Page 12.
Impact of different components of Business Environment: See Q. 7,
Page 15.
Q. 2. (a) "It is the entrepreneur who bears the risk of business." Comment on this
statement and state the functions of an entrepreneur.
5
(b) Explain the concept and applications of e-commerce. What
opportunities e-commerce offers to business firms for their growth ? 6
Ans. (a) Webster's dictionary defines an entrepreneur as one who organises, manages and
assumes the risks of a business enterprise. An entrepreneur assumes risk and therefore, he
must have self-confidence. He is both an investor and a financier and should therefore, be
able to shift investments in search of large profits. Risk-taking is the soul of entrepreneurship.
An entrepreneur assumes the responsibility for loss that might arise due to unforseen
contengencies in future. Risk is associated with innovation since the market of an innovative
product or service may or may not respond to the expectation of an entrepreneur. Risk also
exists due to change in customers' preferences, shortage of raw materials or sudden
unexpected calamities. An entrepreneur earns profit because he undertakes risks. Profit is the
reward for taking such risks.
The degree of risk varies in different industries. Although within the same industry, different
entrepreneurs undertake different degrees of risk according to their ability and inclination.
Profit is a payment for the assumption of risks by the entrepreneur. All other factors of
production have their guaranteed income, they must be paid the price which have already
been stipulated for, no matter whether there is any profit for the enterprise or not. It is the
entrepreneur's income which is unknown and uncertain. It is uncertain because it is
residual in nature. Since the assumption of risk is a disutility, it must be paid for. Profit is the
reward for the assumption of such risks.
In short, we can say that it is the entrepreneur who bears the risk of business. The more risky
the nature of a business, the greater must be the profit earned by it.
Functions of an Entrepreneur : The main functions of an entrepreneur are as follow :
1. Innovation : According to Schumpeter, entrepreneurship is essentially a creative activity.
The entrepreneur is the innovator who introduces something new into the economy.
Innovation implies doing new things or doing things that are already being done in new ways.
It may occur in the following forms :
(i) Introduction of a new product or new quality of an existing product.
(ii) Introduction of a new method of production or distribution.
(iii) Opening of a new market.
(iv) Conquest of a new source of raw materials.
(v) New form of organisation of industry.
2. Risk-taking : Risk-taking is the base of entrepreneurship. An entrepreneur takes the
responsibility for loss that may arise due to unforeseen contingencies in future. Risk is
associated with innovation because the market of an innovative product or service may or
may not respond to the expectation of an entrepreneur. Risk also exists due to change in
customers' preferences, shortage of raw materials or sudden unexpected calamities.
3. Organisation Building : An entrepreneur brings together various factors of production,
organises them properly and take decisions for better results. He determines the line of
business, expansion and growth of the enterprise. As an organisation builder, he performs
planning, coordination and control functions.
Peter Kilby has listed the following functions of an entrepreneur :
(i) Perceiving market opportunities.
(ii) Gaining command over scarce resources.
(iii) Purchasing inputs.
(iv) Marketing the products.
(v) Dealing with bureaucrats.
(vi) Managing human relations within the firm.
(vii) Managing customer and supplier relations.
(viii) Managing finance.
(ix) Managing production.
(x) Acquiring and overseeing assembly of the factory.
(xi) Industrial engineering.
(xii) Upgrading process and product quality.
(xiii) Introducing new production techniques and products.
(b) Concept and application of e-commerce : See Q. 5, Page 32.
Opportunities e-commerce offers to business : See Q. 7, Page 34.
Q. 3. What is a strategy ? Explain the significance of strategy for a
business firm in today's time of intense competition. Briefly discuss
the steps in strategy formulation. 11
Ans. Meaning and Importance of Strategy, Process of Strategy
Formulation : See Q. 11, Page 50.
Q. 4. (a) What is a network organisation ? Explain its features. 6
(b) What do you understand by 'group dynamics' ? Why do informal groups emerge in
an organization ? 5
Ans. (a) Network organisation : See Q. 4, Page 73.
(b) Group Dynamics : See Q. 3, Page 84.
Q. 5. What is motivation ? Explain Herzberg's Two Factor Theory and differentiate it
from Maslow's Theory of Need Hierarchy. 11
Ans. Meaning of Motivation : See Q. 1, Page 97.
Herzberg's two factory theory : See Q. 4, Page 102.
Difference between Maslow's theory and Herzberg's two factor theory : See Q. 5, Page
102.
Q. 6. (a) What are the common barriers to communication in an organization ? How
can these be overcome ? 6
(b) "Planning is looking ahead and control is looking back." Explain. 5
Ans. (a) Common barriers to communication : See Q. 4, Page 109.
(b) "Planning is looking ahead and control is looking back" : The above statement is only
partially correct. Plans are concerned with future activity in the sense that they are forward
looking or futuristic in nature. Plans are made for the future and for this purpose forecasting
and prediction is very important. This is the reason to say that planning is looking ahead. But
it is also important that while making plans, the managers have to keep in mind their past
experience.
In the process of control, past performance is compared with the planned targets to find out
the deviation between the two. It is the reason to say that controlling is looking back. But the
objective of controlling to check the factors responsible for poor performance in the past, so
that in future such mistakes are not repeated and the organisation can achieve the
predetermined objectives.
Q. 7. (a) What is 'Marketing Mix' ? Describe its main components. 6
(b) Why is the study of consumer behaviour important for marketers ? What factors
influence the buying behaviour of consumers ?
5
Ans. (a) Marketing Mix : See Q. 3, Page 122.
(b) Importance of study of consumer behaviour : See Q. 5, Page 125.
Q. 8. (a)What is meant by borrowed funds ? Briefly explain any two
sources of borrowed funds. 6
(b) What do you understand by employer-employee relations ?
Explain its main objectives. 5
Ans. (a) Borrowed Funds : See Q. 3, Page 135.
(b) Employer-Employee Relations : See Q. 6, Page 152.
Q. 9. (a) Explain the process of planned change. 5
(b) What is an organizational conflict ? Suggest measures through which conflicts can
be resolved. 6
Ans. (a) Process of planned change : See Q. 2, Page 156.
(b) Organizational Conflict: See Q. 1, Page 161.
Q. 10. Write notes on any two of the following : 5½,5½
(a) Business Process Outsourcing (BPO)
(b) Managerial Grid
(c) Venture Capital
(d) Operative Functions of HRM.
Ans. (a) Business Process Outsourcing (BPO) : See Q. 1, Page 29.
(b) Managerial Grid : See Q. 4, Page 92.
(c) Venture Capital: See Q. 5 (a), Page 143.
(d) Operative Functions of HRM : These functions are concerned with specific activities of
procuring, developing, compensating and maintaining an efficient workforce.
1. Procurement Function : This function is concerned with securing and employing the right
kind and proper number of people required to accomplish the organisational objectives. It
consists of the following activities :
(a) Job Analysis
(b) Human Resource Planning.
(c) Recruitment
(d) Selection
(e) Placement
(f) Induction or orientation functions.
2. Development Function. This function comprises the following activities :
(a) Training.
(b) Executive Development
(c) Career Planning and Development
Human resource development is the process of improving the knowledge, skills, aptitudes
and values of employees so that they can perform their duties more effectively.
3. Compensation Function. It refers to providing equitable and fair remuneration to
employees for their efforts to the attainment of organisational objectives. It consists of the
following activities :
(a) Job Evaluation
(b) Wages and Salary Administration.
(c) Bonus
4. Integration Function. This function deals with reconciling the goals of the organisation
with those of its members. Integration involves motivating employees through various
financial and non-financial incentives, providing job satisfaction, handling employees
grievance., collective bargaining, workers participation in management, developing sound
human relations, employees counselling etc.
5. Maintenance Function. This function is primarily concerned with protecting and
promoting the physical and mental health of employees. For this purpose several types of
fringe benefits like housing, medical aid, educational facilities, conveyance facilities etc. are
provided by management to their employees. Social security measures like provident fund.
Pension, gratuity, group insurance, etc. are also arranged. Health safety and welfare measures
are designed to preserve the human resources of the organisation.
 B.COM. I YEAR—2008
BUSINESS ORGANISATION AND MANAGEMENT
(PAPER—I)
(External/Correspondence)
Time : 3 hours Maximum Marks : 75
Attempt Five questions in all. All questions carry equal marks.
Q. 1. (a) Define a business system. Analyse the impact of environment on it. 7
(b) Discuss the various sources from where an entrepreneur can discover ideas for
setting up a business. 8
Ans. (a) Meaning and Definition of Business System : See Q. 1, Page 5. Impact of
environment on business : See Q. 7, Page 15.
(b) Various sources from where an entrepreneur can discover ideas for setting up a
business : See Q. 9, Page 24.
Q. 2. (a) Do you think e-commerce is a suitable choice for the Indian businessmen ?
Give reasons in support of your answer. 7
(b) Planning and Control are complementary to each other. Comment. 8
Ans.(a) Yes, e-commerce is a suitable choice for the Indian businessmen because it offers
many benefits to the business community.
Benefits of e-commerce : See Q. 5, Page 33.
(b) Planning and control are complementary to each other : See Q. 3, Page 114.
Q. 3. (a) Define strategy formulation. Outline its process. 7
(b) "Managers cannot be rational decision makers in real life". Do you agree ? Give
reasons. 8
Ans. (a) Strategy formulation : See Q. 11, Page 51.
(b) "Managers cannot be rational decision makers in real life" — Bounded Rationality :
See Q. 9 (b), Page 194.
Q. 4. (a) What do you understand by the term departmentation ? List the bases on
which departments can be created. Explain any one of them. 8
(b) "Theory Z is the last word on motivation." Comment. 7
Ans. (a) Departmentation : See Q. 1, Page 63.
(b) Theory Z on Motivation : See Q. 6, Page 103.
Q. 5. (a) Define communication. Explain the common barriers to communication in a
business organisation. 8
(b) How can we establish an efficient control system in a modern business enterprise ? 7
Ans. (a) Define communication : See Q. 1, Page 106.
Barriers to communication : See Q. 4, Page 109.
(b) Efficient Control System : Control is the continuing process of measuring actual results
against standards and the process of the necessary corrective action. It takes the procedures
entailed in planning, noting what is to be done, how, when and by whom, and establishes
control points in the procedures for checking each major item to the predetermined target.
The basic control process, whenever it is applied and whatever it seeks to control, consists of
the following steps :
Process of Control: See Q. 2, Page 114.
Q. 6. (a) Explain the concept of Financial Management. Discuss its scope. 7
(b) Why do you think employer-employee relations are not satisfactory in India ?
Suggest ways of improving them. 8
Ans. (a) Concept of Financial Management: See Q. 1, Page 133. Scope of Financial
Management: See Q. 2, Page 134. (b) Employer-employee relations are not satisfactory in
India. Causes of Poor Employer-employee Relations and Measures for improving them:
See Q. 7, Page 154.
Q. 7. (a) What do you understand by "Planned change" ? How can we overcome
resistance to change ? 7
(b) Why do conflicts arise ? How can they be resolved ? 8
Ans. (a) Planned change : See Q. 1, Page 156.
Strategies to overcome resistance to change (Strategies to Manage Change): See Q. 3,
Page 159.
(b) Causes of Conflicts and Resolving of Conflict : See Q. 2, Page 161.
Q. 8. Discuss the various sources of raising funds for a business venture. 15
Ans. Various sources of raising funds for a business : See Q. 3, Page 135.
Q. 9. Distinguish between (any two) : 7½,7½
(i) Delegation and Decentralisation;
(ii) Selling and Marketing;
(iii) Formal and Informal Groups;
(iv) Hygiene factors and Motivation factors.
Ans. (i) Delegation and Decentralisation : See Q. 7, Page 81.
(ii) Selling and Marketing : See Q. 1, Page 119.
(iii) Formal and Informal Groups : See Q. 1, (Point No. 2), Page 83. Also read Q. 10 (a),
2007 (Regular), Page 195.
(iv) Hygiene factors and Motivation factors : See Q. 4, Page 102.
Q. 10. Write short notes on (any two) : 7½,7½
(i) Project Organisation;
(ii) Managerial grid;
(iii) Product life-cycle;
(iv) Essential features of a good control system.
Ans. (i) Project Organisation : See Q. 2, Page 72.
(ii) Managerial grid : See Q. 4, Page 99.
(iii) Product life-cycle : See Q. 6, Page 127.
(iv) Essential features of a good control system : See Q. 4, Page 116.
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 B.COM. I YEAR—2008
BUSINESS ORGANISATION AND MANAGEMENT
(PAPER—I)
(Regular & External/Correspondence)
B. Com. 1st Year-2009
Business Organisation and Management
Paper -1
(REGULAR)
Time allowed : 3 hours Maximum Marks .55
Note : The maximum marks printed on the question paper are applicable for the students of
the regular colleges (Cat. 'A'). These marks will, however, be scaled up proportionately in
respect of the students of NCWEB at the time of posting of awards for compilation of result.
Attempt any five questions. All questions carry equal marks.
Q. 1. (a) What are various components of a business system ? How do they interact with
each other ?
(b) What are the advantages of E-commerce ?
Ans. (a) Various components of a business system : See Q, 2,
[Page 7].
(b) Advantages of E-commerce : See Q. 5, [Page 32].
Q. 2. "Business outsourcing is not an unmixed blessing." -Comment.
Ans. "Business outsourcing is not an unmixed blessing." : See Q.1, [Page 29]. Also read
the following :
In short, outsourcing enables a business enterprise to concentrate its attention on core
competency areas like manufacturing, marketing capital budgeting etc. and thus obtain
advantages of specialized performance in those areas. Through outsourcing a business firm
can take full advantages of the specialized services of the outsourcer. Outsourcer operates on
a large scale. Therefore, the cost of services provided by them is much less than the cost the
client company would have incurred had it performed the same services in the organisation
itself. Moreover, outsourcing of services reduces the labour cost and labour problems.
Outsourcing can be, however, a double edged sword. In the race to outsource, companies
many cede skills that once made them unique. In other words, 'Business outsourcing is not an
unmixed blessing".
Q. 3. Define 'strategy' and explain process of strategy formulation. \
Ans. Strategy : See Q. 11, [Page 50].
Q. 4. "Delegation of authority is key to management success." -Comment. What are the
obstacles in delegation and how can you remove them ?
Ans. "Delegation of authority is key to management success" : See Q. 4, [Page 77].
Obstacles in delegation or Barriers or difficulties in Delegation of Authority : See Q. 5,
[Page 78],
Q. 5. (a) Explain the process of group formation.
(b) Describe the concept of matrix structure and its merits.
Ans. (a) Process of group formation : Group cannot be formed and developed within a short
span of time. It gets developed through various stages. These stages of development are
referred to as forming, storming, norming and performing.
1. Forming : This is the first stage of group formation. This is the beginning of a group
where there is a great of difficulties arise as regards objectives and goals, framing of rules and
regulations, taking the members into confidence, framing the structure, deciding about
leadership issue, tackling the differences among members. During this stage members of
group select their leader. After the selection of leader another stage begins. This stage is
known as stroming.
2. Stroming : It is a stage where conflicts arise. It is the testing time for group leader to
pacify and resolve the conflicts between the members of group that have arisen because of
interpersonal behaviour. There are chances of split in the group. The leader has to accept the
challenge and settle the disputes of members. Stroming is the stage of struggles. There is
tension and hostility among members. Some have strong resistance to certain issue.
Everything has to be settled out then the development of group leads to the next stage of
norming.
3. Norming : Leadership gets established under this stage resulting into group cohesion.
Group gets organised. Members of the group know believe each others and mutual
understanding develops. A sense of belonging to the group and togetherness strengthened.
The conflicts and misunderstandings get resolved. The members start identifying with the
group. Consensus among the members over the leadership, goals and objectives, emerge and
members feel cohesive. This is norming stage, which leads to performing stage of group
development.
4. Performing : In this stage the inter personal relationship among the members is blooming
and they established intimacy. They start opening up their hearts to each other. The members
try to relieve their fellow members of their tension arising out of dissatisfaction. The group
starts working as a team and freely interact. People don't raise minor differences. Members
think that if they raise minor issues conflict may erupt. They want to set aside them. Members
of group attain maturity. Know they help each other and understand each other better and
help getting better job performance. They understand their limits and nature of their
involvement, take decisions rationally.
(b) Matrix structure and its merits : See Q. 1, [Page 70].
Q. 6. (a) 'Leadership is situational' - Comment.
(b) Explain theory Z of motivation
Ans. (a) 'Leadership is situational' : See Q. 3, [Page 91].
(b) Theory Z of motivation : See Q. 6, [Page 103].
Q. 7. (a) What are barriers to communication ? How can you deal
with them ?
(b) Describe the control process.
Ans. (a) Barriers to communication : See Q. 4, [Page 109].
(b) Control process : See Q. 2, [Page 114].
Q. 8. (a) What is "Marketing mix" ? What are its constituents?
(b) Explain the meaning and importance of market segmentation.
Ans. (a) Marketing mix : See Q. 3, [Page 122].
(b) Meaning and Importance of Market segmentation : See Q. 4, [Page 123].
Q. 9. (a) 'Every Manager is a Human Resource Manager.' -Comment.
(b) What are the sources of working capital requirements ?
Ans. (a) 'Every Manager is a Human Resource Manager' : The human resources are the
precious possessions of any organisation or so to say industrial enterprise. It is, therefore,
necessary to take utmost care for their survival and growth the prosperity and growth of an
industrial enterprise depends on them. Hence ignorance of human resources is curse. Every
manager must be a good human resource manager for the survival and growth of an
organisation. Human Resource Management is an integral part of the management process..
Because of this, human resource management is an essential part of the Job of every manager.
The managers at all levels have to perform personnel functions effectively to get better results
from their subordinates. For instance, training, development, compensation, appraisal, etc. of
subordinates take a lot of time of every executive in the organisation. However, the managers
can take the help of Human Resource / Personnel Department in discharging these functions
effectively.
In most of the organisations, Humna Resource Personnel Department (HRD) is set up to help
the managers in performing the personnel functions. This department functions under the
supervision of a person designated as 'Human Resource Manager'. The HRD is, infact, as
service department. It provides specialised services to all departments in the matter of
management of personnel.
Note : Also read importance of Human Resource Management: See Q. 3, [Page 149].
(b) Sources of working capital : Working capital requirements are raised through (i) Public
deposits, (ii) issue of Shares and debentures, (iii) loans from banks.
For these sources : See Q. 3, [Page 135].
Q. 10. Write short notes on any two of the following :
(a) Management of change
(b) Causes of conflict
(c) Product life cycle
(d) I.P.O.
Ans. (a) Management of change : See Q. 3, [Page 158].
(b) Causes of conflict : See Q. 2, [Page 161].
(c) Product life cycle : See Q. 6, [Page 127].
(d) I.P.O. (Initial Public Offer) : See Point No. 1, [Page 146].
 B. Com. 1st Year-2009
Business Organisation and Management
Paper -1
(External / Correspondence)
Time allowed : 3 hours Maximum Marks :75
Note : Attempt five questions in all. All questions carry equal marks.
Q. 1. (a) Discuss the various aspects of project feasibility study.
(b) What is Business System and what are its elements ?
Ans. (a) Various aspects of project feasibility study : See Q. 1 (iii), [Page 18].
(b) Meaning of Business System and its elements : See Q 1, [Page 5] &Q. 2, [Page 7].
Q. 2. (a) What are the elements of economic environment of business ?
(b) What is the impact of politico-legal environment on business ?
Ans. (a) Elements of economic environment of business : See Q. 7, [Page 14].
Note : Discuss only Economic Environment.
(b) Impact of politico-legal environment on business : See Q. 8, [Page 15].
Note : Only political and legal environment : Point No. 3.
Q. 3. Discuss the components of marketing mix. Why is it important to have a right
marketing mix ?
Ans. Marketing mix : See Q. 3, [Page 122].
Q. 4. Write short notes on any two of the following :
(a) BPO
(b) e-commerce
(c) Service sector in India
(d) IPO
Ans. (a) BPO : See Q. 1, [Page 29].
(b) e-commerce : See Q. 5, [Page 32].
(c) Service sector in India : See Q. 4, [Page 31].
(d) IPO (Initial Public Offer) : See Point No. 1, [Page 146].
Q. 5. Discuss the scope of Financial Management and explain the financial decisions to
be taken by the Manager.
Ans. Scope of Financial Management : See Q. 2, [Page 134].
Q. 6. "Management is the coordination of all resources through the process of planning,
organising, staffing, directing and control-
ling in order to attain stated objectives." Comment on the above statement and describe
the functions of management.
Ans. Management is a wide term. It carries different meanings depending on the context in
which it is used. However, management can be defined as an effort for getting things done in
order to achieve the pre-determined goal of the concern through the co-ordination of human
and other elements. But as its scope is too wide and as there is sharp difference in approach of
various thinkers and writers of this discipline, it is very difficult to define management
precisely containing all the characteristics of a good defination.
According to F.W. Taylor, "Management is the co-ordination of all resources through the
process of planning, organising, directing and controlling in order to attain stated
objectives,"
Management Process : See Q. 1, [Page 38].
Q. 7. What steps are essential in the process of managerial decision making ? Also
discuss the limits of rational decision making.
Ans. Process of managerial decision making : See Q. 12, [Page 54].
Q. 8. Distinguish between :
(a) Maslow's Theory of Need Hierarchy and Herzberg's Two Factor Theory.
(b) Theory 'X' and theory 'Y' of McGregor.
Ans. (a) Maslow's Theory of Need Hierarchy and Herzberg's two Factor Theory : See Q.
2, [Page 98] & Q. 4, [Page 102].
(b) Theory 'X' and theory 'Y' of McGregor : See Q. 3, [Page 101].
Q. 9. Why do inter-group conflicts arise ? What are their ill effects ? How would you
prevent such conflicts ?
Ans. Inter-group conflicts : See Q. 2, [Page 161] & Q. 3, [Page 163].
Q. 10. (a) What are the reasons for human resistance to change ?
(b) Write short note on "strategies to overcome the resistance to change.".
Ans. (a) Reasons for human resistance to change : See Q. 3 (only causes of Resistance to
change) , [Page 158].
(b) Strategies to overcome the resistance to change" : See Q. 3 (only strategies to manage
change), [Page 159].
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 B. Com. 1st Year-2009
Business Organisation and Management
Paper -I
(Regular & External / Correspondence)
B. Com. 1st Year-2010
Business Organisation and Management
Paper-I
(Regular)
(NC-Admission of 2006 onwards)
Time: 3 Hours Max. Marks: 55
Note: The maximum marks printed on the question paper are applicable for the students of
the regular colleges (Cat. 'A'). These marks will, however, be scaled up proportionately in
respect of the students of NCWEB at the time of posting of awards for compilation of results.
Attempt All Questions. All questions carry equal marks.
Q. 1. Define business system. Discuss various sub-systems of business. Also describe the
interaction between various sub-systems of business.
Or
"Business is an economic institution operating in socio-political environment." Do you
agree? Give comment.
Ans. See Q. 1., Page 5.
Or
"Business is an economic institution operating in socio-political environment":
Business is an economic institution which provides goods/services for the satisfaction of
human wants on a systematic and regular basis, with a view of earning profits. Just like
human, business does not exist in isolation. Every business firm exists, operates and grows
within the context of the elements and forces of its external environment. A good
understanding of environment by business managers enables them not only to identify and
evaluate, but also to react to the forces external to their firms. They can analyse the
environment threats for the achievement of enterprise objectives as well as opportunities for
better accomplishment of these objectives.
Business enterprises which know their environment and are ready to adopt to environment
changes would be successful. On the other hand, firms which fail to adapt to their
environment are unlikely to survive in the long run.
Being an economic institution, the success of a business depends on its social-political
environment. In other words, political-legal environment and social-cultural environment
plays important role in the success of a business.
Political-legal Environment: There is a close relationship between the success of a business
and the political environment around it. Political environment includes the elements relating
to government affairs. Legal environment constitute the existing legal framework, as
applicable to business enterprises. The main constituents of a country's political and legal
environment are as follows :
(i) The constitution of the country.
(ii) Political organisations : organisations and philosophy of political parties, political
ideology and practices of the ruling party, ideology of the Government, political structure-
central-state relation, business donations to political parties, political consciousness, etc.
(iii) Political stability : Political stability builds up confidence among business people to
invest in the long-term projects for the growth of the economy. Political
instability, on the other hand, can shake the confidence.
(iv) Government-policy towards various industries etc.,
(v) Image of the country and its leaders.
(vi) Foreign policy,
(vii) Defence and military policy.
(viii) Laws governing business.
(ix) Flexibility and adaptability of laws-constitutional amendments and direction of public
policies.
(x) The judicial system—implementation and effectiveness of laws.
Socio-cultural Environment: Social environment refers to the characteristics of the society
in which a business firm exists. Social environment includes such factors as demographics,
life styles and social values. The study of the socio-cultural environment helps in determining
the code of conduct the business should follow in a particular area. Social and cultural
environment consists of the following:
(i) Demographic factors-size, composition, mobility and geographical dispersal of population.
(ii) Social institutions and groups.
(iii) Caste structure and family organisation.
(iv) Educational system and literacy rates.
(v) Customs, social attitudes, beliefs, values and life styles.
(vi) Tastes and preferences of people.
Since a business enterprise operates in a social-cultural environment, and in a sub-system of
it; it becomes imperative for business firms to adjust their working to meet the aspirations
and needs of society to ensure their survival and growth.
Q. 2. (a) What is meant by outsourcing? Why should a business firm go in for
outsourcing of certain services rather than performing itself ? 6
(b) What is E-commerce? What are the advantages and disadvantages of E-commerce? 5
Ans.(a)See Q.1 [Page 29]
(b) See Q. 5. [Page 32]
Disadvantages of E-commerce
E-commerce suffers from the following drawbacks:
(i) High Risk: Internet start up organisations face huge risk. Several high paid executive who
resigned and set up internet startups lost huge amount of money.
(ii) Shortage of Talent: There is great shortage of skilled persons who can successfully
handle e-commerce.
(iii) Lack of Security: Security is a serious problem in e-commerce transactions. Online
customers are reluctant to disclose their credit card numbers due to fear of fraud.
(iv) System and Data Integrity: Integrity of the system and protection of data are serious
problems in e-commerce.
(v) Training and Maintenance: It is important to have well- skilled and trained workers to
maintain and create the internet, e-commerce facilities of a company.
(vi) Unsuitability: E-commerce is not suitable for several products. People may not like to
buy furniture, jewellery and many other items online because they want to test the product
before buying.
Or
(a) Explain the concept of service. Do you think that the importance of service sector in
our economy is on the rise? Give reasons for your answer. 6
(b) What is management? What are the functions of management ? 5
Ans. (a) Concept of Service : The term service encompasses a wide variety of services. These
services may be of business or professional nature, for example, banking, advertising, and
insurance etc. There are professional services like medical, legal and tax advice and portfolio
management.
Many services are the outgrowth of sales of a certain products. For example, when a car is
sold, the buyer needs financial assistance, insurance and repair services. "Services are those
separately identifiable essential intangible activities which provide want satisfaction, and are
not necessarily tied to the sale of a product or another service".
-William J. Stanton
The American Marketing Association defines services as "activities, benefits or
satisfactions that are offered for sale or are provided in connection with the sale of goods". In
the words of Philip Kotler, "a service is any activity or benefit that one party can offer to
another that is essentially intangible and does not result in the ownership of anything.
Distinguish between Product and Service : several differences exist between products and
services. A product is an identifiable object and one can feel its presence tangibly. On the
other hand, a service cannot be identified and is intangible.
The ultimate aim of marketing in case of both products and services is the satisfaction of
consumers, wants.
Reasons for Growing Importance of Service Sector: See Q.4, [Page 31 ].
(b) Meaning of Management: Management is the process of planning, organising, staffing,
directing and controlling the efforts of the organisational members by using all the available
resources to achieve the organisational goal efficiently and effectively.
"Management is the art of getting things done through and with people informally organised
groups. It is the art of creating the environment in which people can perform and individuals
could cooperate towards attaining of group goal. It is the art of removing blocks to such
performance, a way of optimizing efficiency in reaching goals". -Harold Koontz
"Management is principally the task of planning, coordinating ,motivating and controlling
the efforts of others towards a specific objective" -James L. Lundy
Functions of Management: See Q.1 [Page 38]
Q. 3 (a) "Decision making is the essence of management." Comment. 5
(b) What is matrix organisation ? What are its advantages and disadvantages ? 6
Ans. (a) See Q.12 [Page 54; Meaning and Role of Decision - making]
(b) See Q.1 [Page 70]
Or
(a) "Planning is a mere wastage of time and money." Comment. 5
(b) Define delegation. What are its elements? Also explain the importance of delegation.
Ans. (a) "Planning is a mere wastage of time and money": Planning involves an
expenditure of time, money, efforts and resources of the enterprise, during the stages of plan
implementation and execution. It is, infact, a time - consuming, a
money-consuming and mind-consuming Process. Inspite of its limitations, planning is
necess for every organisation because it provides following advantages:
• Planning helps management to face future with great strength and confidence.
• It helps to focus attention on objectives.
• It leads the operational life of the enterprise along the most efficient lines.
• It acts as a spur to creativity and innovation.
• It enables the exercise of controlling. It provides the basis for exercising control over the
action of people, working in an enterprise. This is so because the standards, with reference to
which control is exercised; are contained in plans. As a matter of fact—controlling is not
possible, in the absence of planning.
• It guides the decision - making process.
• It facilities co-ordination.
• It provides a sense of direction to action.
• It helps the organisation in coping with the changing environment.
In short, planning is an essential part of management and forms the basis from which all
future management action arise.
(b) See Q. 2[Page 76]
See Q. 4 [Page 77]
Q. 4 (a) Define leadership. What are the styles of leadership? 5
(b) What do you understand by the term change ? Why do people resist change in an
organisational setting? 6
Ans.(a)See Q.1[Page 89]
See Q.2 [Page 90]
(b) See Q.1. [Page 156]
See Q. 3. [Page 158]
Or
(a) What are the common barriers to communication in an organisation? How can they
be overcome? 5
(b) Define Human Resource Management. Discuss main functions of Human Resource
Management. 6
Ans. (a) See Q. 4 [Page 109]
(b) See Q.1 [Page 147]
See Q. 4 [Page 149]
Q. 5. Write short notes on any two of the following:
(a) Product life-cycle;
(b) Venture capital;
(c) Causes of inter-group conflict;
(d) theory of motivation.
Ans.(a) See Q.6[Page 127]
(b) See Q.5(a)[Page 143]
(c) See Q.2 [Page 161]
(d) See Q.6[Page 103]
 B. Com. 1st Year-2010
Business Organisation and Management
Paper-I
(External/Correspondence)
(Admission of 2006 onwards)
Time allowed: 3 hours Max. Marks: 75
Attempt All questions. All questions carry equal marks.
Q. 1. Describe various elements of contemporary business environment. 15
Ans. See Q. 7, Page 14.
Or
Explain briefly process of entrepreneurship.
Ans. Process of Entrepreneurship : The process of entrepreneurship involves identifying
business opportunity and taking steps to create an enterprise to grab the opportunity. The
essential steps involved in this process are as follows:
1. Identification of business opportunity.
2. Generation of business ideas.
3. Feasibility study.
4. Preparation of business Plans.
5. Launching the enterprise to implement the business plan.
1. Identification of business opportunity: The entrepreneur will have to study all the factors
which may have an influence on the selection of the type of business. Careful attention will
have to be paid to any factor which may interfere or create a problem in the future. Therefore,
the entrepreneur will have to collect all the relevant information for the selection of right type
of business and product. This decision is taken only once, right at the beginning and cannot
be changed easily. If it is the wrong decision, it will have an affect on all the subsequent
decisions. Thus, the entrepreneur must identify, select and explore various business
opportunities properly. Business opportunity can be described as an economic idea which
can be implemented to create a business and earn profit. Before selecting an opportunity,
the entrepreneur has to ensure two things :
(i) There is a good market for the product he is to going to produce; and
(ii) The rate of return on the investment is attractive to be accepted by him.
2. Idea Generation : The basic function of a dynamic entrepreneur is the generation of an
idea that is new and appears to be worthwhile for future use. This requires a lot of creativity
on the part of entrepreneurs. The business ideas arises from an opportunity in the market. It
originates from market demand of any product or service. An entrepreneur should have a
keen and open mind to look for opportunities and general business ideas.
Sources of Business Ideas : Entrepreneurs are creative persons who discover new ideas from
several sources. Some of the sources of business ideas are:
(i) Survey of Markets; (ii) Survey of Prospective Customers; (iii) Survey of
Resources; (iv) Trade Fairs and Exibitions; (v) Government Organisation, (vi) Project
Profiles; and (vii) Study of Global Trend.
Note—For these sources, Refer to Q. 9. [Page 24].
Selection of Project Ideas: At this stage, all the project are screened on the basis of well
defined criteria to eliminate ideas which are not promising and select the best ideas. While
selecting the idea, the following facts should be considered:
• The project should be compatible with the objectives and resources of the entrepreneur.
• The resources required for the project such as capital investment, technical know-how, raw
materials etc. must be reasonably assured.
• The cost structure of the proposed project must enable it to earn good return on investment.
• The effect of external factors such as technological changes, competition, etc. should be
considered.
• The project idea should be consistent with government policies.
3. Feasibility Study : The Feasibility study means study of how feasible or practical the
proposed business project is. It provides a basis for investment decision on an industrial
project. The purpose of feasibility study is to examine the viability of a project. A feasibility
study presented in the form of a project report is needed to get sanction from the concerned
authorities, including financial institutions. The various aspects of the viability of a project
are evaluated by the concerned authorities on the basis of feasibility study.
The feasibility study should contain an analysis on the following aspects :
(i) Technical
(ii) Commercial
(iii) Financial
(iv) Socio-economic.
Besides these, a project report should also contain general information, including the
description of the project, the status of the project is the national priority and the government
policies supporting the project etc.
4. Preparation of Business Plan: Refer to Q. 10. (Page 25).
5. Launching the Enterprise : After preparing the business plan, the entrepreneur would
proceed to launch the enterprise. This stage involves the preparation of specifications for
plant and machinery, placing order for equipment and machinery, appointment of contractors,
issue of construction drawings, civil construction and construction of equipment foundation,
plant and machinery erection, electrical installations, trial runs and commissioning of the
plant.
After the project has been commissioned, operational phase begins.
Q. 2. (a) What are the basic considerations in setting up a business enterprise? 8
(b), What is business process outsourcing? What are its benefits? Name any four
services where outsourcing is commonly used. 7
Ans. (a) See Q. 10. (Page 26).
(b) See Q.1.(Page 29).
Four services where outsourcing is commonly used: See Q. 2. (Page 30).
Or
(a) What is strategy? What is the role of strategy in a business enterprise? 8
(b) "Planning is looking ahead and controlling is looking back." Comment. 7 Ans. (a)
See Q. 11. (Page 50).
(b) "Planning is looking ahead and controlling is looking back" : Planning is looking
ahead in the sense that it lays down the standards to be achieved in future. Controlling is
looking back as it measures the actual performance relating to the past and compares it with
the established standards.
Planning is looking ahead and controlling is looking back". The above statement is only
partially correct. Planning is considered to be forward-looking because it decides the future of
the organisation. Plans are made for the future and for this purpose forecasting and prediction
is very important. This is the reasons to say that planning is look ahead. But it is also
important that while making plans, the managers have to keep in mind their past experience.
In controlling process past performance is compared with the standards to find out deviations.
This is the reason to say that controlling is looking back controlling is based on the theory
that whatever has happened cannot be controlled but control can be exercised in future to
check the recurrence of that event in the future. In other words, the objective of controlling is
the check the factors responsible for poor performance in the past, so that in future such
mistakes are not repeated and the organisation can achieve its goal.

Planning is looking ahead, controlling is looking back

Q. 3. (a) Explain the term 'Consumer-behaviour'. Discuss briefly various factors
influencing consumer-behaviour. 7
(b) What is product life cycle? Explain various stages in the life cycle of a product. What
marketing strategies should a firm follow during different market stages? 8
Ans. (a) See Q. 5., [Page 125].
(b) See Q. 6., [Page 127].
Or
(a) What do you understand by project organisation ? Give its advantages. 7
(b) What are 'debentures'? Discuss merits and demerits of debenture as a source of
finance. 8
Ans. (a) See Q. 2., [Page 72].
(b) See no. Q. 4., [Page 139].
Q. 4. (a) Write a note on Maslow's theory of 'need hierarchy'? 8
(b) What are the causes of industrial disputes ? 7
Or
(a) What is meant by conflict ? What are various sources of conflict in an organisation ?
8
(b) Distinguish between formal and informal organisations. 7
Ans. (a) See Q. 2., [Page 98].
(b) See Q. 7., [Page 154].
Or
(a)See Q.1.,(Page 161).
See Q.2., [Page 161].
(b) See Q. 4., [Page 60].
Q. 5. Write short notes on any two of the following: 7½, 7½
(i) Business system;
(ii) E-commerce;
(iii) Bounded rationality;
(iv) Principle of exception.
Ans. (i) See Q. 2., [Page 7].
(ii) See Q. 5., [Page 32].
(iii) See Q. 9 (b), 2007 (Regular), [Page 194].
(iv) See Q. 5. [Page 117].
 B.Com. 1st Year-2010
Business Organisation and Management
(Paper-I)
(Regular & External/Correspondence)
B.Com./I YEAR
Business Organisation And Management-2011
PAPER-I
(Regular)
Time : 3 Hours Maximum Marks : 55
Note : (i) Answers may be written either in English or in Hindi; but the same medium should
be used throughout the paper.
(ii) The maximum marks printed on the question paper are applicable for the students of the
regular colleges (Cat. 'A'). These marks will, however, be scaled up proportionately in respect
of the students of NCWEB at the time of posting of awards for compilation of result.
Attempt Five questions in all, selecting at least two questions from each Part.
All questions carry equal marks.
PART 'A'
Q. 1. (a) Explain business system and describe its various characteristics.
(b) What considerations should be kept in mind in the choice of a suitable form of
business organisation ?
Ans. (a) See Q. 1, Page No. 5.
(b) Choice of a suitable form of Business Organisation: From making a choice of a
suitable form of business organisation; the following are the important aspects (i.e. factors) to
be considered :
1. Formation aspect: From the viewpoint of the formation aspect, that form of business
organisation is best; which is easies to form. As per this consideration sole proprietorship is
the easiest to form. Formation of partnership is also quite easy. However, formation of a
company is not easy because it is time consuming and expensive process.
2. Financial aspect: From this viewpoint that form of business organisation is best in which
there are plentiful finance for carrying on business operations smoothly. From this aspect,
company is the best choice because in company huge finance can be raised through issue of
shares, debentures and public deposit.
3. Liability aspect: From the liability aspect, that form of business organisation is best in
which the liability of owners is limited. From this viewpoint, company is the best form in
which liability of members is limited.
4. Stability aspect: That form of business organisation is best in business life is most stable.
From this point of view, sole proprietorship form is least stable because any major happening
e.g., death, accident etc. may lead to instability of business operations. The company form of
organisation is the only form which ensures stability and continuity.
5. Managerial efficiency : From the viewpoint of managerial efficiency; that form of
business organisation is best in which management of business is most-efficient. In sole
proprietorship, managerial efficiency is not much because one man's abilities and capacity to
manage are limited. In partnership management is
more efficient than sole proprietorship because partners can take balanced managerial
decisions jointly. In companies, management is said to be most efficient because companies
are managed by Board of Directors.
6. Government Regulations : While deciding about the form of organisation, various kinds
of rules and regulations affecting that form well also be considered. A number of formalities
are required to be complied with while incorporating a company. A sole trade business is not
expected to meet any legal requirements. Similary, a partnership firm is also free from
government regulations. Even the regulation of firm is not compulsory.
7. Flexibility: A good form of organisation should also provide for flexibility in its
operations. A sole trading concern is more flexible than a partnership or a company in
operation.
8. Business Secrecy : That form of business organisation is best in which it is possible to
retain business secrets. In sole proprietorship, maintenance of absolute secrecy of business
affairs is possible because of one man ownership and control. In partnership partners may
retain business secrets for common interest. In partnership profits. However, in a company it
is not possible to retain business secrets because company affairs are exposed to public
through publication and distribution of company's final accounts.
No form of business organisation is the best or worst. Choice of a suitable form of business
organisation depends on a balancing of various considerations.
Q. 2. Explain channels of distribution. Discuss the factors that guide the choice of
channels of distribution in a large business organisation.
Ans. (a) Channels of Distribution: Channels of distribution refer to the path taken by the
goods in their movement from the producer to the ultimate consumer. It starts with the
producer and ends with the consumer.
Factors determining the choice of channels of distribution :
1. Marketing Related Factors : The choice of channels is affected by many market related
factors. These are :
(a) Nature of the Market: For consumer goods the channels of distribution are mostly indirect
whereas for industrial goods direct channels are preferred.
(b) Size of market: The number of channel constituents depends largely on the customer base
for the products. In those products, where the market size is large and varied, the number of
intermediaries is large whereas for products, where the customer base is small, direct channel
of distribution are engaged.
(c) Quantum of Trade : Direct channels of distribution are used where the quantity of
purchases is big. Indirect channels of distribution are used mainly where the size of purchases
is small and widely spread.
2. Product Related Factors : Before deciding channel of distribution for a product, various
product related factors are to be considered. These are :
(a) Nature of the Product : Customised products require direct marketing as they involve
interactions between the buyer and the seller. Whereas standardised products are sold through
a number of intermediaries.
(b) Product Complexities : Technologically complex products are sold directly whereas to sell
simple products indirect channels may be employed.
(c) Perishability of the Product : Zero or one level channels are preferred for perishable
products to avoid the delay in delivery as compared to non-perishable products.
(d) Price of the Product: High priced products are mostly sold directly whereas cheap,
inexpensive products are sold with the help of a large number of intermediaries.
3. Company Related Factors-
(a) Financial Strength: A financially strong company can evolve its own channels of
distribution whereas financially weak company depends on the existing middlemen to market
its products.
(b) Degree of Control : Companies wanting to exercise strict control over its distribution
channels normally opt to evolve their own channels of distribution. This is seen in products
requiring a good after sales service.
4. Competitors' Policy Related Factors : The policies of the competitors also significantly
influence the decision regarding selecting of the channels of the distribution.
Q. 3. (a) State the qualities of a successful salesman.
(b) Explain the various causes of business risk.
Ans. (a) Qualities of a Successful Saleman-
1. Physical Qualities : A salesman should posses good health in order to be able to discharge
his duties as salesman. He should be well dressed and must remain clean and tidy in a manner
so the prospects feels pleasure in talking with him. He should attract the customers by his
first a appearance.
2. Professional Qualities : (i) Knowledge of the product; (ii) Knowledge of the customers;
(iii) Knowledge of the company; (iv) Knowledge of selling techniques.
3. Psychological Qualities :
(i) Knowledge of self : Sales-personality is an important qualification of successful salesman.
'Sales personality' is the sum-total of everthing about a salesman that influence the prospects
favourably.
The personality of a salesman can be classified as physical, mental, social and character.
The physical qualities are : sound health, good appearance and impressive voice. Mental
qualities are : amazing alertness, resing resourcefulness, unfeeding confidence, live
enthusiasm, enduring initiative and keen observation; the social qualities are : extrobersy,
conversability, poise, tact, cooperation and good manners. The character qualities are :
maturity, courage, integrity, determination, loyalty etc.
(ii) Knowledge of Competitors : A salesman must possess a full knowledge about the
competitors' product so that he can establish the superiority of his own company's product
over those produced by rivals.
(b) Causes of Business Risk : Following are the causes of business risks :
1. Natural causes-Natural calamities like floods, earthquakes, famines etc. can cause risk of
loss to human and non-human resources of business enterprises. These risks are beyond the
control of human beings and cannot be easily predicted, though, they can be insured.
2. Political causes-Political climate of a country also affects the functioning of business
firms. Risks due to political causes may arise, in the form of:
- price regulations, restricting profits margin for businessmen;
- high rates of taxes, taking away a major part of business;
- unfavourable economic policies, discouraging some lines of business activities;
- strict legislations imposed on business firms etc.
3. Economics causes-Economics causes relate to changes in economic conditions of a
country. Economic factors like monetary and fiscal policies, tax laws, capital markets,
banking regulations etc. affect the cost and price structure of business enterprises. Changes in
international economic policies may also cause risk in national enterprises. Emergence of
multinational corporations in India is threatening to the Indian businesses.
4. Social causes-Risks due to social causes are those which may arise from consumer
behaviour or due to changes taking place is the social scenario. Example of social risks are :
. - change in the taste or preference of consumers.
- change in fashion.
- change in the income of consumers.
- changing social value leading to new pattern of social life etc.
5. Physical causes-Business assets like plant and machinery can be subjected to risk due to
physical causes. This includes risk of loss due to mechanical or technical reasons. Mechanical
causes include risk of defect in a machine, breakdown of a machine. Technical causes include
loss due to change in technology. Introduction of new technology can render the existing
machine technically obsolete.
6. Competitive causes-Competitive causes may create business risks in the form of
following:
- entry of large number of firm in the industry.
- entry of multinational companies threating the very survival of domestic companies.
7. Miscellaneous causes-Some miscellaneous causes of business risk may be :
- insolvency of customer
- speculative losses
- workers' strike
- sudden power failure
- premature death of an expert employee or manager.
Q. 4. (a) Explain the various factors affecting working capital requirements of a
business enterprise.
(b) Give merits and drawbacks of Retained Earnings as a source of finance.
Ans. (a) Factors Affecting Working Capital-Following factors affecting working capital
requirements of a business enterprise :
1. Natural of Business : Basically, a firm's working capital requirements are affected by the
nature of its business. Trading and financial firms require more working capital as they have
to carry huge amount of stock, receivable and cash. Manufacturing concerns also require a
large amount of working capital but public utilities require the least amount of working
capital because they sell services instead of commodities and that too, in cash instead of
credit.
2. Size of Business: Firms larger in size in terms of scale of operation require more working
capital than a small firm.
3. Seasonal Fluctuations : Seasonal fluctuation in sales affect the level of working capital
requirement. Often, the demand for products may be of a seasonal nature, net inventories
have got to be purchased during certain seasons only. Therefore, the requirement of working
capital is more than in another.
4. Manufacturing Process : More working capital is required of the manufacturing process
takes larger period because of its complex nature.
5. Business Cycle: The working capital requirement depend upon the demand and sale of
goods. The demand and sale of goods usually increase when the economy is going through a
boom phase and decrease when the economy is going through a recessive phase.
6. Terms of Purchases and Sales : A firms which allows liberal credit to its customers may
enjoy higher sales but will need more working capital as compared to a firm enforcing strict
credit terms. The working capital requirements are also affected by the credit facilities
enjoyed by the firm. A firm enjoying liberal credit facilities from its suppliers, require lower
amount of working capital.
7. Cash Cycle: A small cash cycle or a fast turn over of circulating capital will provide
enough cash to firm to discharge their liabilities and the need for working capital, is reduced.
8. Growth and Expansion of Business : Growing concerns require more working capital
than those that are static, other thing being equal.
9. Internal efficiency : A firm which carries on its operation efficiently, optimally
coordinates and utilises its resources will generate more profits and contribute to its working
capital reserves. The need for tying up funds in working capital will therefore, be less.
10. Dividend Policy: Dividend policy also affects the level of working capital. Payment of
dividend utilizes cash while retaining profits acts as a source of working capital.
(b) Retained Profits or Ploughing of Profits. An existing company can retain a part of its
earning (profit) in the business. These earning can be ploughed back in business for future
expansion, replacement of fixed assets and for modernisation and diversification. This is the
cheapest way of financing since it has no cost, nor dividend or interest is payable on it. In
turn, the equity shareholders stand benefited as the rate of dividend goes up due to increase in
profitability.
Merits of Retained Earnings :
(i) A company with adequate surpluses can follow a stable dividend policy.
(ii) No charges or mortage is created on the company's assets. The company is free to use its
assets for raising loan in future.
(iii) It is the cheapest way of financing since no interest or dividend is payable on such
capital.
(iv) Ploughing back of own profits will lead to low costs, higher business, quicker
improvement and increased profitability. Under these circumstances, shareholders surely
stand to gain by the enlarged earning capacity of the companies.
(v) Retained earning as a source of finance do not affect the control of the existing
management.
(vi) Corporate savings accelerate the rate of capital formation in the country.
(vii) Retained earnings help in following a stable dividend policy. The company can pay
normal rate of dividend to the equity shareholders even in the year/s. When there is very little
profit or no profit.
Demerits of Retained Earnings :
(i) Accumulated profits may lead to over-capitalisation if the management capitalises than in
the form of bonus shares.
(ii) A company having huge retained earnings may prompt its Directors to indulge in
specialisation.
(iii) Retained funds are kept by the Directors for the benefits of the company. But in reality,
such funds may not be used in the interest of the company and may serve the personal
interests of the Directors.
(iv) The investors cannot receive the proper amount of dividend since a portion of the profits
is retained.
Q. 5. Write notes on any two :
(i) Capital structure;
(ii) Statutory corporation;
(iii) Importance of small business;
(iv) Business environment.
Ans. (i) Capital structure : According to C.W. Gerstenberg, "Capital structure refers to the
structure of the total capital funds raised by a company." It is also known as Capital
Composition or Capital Mix. It means the proportion in which debt and equity funds are used
for financing the operations of a business. It can be represented by debt-equity ratio i.e. Debt
Equity
Factors Determining the capital structure : The following factors should be taken into
consideration while deciding the capital structure :
1. Trading on equity.
2. Idea of retaining control.
3. Elasticity of capital structure.
4. Needs of the investors.
5. The cost of financing.
6. Money market conditions.
7. Period of finance.
8. Legal restriction etc.
(b) Statutory corporation: Public or statutory corporation became very popular as a form of
organisation immediately after the first world war.
A public corporation is an autonomous business enterprise created by law to conduct the
activities assigned to it. It is a body corporate set up under a special Act passed by the
central or state legislature.
Examples of statutory corporation: Public corporations are suitable in running
transportations services, water and electricity supply undertakings, insurance, financing and
other public utility services. Some important statutory corporation are : Life Insurance
corporation of India, Indian Airlines Corporation of India, UTI, Reserve Bank of India, State
Financial Corporation, etc.
Features : A statutory corporation possesses the following essential features :
1. It is a corporate body created by a special law of the country, defining its objects, powers
and functions.
2. It has separate legal entity and can sue and be sued and can enter into contract in its own
name.
3. It is wholly owned by the Government and the entire equity capital as held in the name of
the Government.
4. It is managed board of directors appointed by the Government.
5. It follows independent financial policy. It can raise funds by borrowing from the public and
treasury. It can reinvest its earning.
6. It is fully accountable to the Parliament or State legislature.
(iii) Importance of small Business
The small-scale business is of crucial significance in the economic development of our
country due to the following reasons :
1. Creation of Employment Opportunities : Small-scale industries are more labour
intensive, they can provide employment to a large number of persons per unit of capital.
2. The cost of production of small business is lower : due to less overheads and direct
control.
3. Socio-economic Justic: As small-scale industries are more labour intensive and less
capital intensive, we can have equitable distribution of wealth and income and reduction in
the concentration of wealth and economic power in the hands of few people.
4. Speeds up the rate of capital formation : It acts an effective agency in mobilising small
saving of the people, particularly in rural areas, for investment in business activities.
5. Decentralisation of industries: Dispossal of industries can easily be secured through
small-scale industries.
6. Small business facilitates the use of talent resources of the community.
7. Ancillary functions: Small business can perform ancillary functions around a few big
business units.
8. Small-scale industries have high potentialities of earning foreign exchange which is so
greatly required by the country for economic development purpose.
(iv) Business Environment: Business environment is a sum total of external
factors that surround and influence an organisation. The organisation has little influence over
external factors.
The salient features of business environment are :
1. It is dynamic or constantly changing.
2. It includes both specific (like customers, investors, competitors, etc.) and general (such as
legal, political, economic, etc.) forces.
3. The elements of business environment are closely inter-related.
4. It normally affects a large number of factors. Hence, complex in nature.
5. By and large it is beyond the control of the management.
6. It offers opportunities as well as threats and its effect varies from firm to firm.
7. It is a relative concept as it differs from firm to firm and from one region to the other.
Importance of Business Environment: A study of business environment is highly significant
for management for the following reasons :
1. Environment understanding provides a base of quality information which can be utilized
for better decisions in the business.
2. Business strategies can be decided on the basis of environmental information. When the
trend changes in the market the business can work out the right move to capture maximum
benefits.
3. Information provides intellectual challenge. Business activity is in fact calculated moves
and planning out intelligent strategies. In a protective environment there is no scope for
creativity, because business decisions are simple repetition of routine activity.
4. Environment awareness can help a business to capitalize on early opportunities.
5. Environmental awareness make the management sensitive to the changes in the market and
capable of adapting new trends.
6. Awareness helps in improving the image of the business. A business can identify the social
expectations and plan our best moves to fulfill them without sacrificing the profit.
PART 'B'
Q. 6. (a) Is management a profession ? Give reasons for your answer.
(b) What are objectives ? What is the significance of objectives ?
Ans. (a) Management as a profession : Profession includes a vocation requiring specialised
knowledge, skill, judgement, practical training and code of conduct.
Management may be considered as a profession because it meets the following characteristics
:
(i) Management has a specialised body of knowledge which is transferable.
(ii) It requires formal intellectual training.
(iii) It involves special skills and tools.
(iv) It follows a scientific approach.
There are specialized management to India which give training in management science. After
getting education and training in management, the successful students receives MBA degree.
However, this degree is not essential for becoming a successful manager. There are so many
real life example which have proved the fact that people without any formal education can be
successful managers, depending upon their ability to understand and make an anticipative
move to deal with future uncertainties. Although there is an increasing demand for candidates
having a professional degree from reputed institutes, it is not necessary. Thus, there are no
uniform standards for entry into this profession.
There is no compulsion to become a member of any management association, as a result of
which there is no uniform code of conduct. However, this attitude is changing with the
increasing awareness among the consumers and legal obligations.
Thus, it can be said that, although management is not a full-fledged profession, it is moving
at a fast pace towards professionalisation.
(b) Objectives : Objectives are the end result which the management seeks to achieve by its
operations. In other words, objectives are the end results, towards which all managerial
efforts and organisational activities are directed.
For example, an organisation may have an objective of increasing sales by 10% or earning a
reasonable rate of return on investment, earn a 15% profit from business.
Significance of objectives:
• Objectives provides direction to the organisation and its various activities.
• Objectives serve as bench marks for measuring the performance of the people working in
the organisation.
• Objectives are also useful in measuring the overall efficiency of the organisation.
• Objectives depict the state of affairs than an organisation takes to achieve. Q. 7. (a) Explain
delegation. Why is it needed ?
(b) Write a short-note on : Matrix Organisation.
Ans. (a) Delegation of Authority : See Q.2 Page 76. and Q. 4, Page-77.
(b) Matrix Organisation : See 27, Page 70.
Q. 8. (a) Describe briefly the selection process.
(b) Explain Maslow's Need Hierarchy Theory.
Ans. (a) Selection Process : Following are the various steps involved in selection process.
1. Scrutiny of Applications : Applications are received in response to advertisement or from
other sources. They are scrutinised in the light of requirement and suitability and those found
unsuitable are dropped.
2. Selection/Employment Tests : These tests are developed by psychologists and other
experts to assess a candidate's nature, abilities and characteristics. There are several tests such
as Aptitude test, Intelligence test, Interest Test, Personality Test, Trade Test, etc.
3. Selection Interview : In this interview the ability and suitability of a candidate for a
specific job is directly judged by experts or specialists in the board of selection.
4. Reference checking: References may be checked from previous employers, well-known
persons not related to the candidates, to find out their moral qualities, professional behaviour,
political affiliation, etc.
5. Selection Decision : Candidates who are considered suitable are selected after taking the
opinion of all the selectors especially of the. manager of the department concerned.
6. Medical or Physical Test : Selected candidates may be asked to get themselves thoroughly
examined by a prescribed doctor within the organisation or outside.
(b) Maslow's Need Hierarch Theory : Q. 2, Page 98.
Q. 9. (a) What do you mean by 'Free-reign' style of leadership ? What are its merits ?
(b) Explain the characteristics of effective communication.
Ans. (a) Free-reign style of leadership-Q. 2 (only point no. 3) Page 91.
(b) Characteristics of effective communication: A good communication must have the
following essential characteristics.
(i) Clarity : The idea to be transmitted must be absolutely clear in the mind of the
communicator.
(ii) Two-way communication : Both the communicator and the recipient should participate
in the communication. It should be two-way i.e. involve both telling and listening.
(iii) Unbiased : Communication should be free from personal prejudices.
(iv) Appropriate : Communication channel, should be appropriate; depending upon the
nature and purpose of the information to be transmitted.
(v) Motivational: Communication should be so planned that is motivates the recipient to act
upon. The receiver should be encouraged to express his reactions.
(vi) Consider receiver view-point: A good communication must considered the goal and
attitude of those who will receive the communication and those who will be affected by it.
(vii) Consistent: Communication should not be inconsistent to part traditions of the business.
It should be consistent with long range interests and goals.
(viii) Followed by fee-back': Necessary feed-back to communication must be obtained.
Q. 10. Write notes on the following :
(i) Levels of management;
(ii) Budgetary control.
Ans. (i) Levels of Managements : 'Levels of Management' means different categories of
managers, from the lowest to the highest, having different quantum, of authority. In other
words, 'levels of management' denote a demarcation between the various positions in an
organisation on the basis of their relative responsibilities, authority and status.
There are three levels of management in the organizational hierarchy :
(i) Top level management,
(ii) Middle level management,
(iii) Lower level management or supervisors/first line or operative management.
(i) Top level Management : Top level management consists of managers at the highest level
of hierarchy, e.g. chief executives, board of directors, etc.
Functions of top-level management are :
- Laying down the overall objectives and broad policies of the enterprise.
- Organizing the business into various departments and divisions.
- Appointing department managers heads etc.
- To decide about the overall budget of the organisation and the budgets of the different
departments.
- To decide about the manner in which corporate earnings will be utilized.
- To maintain cordial relations with all outside parties, i.e., financial institutions, suppliers,
government departments, etc.
(ii) Middle Level Management : This level of management consists of departmental heads
of the organisation. The functions of middle level managers are :
- To interpret and explain the policies that have been framed by the top management.
- To assist the top level management by periodic submission of reports, and other important
information.
- To assign jobs among the subordinates and decide the process of delegation of authority.
- To direct the activities of lower levels of managers and to act as a link between top and
lower-level management.
- To evaluate and regulate the departmental performance.
(iii) Lower-level Management: This is the lowest level of management and is concerned
with overseeing the activities of workers. It consists of foremen, supervisors, etc. The main
functions of lower level management are :
- To translate the intermediate plan of middle level management into operational plans.
- To direct the operating employees by assigning jobs and evaluating their performance.
- To arrange necessary raw materials, tools and other facilities.
- To ensure implementation of work as per instructions, orders and standards.
- To send information and progress reports to higher level of management.
- To create better human relations and a conducive work environment.
- To maintain discipline.
(ii) Budgetary control : It is a system of management control in which all operations are
forecasted and planned ahead in the forms of budgets and the actual results are compared
with the forecasted and planned ones so that necessary
actions can be taken to achieve the organisational goals. A budget is a quantitative statement;
for a definite period of time, of the result to be achieved. Budgetary control facilities control
by exception by focussing attention on operations which deviate significantly from budgeted
standards.
 B.Com./I YEAR
Business Organisation And Management-2011
PAPER-I
(External)
(Admission of 2006 onwards)
Time : 3 Hours Maximum Marks : 75
Attempt any Five questions.
All questions carry equal marks.
Q. 1. What is business system ? What are the features of business system ? Explain
business system as a part of economic system.
Ans. Business System: See Q.1, Page 5. Business System as a part of Economic System :
See Q.4, Page 10.
Q. 2. (a) What is service sector ? Give reasons for rapid growth of service sector in India.
(b) What are the benefits of e-commerce ?
Ans. (a) Service Sector: See Q.3, Page 31 Reasons for Rapid Growth of Service Sector:
See Q.4, Page 31.
(b) Benefits of e-commerce : See Q.5. Page. 32.
Q. 3. Explain the concept of decision making. What is the role of decision making ?
Explain various types of managerial decisions.
Ans. Decision making : See Q.12, Page 54 Types of Managerial Decisions Managerial
decisions may be classified into the following categories :
1. Programmed Decisions : Programmed decisions are those which are taken within the
framework of the existing plans of the organisation; and for which prescribed policies, rules,
procedures and method are available within the organisation. They are concerned with
relatively routine and repetitive problems or issues. Such decisions do not pose much
problems for mangers.
Non-programmed Decisions: Non-programmed decisions are those for taking which there is
no provision in the existing planning framework of the organisation. Such decisions are
warranted by extra-ordinary, exception or emergency situations. These are concerned with
non-repetitive problems. These decisions are taken by manager with the consultation of
higher level of management.
2. Strategic Decisions: Strategic or basic policy decisions involve long-term commitments
and exercise an enduring influence on the future of the organisation. These decision define
the relationship between organisation and its environment much deliberation and Judgement
are required for strategic decision making.
Administrative Decisions : These decisions are directed towards developing
divisional plans, distribution channels, developing material sources, personal training and so
on. They are primarily middle management oriented.
Routine or operating Decision : These are concerned with routine and repetitive problems.
3. Individual and Group Decisions : An individual decision is one which in taken by a
manager us his individual capacity without the consulation of any other person. Such
decisions are dictatorial or anthoritarian in nature and are taken by 'big-bosses' of the
organisation.
Collective decisions are those which are jointly taken by a group of managers and other
persons through a process of mutual consultations. Such decisions are democratic in nature.
Q. 4. Distinguish between the following:
(a) Functional Departmentalization and Product Departmentalization ;
(b) Formal Organisation and Informal Organisation.
Ans. (a) Distinguish between Functional Departmentalization and Product
Departmentalization : See Q.4, Page 69.
(b) Distinguish between Formal Organisation and Informal Organisation : See Q.4, Page
60.
Q. 5. (a) What is group cohesiveness ? Explain the factors affecting group cohesiveness.
(b) Explain managerial grid.
Ans. (a) Group cohesiveness : See Q.5, Page 87.
(b) Managerial Grid : See Q.4, Page 92.
Q. 6. (a) Distinguish between X theory and Y theory of Motivation.
(b) Explain the nature and importance of Motivation.
Ans. Theory X and Theory Y of Motivation : See Q. 3, Page 101.
(b) Nature and Importance of Motivation : See Q.1, Page 97,
Q. 7. (a) What is product life cycle ? Explain various stages of product life cycle.
(b) Write a note on marketing mix.
Ans. (a) Product life cycle : See Q.6, Page 127.
(b) Marketing Mix : See Q.3, Page 122.
Q. 8. (a) What are the functions of Human Resource Management ?
(b) What are the sources of fixed capital ?
Ans. (a) Functions of Human Resource Management: See Q.4, Page 149.
(b) Sources of Fixed Capital: See Q.3, Page 135.
Q. 9. (a) Describe the causes of resistance to change.
(b) Discuss the methods of resolving conflicts.
Ans. (a) Causes of Resistance to Change : See Q.3, Page 158.
(b) Methods of Resolving Conflicts : See Q.2, Page 161.
Q. 10. Write short notes on any two of the following:
(a) Project organisation;
(b) Business Process Outsourcing (BPO);
(c) Types of Communication;
(d) Essentials of effective control system.
Ans. (a) Project Organisation : See Q.2, Page 72,
(b) Business Process Outsourcing (BPO): See Q.1, Page 29.
(c) Types of Communication : Communication, very broadly, is classified into the following
two categories :
(a) Formal Communication
(b) Informal Communication
(a) Formal Communication: Formal Communication refers to the transmission of
information or message through the established chain of command. All concerned people are
supposed to follow it. It establishes a direct contact between the subordinates and his
immediate boss and vice versa. It can flow in three directions :
(i) Vertical — It can be of two types : (a) Downwards — from superior to subordinates, and
(b) Upwards—from subordinates to superior.
(ii) Horizontal—between the executives operating at the same level.
(iii) Diagonal—between the persons of two departments holding different ranks.
(b) Informal Communication : Informal Communication, which is often called Grapevine
Communication, is the communication which takes place through the informal channels of
communication. In other words, it is the communication between the members of a group, not
on the basis of formal relationship, but on the basis of informal relationship among people at
the same or different levels. In short, it is the passing of information from one person to
another without any formal relationship.
Informal communication may be through written words, spoken words, gestures, nod or smile
(d) Essentials of effective control system : See Q. 4, Page 116.
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 B.Com. /I YEAR
BUSINESS ORGANISATION AND MANAGEMENT-2011
(REGULAR/EXTERNAL)
B. Com. 1st Year-2012
Business Organisation and Management
Paper -1
(REGULAR)
(Admission of 2006 onwards)
Time allowed : 3 hours Maximum Marks .55
Attempt all questions. All questions carry equal marks.
Q. 1. Why should firms study their business environment? Explain the impact of
different components of business environment on business enterprises.
Ans. Why should firms study their business environment? : See Q. 6 [Page 12].
Impact of different components of business environment on business enterprises : See Q.
7 (Page 15].
OR
(a) "It is the entrepreneur who bears the risk of business." Comment on this statement
and state the functions of an entrepreneur.
(b) Explain the concept and applications of e-commerce. What opportunities e-
commerce offers to business firms for their growth?
Ans. (a) See Q. 2(a) [Page 201].
(b) Concept of e-commerce : See Q. 5 [Page 32].
Applications of e-commerce : See Q. 10 [Page 36].
Opportunities offered by e-commerce to business firms : See Q. 7
[Page 34].
Q. 2. (a) Define strategy formulation. Outline its process.
(b) "Managers cannot be rational decision-makers in real life." Do you agree? Give
reasons.
Ans. (a) See Q. 11 [Page 50].
(b) "Managers cannot be rational decision-makers in real life" - Bounded Rationality :
See Q. 9(b) [Page 194].
OR
(a) What is a network organization? Explain its features.
(b) What do you understand by "Group dynamics"? Why informal groups emerge in an
organisaton?
Ans. (a) See Q. 4 [Page 73].
(b)' See Q. 3 [Page 84].
Q. 3. (a) Define Communication. Explain the common barriers to communication in a
business organisation.
(b) How can we establish an efficient control system in a modern business enterprise?
Ans. (a) Definition of Communication : See Q. 1 [Page 106].
Common barriers to communication in a business organisation : See Q. 4
[Page 109].
(b) How can we establish an efficient control system in a modern business enterprise?
We can establish an efficient control system in a modern business enterprise by following the
principles of an efficient control system. These principles or requisites are as follows-:
See Q. 4 [Page 116] Points 1 to 11.
OR
(a) What is "Marketing Mix"? Describe its main componnets.
(b) Why is the study of consumer behaviour important for marketers? What factors
influence the buying behaviour of consumers?
Ans. (a) See Q. 3 [Page 122].
(b) See Q. 5 [Page 125].
Q. 4. (a) Explain the concept of Financial Management. Discuss its scope.
(b) Why do you think employer-employee relations are not satisfactory in India?
Suggest ways of improving them.
Ans. (a) Concept of Financial Management : See Q. 1 [Page 133]. under the heading
"Meaning of Financial Management."
Scope of Financial management: See Q. 2 [Page 134].
(b) See Q. 7 [Page 154].
OR
(a) What do you understand by "Planned change"? How can we overcome resistance to
change?
(b) Why do conflicts arise? How can they be resolved?
Ans. (a) Meaning of "Planned change" : See Q. 1 [Page 156]. under the heading "Concept
of Planned Change".
How can we overcome resistance to change? : See Q. 3 [Page 158].under the heading
"Strategies to Manage Changes."
(b) See Q. 2 [Page 161].
Q. 5. Write short notes on any two of the following :
(i) Project Organisation
(ii) Managerial Grid
(iii) Delegation & Decentralisation of authority,
(iv) Product Life Cycle.
Ans. (i) See Q. 2 [Page 72).
(ii) See Q. 4 [Page 92].
(iii) Delegation of authority : See Q. 2 [Page 76].
under the headings " Delegation of Authority" and "Elements of Delegation".
Decentralisation of authority : See Q. 6 [Page 79].
under the heading "Meaning of Decentralisation of Authority".
(iv) Product Life Cycle : See Q. 6 [Page 127].
 B. Com. 1st Year-2012
Business Organisation and Management
Paper -I
(External / Correspondence)
Time allowed : 3 hours Maximum Marks :75
Note : Attempt any Five questions in all. All questions carry equal marks.
Q. l. What do you understand by the term Business System? What are the various sub-
systems of the Business System and what are their significance? 15
Ans. Meaning of Business System : See Q. 1 [Page 5].
Sub-systems of the Business System and what are their significance : See
Q. 2 [Page 7].
OR
Explain briefly
(a) The impact of environment on Business;
(b) Mixed Economy in India.
Ans. (a) See Q. 7 [Page 15].
(b) Mixed Economy in India : In India we have a mixed economic system where there is co-
existence of both public and private sectors. The main features of a mixed economy are as
follows :
(i) Co-existence of Public and Private Sectors : In a mixed economy, public and private
sectors operate simultaneously. In a mixed economy, some fields of production are
exclusively reserved for the public sector. In India, sectors like defence, nuclear energy and
public utilities are exclusively in the public sector. The area not reserved for the public sector
is the domain of the private sector.
(ii) Central Planning : In a mixed economy, there is central planning authority (Planning
Commission in India) to formulate economic plans (Five Year Plans in India) to guide and
direct the economic activities in the system. The periodic plan lays down the overall
allocation of resources between public and private sectors.
(iii) Market Mechanism : The output of both public and private sectors is sold in the market.
Law of demand and supply play an important role in the determination of prices subject to
intervention by the Government.
(iv) Role of Profit motive : In a mixed economy, private sector operates on the basis of profit
motive. But profit motive is allowed to the extent that it serves the public interest or social
welfare.
(v) Social welfare: The objective of mixed economic system is economic growth with social
justice. Public sector seeks to reduce inequalities by creating employment opportunities for
backward classes and by setting up industries in backward areas.
(vi) Role of the Government: In a mixed economy, the Government plays an important role.
It sets up industrial units in regions where the private-sector fails to set them up. To ensure
rapid and balanced regional development, the Government attempts to ensure cooperation
between public and private sectors. The Government tries to manage the public Sector
efficiently to achieve social welfare.
Q. 2. (a) Write a note on Entrepreneur Vs. Manager. 15
(b) Discuss the contents of a Feasibility Study.
Ans. (a) Distinction between Entrepreneur and Manager.

Basis of Distinction Entrepreneur Manager

1. Venture Creation Sets up a new venture Runs an existing venture.

2. Innovation Introduces new ideas, products, Runs the business on

methods etc. established lines.

3. Risk bearing Assumes risk of economic Undertakes no risk.

uncertainties.

4. Reward Earns profits of the business for Earns salary which is

bearing the risk. He may even relatively fixed and regular.
suffer a loss.

5. Status Enjoys independent status Is an employee and

dependent on the owner.

(b) Feasibility Study : Before making investment in a project, the entrepreneur should
undertake a detailed study to ensure the viability of the project. This study is known as
feasibility study. The feasibility study should contain an analysis of the following aspects :
1. Technical aspect : The technical feasibility of a project involves a critical study of the
following parameters :
(i) Location : An industrial feasibility study should define the location and size suitable for
the project.
(ii) Size of the Plant: The size of the plant should be such as would reduce the cost of
production. Sub-optimal size of the plant leads to increase in costs.
(iii) Availability of Raw Materials and Labour : For the success of the project, it is
necessary that raw materials and labour are available at reasonable cost.
(iv) Plant and Equipment : The feasibility study should define the technology required for a
particular project. It should also evaluate alternative technologies and select the most
appropriate technology.
(v) Infrastructure : There should be sufficient and efficient infrastructure facilities like
transportation, power and fuel, warehousing, water supply etc. for proper functioning of the
project.
(vi) Effluent Treatment and Discharge : There should be proper arrangements for the
treatment and disposal of the effluents without harming the environment.
(vii) Foreign Collaboration : If there is a foreign collaboration, the relevant details of the
collaboration should be given.
2. Commercial Aspect: The commercial viability of a project depends on the size of the
market, volume of demand for the product or service, margin of profit etc. A detailed market
survey is required to assess sales and related aspects.
3. Financial Aspect: The Financial viability to a new project can be judged on the following
parameters :
(i) The estimated cost of the project.
(ii) Financing of the project in terms of its capital structure, promoter's contribution to the
total project cost and debt-equity ratio.
(iii) Existing investments by the promoter in other businesses.
(iv) Projection of future profitability and cash flow.
(v) Internal rate of return,
4. Socio-economic Aspect: Social Cost Benefit Analysis of the project should
be made to judge the utility of the project from the view-point of the economy. Such an
analysis should take into account the net contribution to the following:
(i) Generation of employment
(ii) Development of infrastructure
(iii) Development of technology
(iv) Self-reliance
(v) Development of backward areas
(vi) Development of ancillary and small scale industries.
(vii) Foreign exchange earnings
(viii) Import substitution.
OR
(a) Discuss briefly the basic considerations to be borne in mind while setting up a
Business Enterprise. 15
(b) What are the reasons for growth of service sector in India?
Ans. (a) See Q. 10 [Page 26].
(b) See Q. 4 [Page 31].
Q. 3. (a) Discuss the process of Strategy Formulation. 15
(b) Discuss the process of Rational Decision-making.
Ans. (a) See Q. 11 [Page 50].
(b) See Q. 12 [Page 54] under the heading steps or process of Rational Decision making on
[Page 55].
OR
(a) There can be no control without planning. Discuss the essential steps of control in
management. 15
(b) Discuss the principles of ''Organising".
Ans. (a) There can be no control without planning: The statement that there can be no
control without planning is correct. Planning is the basis of controlling Planning and control
are closely inter-related. Controlling is impossible without planning and planning cannot be
successful without a proper system of control. Planning sets standards to achieve business
objectives. Control measures and assesses the actual performance and compares it with the
planned standards and suggests corrective measures to be taken to prevent recurrences of the
deviations. Control helps in remodelling plans so as to get maximum benefits at minimum
cost. Without a plan, control is blind because it does not know where to go and whether it is
going in the right direction or not. Without a plan, control is handicapped.
H.G. Hicks comments, "Planning is clearly a pre-requisitc for controlling. It is utterly
foolish to think that controlling could be accomplished without planning. Without planning
there is no pre-determined understanding of the desired performance." In fact planning
without corresponding control is likely to be a hollow hope.
Essential steps of control in management: See Q. 2 [Page 114].
(b) See Q. 5 [Page 61).
Q. 4. What are your views on :
(a) Decentralisation Vs. Delegation; 15
(b) Meaning and merits of Informal Groups.
Ans. (a) See Q. 7 [Page 80].
(b) See Q. 4 [Page 85].
OR
Explain
(a) Significance and qualities of a good leader; 15
(b) Formal Vs. Informal Communication.
Ans. (a) Significance of a good leader : "Leadership" refers to the quality of the behaviour
of the individuals whereby they guide people or their/activities in organised efforts. Someone
has very appropriately put it — "a dynamic leader is a dynamo which generates energy or
power which charges the activities of the group."
Leadership, in another sense, means the capacitity of an individual to influence the thoughts
and actions of others in some useful direction. In the words of Koontz and O'Donnel,
"Leadership means the ability of a manager to induce subordinates to work with confidence
and zeal." In any case, if there can be one major factor responsible for the success or failure
of an enterprise, it is the presence or absence of 'dynamic and effective-leadership. In an
organisation, the results of good, dynamic and effective leadership can easily be seen in
increased profits, improved productivity, greater efficiency, higher-employee morale etc.
Qualities of a good leader : See Q. 5 [Page 94].
(b) A communication channel is the route or path through which messages are transmitted
from the sender to the receiver. Channels of communication may broadly be divided into
two groups. 1. Formal and 2. Informal.
1. Formal Communication. Formal communication is one where the message travels
through the formal route laid down by the organisation. It is the official route through which a
message should pass. If 'A' wants to give certain message containing some instructions to 'E'
and between A and E are B, C and D who form the official hierarchy, then the message takes
a route as shown below :
A→B→C→D→E
The formal communication ensures orderely flow of information. Formal communication
usually takes the form of written communication such as notes, memos, letters, reports and
statements.
2. Informal communication- Informal communication, which is often called Grapevine
Communication, is the communication which takes place through the informal channels of
communication. In other words, it is the communication between the members of a group, not
on the basis of formal relationship, but on the basis to informal relationship among people at
the same or different levels. In short, it is the passing of information from one person to
another without any formal relationship.
Informal communication may be through written words, spoken words, gestures, nod or
smile.
Difference between Formal and Informal Communication : See Q. 3,
[Page 108].
Q. 5. Write short notes on any three : 5
(a) Process of Control;
(b) Marketing Vs. Selling;
(c) Objectives of Financial Management;
(d) Operative Functions of HRM;
(e) Process of Planned Change.
Ans. (a) See Q. 2 [Page 114].
(b) See Q. 1 [Page 119].
(c) See Q. 1 [Page 133].
(d) See Q. 4 [Page 149] under the heading operative Functions.
(e) See Q. 2 [Page 156].
 B. Com. 1st Year-2012
Business Organisation and Management
Paper -I
(Regular & External / Correspondence)
B.Com. /I YEAR
Business Organisation And Management-2013
PAPER-I
(Non-Collegiate)
Time : 3 Hours Maximum Marks : 75
All questions are compulsory and carry equal marks.
All questions of each Section (A, B and C)
should be attempted together.
SECTION : A
Q. 1. What is business system ? How is it affected by economic, politico-legal, socio-
cultural and international environment ? (15)
Ans. Business System—See Q. 1. [Page 5],
How is business system affected by economic, politico-legal, socio-cultural and
international environment ?—See Q. 7. [Page 15].
OR
Explain business process outsourcing. What are its advantages ? (15)
Ans. Business Process Outsourcing—Business Process Outsourcing (BPO). Outsourcing
means to engage the services of an outside agency to manage, deUver and operate one or
more business activities, processes or functions. Business process outsourcing may be
defined as "the contracting out of a company's in-house function to a preferred vendor with a
high quality level in a particular task area"
B.P.O. refers td getting a business task accomplished through an outside agency. For
example, the advertisement of its product can be done by a company itself, and it could be
got done through some advertising agency. The later case i.e., getting advertisement done
through an advertising agency is an instance of outsourcing.
According to Gartner, "BPO is the delegation of one or more IT enabled business processes
to a third party that owns, administers and manages the business processes according to a
defined set of metrics."
There is no need for the company to recruit train and pay workers on permanent basis to
undertake non-core, routine jobs. Finance and accounting services, advertising services are
some of the business processes and functions which can be outsourced.
The idea of business process outsourcing has its origin in the Core Competency Theory,
propounded by famous management consultant C.K. Prahlad. The basic contention of the
Competency Theory is that a business enterprise should identify what are its core
competencies and should focus only on them.
Nature of outsourcing:
1. The idea behind outsourcing is that of specialisation i.e., "a business enterprise must
concentrate its attention only on its core activities like manufacturing, marketing, etc.: and
get non-core activities done through some external agency."
2. Outsourcing is getting routine business activities done through external service providers
on a regular basis.
Advantages of Business Process Outsourcing—Advantages of Business Process
Outsourcing are as follows :
1. Concentration on core competency areas leading to specialisation.
Outsourcing enables an enterprise to concentrate its attention on core competency areas Kke
manufacturing, marketing, capital budgeting etc., and thus obtain advantages of specialised
performance in those areas. It can make better use of its human, physical and financial
resources.
2. Better accountability. The outsourcer provides services at a fee. Therefore, he is more
responsible for the quality of services provided than the internal staff of the enterprise.
3. Specialisation. The service provider is an expert in his field. Moreover, he keeps in touch
with the latest development in his field of expertise.
Therefore, through outsourcing, a business enterprise can take full advantage of the
specialised services of the outsourcer vendor.
4. Reduction in cost. Outsourcing agencies are specialists in their activities. They can
perform the same job at a lower cost.
5. Less labour cost and labour problem. Outsourcing of services reduces the need for staff
in the client company. Hence the labour costs of the company are reduced.' Further with less
staff, labour problems are also minimised.
6. Avoiding fixed investment in services. If the enterprise plans to perform certain services
within the organisation, there is a need for huge fixed investment in facilities required for
performing those services. In fact, there is a problem of idle capacities, when these are not in
use-leading to unnecessary expenditure of fixed costs on the maintenance of those facilities.
7. Advantage of consultancy by the outsourcer. The outsourcer often acts as a consultant
for the particular function performed by it and may advise the client company or the
outsourced on better ways of managing that function.
8. Economic progress. Outsourcing enables both i.e., the client company and the external
provider to perform according to the best of their abilities. Such a performance, all through
the economy, is a boost to the economic development of the economy.
Q. 2. (a) "Planning and control are closely related with each other." Do you agree with
the statement ? (7½)
Ans. "Planning and control are closely related with each other"—See Q. 3. [Page 114].
(b) Explain the essential elements of control process. (7½)
Ans. Essential elements of control process—See Q. 2. [Page 114].
OR
Explain the term "Corporate Strategy". Discuss its importance for a large scale
business enterprise. (15)
Ans. "Corporate Strategy—See Q. 11. [Page 50].
Importance of corporate strategy for a large scale business enterprise—See Q. 11. [Page
50].
SECTION : B
Q. 3. What are the traits of a good leader ? Explain with the help of examples.
(15)
Ans. Traits of a good Leader—See Q. 5. [Page 93].
OR
Critically examine Herzberg's hygiene theory of motivation and compare it with
Maslow's need hierarchy theory. (15)
Ans. Herzberg's hygiene theory of motivation—See Q. 4. [Page 102].
Comparison of Herzberg's hygiene theory with Maslow's need hierarchy theory-See Q.
4 [Page 102].
Q. 4. (a) Explain marketing mix. What factors influence marketing mix decisions ? (7½)
Ans. Marketing mix-See Q. 3. [Page 122].
Factors influencing marketing mix decisions—
(i) Nature of Product—The nature of the product, whether it is industrial or consumer,
determines its price, promotion and place. Industrial goods don't need much expenditure on
advertisement, as compared to consumer goods. The price of consumer goods is fixed
keeping in view the purchasing power of the consumers. Besides the consumer goods must be
made available near the places of consumption centres.
(ii) Stage of Product Life Cycle—During the introduction stage, huge amount has to be
spent on advertising and promotional schemes have to be offered to attract the consumers.
But in the decline stage, drastic cuts have to be made in the promotional efforts. During the
growth and maturity stage, adequate budget has to be provided for advertising. Product
quality has to be improved and new product features are required to be offered. Control over
channel of distribution is also desired so that continuous supply of goods to the consumers
can be ensured.
(iii) Degree of Competition—In a low competitive market, a firm can charge higher prices
and invest less on advertisement. But in case of tough competition, new product features must
be introduced, price should be kept low and advertisement should also be competitve.
(iv) Availability of Funds—If a firm has adequate funds, it can improve product quality and
features and spend heavily on advertising. In case of shortage of funds, a firm may resort to
limited advertisement and use established trade channels instead of concentrating on direct
marketing.
(v) Efficiency of Channel — If distribution channel is efficient, a firm can follow uniform
pricing policy throughout the country and curtail expenditure on promotional activities. When
the firm uses direct selling, it will have to invest huge funds on the storage, transport of goods
and also on the advertisement of goods.
(b) What is Financial Management ? Explain various objectives of Financial
Management. (7½)
Ans. Financial Management—See Q. 1. [Page 133].
Various Objectives of Financial Management—See Q. 1. [Page 133].
OR
Explain the term "Consumer Behaviour". What is its significance ? Explain various
factors influencing Consumer Behaviour. (15)
Ans. Consumer Behaviour—See Q. 5 [Page 125].
Significance of Consumer Behaviour—See Q. 5. [Page 125].
Factors influencing Consumer Behaviour—See Q. 5. [Page 125]
SECTION: C
Q. 5. Write short notes on any two of the following : (7½ + 7½ = 15)
(a) Human Resource Management.
(b) Matrix Organisation
(c) Lease Finance
(d) Conflict
Ans. (a) Human Resource Management—See Q. 1. [Page 147].
(b) Matrix Organisation—See Q. 1. [Page 70].
(c) Lease Finance-See Q. 5. (B) [Page 143].
(d) Conflict—Conflict is a part of every organisation. In simple words, conflict implies clash
between individuals and groups due to opposing ideas, perceptions, goals, interests and
values.
" Conflict in the organisation consists of opposing behaviour between two or more people or
groups who have incompatible goals" —Wendell French
" Conflict is a process in which an effort is purposefully made by one person or unit to block
another that results in frustrating the attainment of other's goals or the furthering of his or
her interests." — Robbins
Conflict can take many forms. When it involves more than one person, it may take the form
of opinion. Conflict affects the behaviour of employees, their performance and job
satisfaction. Conflict arises because of disagreement. Conflict can exist between two
managers or executives of two different departments or two groups of employees of the same
organisation. -
Features of conflicts:
1. Conflict occurs when two or more parties pursue mutually exclusive goals, values or
events.
2. Conflict refers to deliberate behaviour. If one party does not block the achievement of
goals of other deliberately, it does not amount to conflict.
3. There is difference between conflict and competition. In conflict, one party
sees an opportunity to interfere with the other's opportunity to acquire resources to perform
activity. In competition, both parties may try to win but neither party actively interferes with
the other.
4. Conflict can exist between two managers or executives of two different departments or two
groups of employees of the same organisation.
5. Conflict is the opposite of co-operation.
6. Conflict is a dynamic process. It indicates a series of events.
7. If handled properly a minimum level of conflict is necessary for the health of the
organisation.
 B.Com. /I YEAR
Business Organisation And Management-2013
PAPER-I
(External/Correspondance)
Time : 3 Hours Maximum Marks : 75
Attempt All questions
All questions carry equal marks.
SECTION : A
Q. 1. Define business environment. What are the benefits of understanding business
environment ? Explain socio-cultural and international elements of business
environment.
Ans. Business Environment—See Q. 1. [Page 12].
Benefits of understanding business environment—Some advantages of understanding the
environment are given below :
(i) First Mover Advantage. Proper understanding of the environment helps an enterprise to
take advantage of early opportunities instead of losing them to competitors. For example—a
firm may get into a collaboration with a foreign firm and beat its current rivals at home.
(ii) Early Wanting Signal. Environment awareness serves as an early warning signal. It
makes a firm aware of the impending threat or crisis so that the firm can take proper and
timely action to minimise the adverse effects, if any. For example, if an Indian firm comes to
know that multinational corporation is about to enter in its line of business, it can take steps
to fight the competition.
(iii) Customer Focus. Better understanding of environment makes the management sensitive
to the changing needs and wishes of its consumers. For example, Hindustan Lever and
several other companies launched small sachets of shampoo and other products realising the
wishes of the customers. This move helped the firm to increase sales.
(iv) Public Image. A business firm can improve its image with the public reflecting that it is
sensitive to its environment and responsive to the aspirations of public. (v) Strategy
Formulation. Environment understanding and the resulting information serve as the basis for
strategy making to counter threats and capitalise on the opportunities in the market.
(vi) Continuous Learning. Environmental analysis provides a continuing, broad-based
education for business managers. It keeps them in touch with the changing scenario so that
they can take decisions in those respects which are rewarding and prepare their enterprise to
meet the potential challenges in its environment. With the help of environment learning,
managers can react in an appropriate manner and thereby increase the success of their
organisations.
(vii) Providing intellectual stimulation. Analysis of business environment is an intellectual
exercise that can stimulate planners in their decision-making process. It is essential to take
full advantage of opportunities for gain hidden in the business environment.
Social-cultural and international elements of business environment—See Point 3 [Page
15] and Point 4 [Page 15].
OR
Explain the functions of an entrepreneur. What are the sources to discover the business
idea ?
Ans. Functions of an entrepreneur—See Q. 5. [Page 21].
Sources to discover the business idea—See Q. 9. [Page 24].
Q. 2. (a) Define planning and explain its significance. What are the main limitations of
planning ?
Ans. Planning-See Q. 2. [Page 40].
Significance of Planning—See Q. 5. [Page 43].
Limitations of Planning—[See Q. 5. [Page 43].
(b) Explain rational decision making. Describe the steps involved in rational decision
making.
Ans. Rational decision making—See Q. 12. [Page 54].
Steps involved in rational decision making—See Q. 12. [Page 54].
OR
(a) What is project organisation ? Explain its merits and demerits.
Ans. Project Organiation—See Q. 2. [Page 73].
Merits and Demerits of Project Organisation—See Q. 2 [Page 73].
(b) Explain main features of authority. What is relationship between authority and
responsibility ?
Ans. Main features of authority—See Q. 1. [Page 75].
Relationship between authority and responsbility—It is the obligation of a subordinate to
carry out the duties assigned to him. By accepting delegated authority, a subordinate incurs a
responsbility to use the authority as desired by the delegator. Authority pre-supposes the
existence of responsibility. Responsibility may be defined as the obligation of a subordinate
to whom a duty has been assigned to perform the duty.
A person who has authority has a corresponding responsbility for the proper use of the
authority given to him. Authority flows from a superior to a subordinate while responsbility
flows from a subordinate to a superior.
Responsibility is a personal attribute. It is an obligation to one's own superior. No person can
shift his responsibility by delegating his authority to others.
Responsibility is absolute and can never be delegated or shifted to others.
Q. 3. Distinguish between :
(a) Autocratic and Democratic Leadership.
(b) Hygienic factors and Motivational factors.
Ans. (a) Autocratic Ledership—See Q. 2. [Page 90].
Democratic Ledership—See Q. 2. [Page 90].
(b) Hygienic factors and Motivational factors—See Q. 4. [Page 102].
OR
(a) What are the common barriers to communication in an organisation ? How can
these be removed ?
Ans. Common barriers to communication—See Q. 4. [Page 109].
How can these be removed ?—See Q. 4. [Page 109].
(b) What do you mean by controlling ? What is the relationship between planning and
controlloing ?
Ans. Controlling-See Q. 1. [Page 112].
Relationship between planning and controlloing—See Q. 3 [Page 114].
Q. 4. (a) Explain the term consumer behaviour. What are the factors influencing
consumer behaviour ?
Ans. Consumer Behaviour—See Q. 5., [Page 125].
Factors influencing Consumer Behaviour—See Q. 5., [Page 125].
(b) Discuss the scope of financial management.
Ans. Scope of financial management—See Q. 2. [Page 134].
OR
Define human resource management. Explain its objects and functions.
Ans. Human Resource Managment—See Q. 1., [Page 147].
Objects and Functions of Human Resource Managment—See Q. 4., [Page 149].
Q. 5. (a) What is planned change ? Explain the process of planned change.
Ans. Planned Change-See Q. 1, [Page 156].
Process of planned change—See Q. 2., [Page 157].
(b) Why does conflict arise ? How can it be resolved ?
Ans. Why does Conflict arise—See Q. 2., [Page 161].
How can Conflict be resolved—See Q. 2., [Page 161].
OR
Write short notes on the following :
(a) Network organisation, (b) E-commerce
Ans. (a) Network organisation—See Q. 4., [Page 73].
(b) E-commerce—See Q. 5., [Page 32].
 B. Com. /I YEAR
Business Organisation And Management-2014
(Admission of 2006 onwards)
PAPER-I
(Non-Collegiate)
Time : 3 Hours Maximum Marks : 75
All questions are compulsory and carry equal marks.
All questions of each Section (A, B and C) should be attempted together.
SECTION - A
Q. 1. Discuss the basic considerations in setting up a new business enterprise. (15)
Ans. Basic considerations in setting up a new business enterprise : See
Q. 10., [Page 26].
OR
(a) What is business environment ? Explain its components . (7½)
Ans. Business Environment : The term business environment means "the aggregate of all
the forces, factors and institutions which are external to and beyond the control of an
individual business enterprise but which exercise a significant influence on the functioning
and growth of individual enterprise".
According to Bayord O. Wheeler, business environment refers to "the total of all things
external to firms and industries which affect their organization and operation".
In the words of Arthur M. Weimer, "business environment encompasses the climate or set of
conditions—economic, social, political, or institutional in which business operations are
conducted.
Since the business system is an open-system, therefore, it must be adaptive to environment in
order to ensure its survival and growth. Business dose not operate in a vacuum but in an
environment. Business Environment consists of all those factors that have a bearing on the
business.
Components (Elements) of Business Environment: See Q. 7., [Page 14].
(b) What is service sector ? Explain the reasons for the growth of service sector in India.
(7½)
Ans. Service sector (Tertiary sector): Service sector includes commercial firms which are
engaged in communication, transport, banking, insurance, warehousing, etc. These services
constitute a fast growing area of business activity. A large number of firms are engaged in
transport, insurance and storage of goods and provision of banking and financial facilities to
business units. These firms are said to be engaged in service industries.
Examples of Services : The service facilities assisting industry and trade may be classified
under the following five heads :
(i) Communication
(ii) Transport
(iii) Banking
(iv) Insurance
(v) Miscellaneous—warehousing, packaging, advertising etc.
SERVICE SECTOR
Communication Transport Insurance Miscellaneous
Banking
Reasons for the growth of Service Sector in India : See Q. 4. [Page 31].
Q. 2. (a) Explain the problems in delegation of authority. (7½)
Ans. Problems in delegation of authority : See Q. 5. [Page 78 ].
(b) Explain the advantages and disadvantages of decentralisation of authority. (7½)
Ans. Advantages of decentralisation of authority: See Q. 6., [Page 79].
Disadvantages of decentralisation of authority : See Q. 6., [Page 79].
OR
(a) Distinguish between delegation of authority and decentralisation of authority. (7½)
Ans. Distinction between delegation of authority and decentralisation of authority : See
Q. 7., [Page 81].
(b) Explain the importance of informal groups for an organization. (7½)
Ans. Informal Groups : Informal groups exist with the formal organization and arise
because of individuals' social needs and desire to develop and maintain relations with people.
Working at a plant or office leads to formation of informal groups. They work together and
this leads to their interaction. Through interactions, groups are formed. These groups are
spontaneous and emotional. Keith Davis has defined informal groups as. "the network of
persons and social relations which is not established or required for formal organization".
Such informal groups may take place through simple physical factors like location or face to
face situation in an office or a factory, or, it may develop out of some common attitudes
preset among individuals like common language, common homeland, common political
views, etc.
Importance of informal groups : Importance of Informal groups lies in the following:
1. Satisfaction. Informal groups provide social satisfaction and a sense of belonging to the
members. It provides them a sense of identity and self-respect and an helps in solving their
personal problems and difficulties.
2. Job satisfaction. Informal group provides 'human-touch' to formal organization. It allows
people to satisfy their psychological needs. It creates a pleasant and satisfying work
environment. In this way, informal organization exercises significant influence on job
satisfaction and productivity.
3. Source of protection. Informal groups, specially labour unions, act as a source of
protection for the of employees against the undesirable practices and actions of management.
4. Support to formal structure. Informal group provides support to formal structure. It
blends with the formal organization to make a workable system for getting the work done.
Formal structure tends to be inflexible and cannot meet every problem in a dynamic
environment. Informal organization lends flexibility and dynamism to the formal structure.
5. Communication feedback. Through informal groups, management could get the reaction
of the employees of the organization i.e., the communication feedback, on the communication
transmitted by it.
6. Management made alert and responsible. The fact of the existence of informal
organization and the fear of their likely actions; makes the management more alert and
responsible—while designing its plans, policies and actions.
7. Training and development. Informal groups provide a basis and background for training
in leadership, at least to some members of the group.
8. Innovation and creativity. Informal groups and their leaders might often come out with
suggestions or recommendations for betterment of organizational working. If such
suggestions are accepted and implemented by the management, the same act as a source of
innovation and creativity on the part of the members of informal groups.
9. More production and higher productivity. By winning the 'co-operation' of informal
groups and their leaders management is assured of higher productivity on the part of the
workers—leading to higher production.
A properly motivated informal group can achieve much better results than a formal group.
SECTION - B
Q. 3. "Theory Z is the last word on motivation". Discuss. (15)
Ans. Theory Z : See Q. 6., [Page 103].
OR
(a) Describe managerial grid. How can it be useful in leadership training ?
(7½) Ans. Managerial grid : See Q. 4., [Page 92].
(b) Explain the significance of control. How is it different from planning ?
(7½)
Ans. Significance of Control: Controlling is a basic function of management. The
management process cannot be completed without performing the control function. No
executive can get things done without the process of control. There are various advantages of
control for which its importance has increased in modern management. An efficient system of
control provides the following advantages :
1. Execution of plans. Control is the only means to ensure that the plans are being properly
implemented. It regulates actual operations to ensure that the goals are being achieved. By
keeping a close watch over performance at various levels, control tries to correct the
deviations between actual results and desired results. Mistakes are located promptly and
appropriate remedial action is initiated. Thus, it helps in achieving the objectives laid down in
the plan of action.
2. Improves efficiency. Effective control system helps to minimise wastages and losses. The
existence of an effective control system has a positive impact on the behaviour of employees.
They become cautious while performing their duties because they know that they are being
observed by their superiors.
3. Keeps a balance in managerial activities. Control helps the top management for keeping
the various plans and programmes in balance through the master-budget, policy and
organisational manual and management consultants. This results in the effective utilisation of
financial resources which every organisation expects from the controlling functions,
4. Simplifies supervision. An effective control system simplifies supervision by identifying
deviations. In respect of a given job, the manager can supervise his subordinates more
effectively.
5. Facilitates co-ordination. Control keeps all activities and efforts within their fixed
boundaries and makes them move towards goals through co-ordinated activities. Thus,
control facilitates coordination.
6. Maintaining discipline. An indirect advantage of controlling is to ensure disciplined
organizational life. In fact, the very act of controlling induces people to abide by the rules of
the organization, with a view to achieve planned performance.
7. Without control, other functions of management cannot exist. Even planning itself has no
practicability without control. Date and Michelon have said, "Planning and control are
complementary techniques, and both are essential to good management."
8. If there is proper control, delegation of authority can be carried out to fullest extent and
decentralisation is achieved which is necessary for a big enterprise.
Distinction between planning and control: Inspite of the close relationship between
planning and control, the two differ from each other in the following respects :
1. While planning is the first function of management, controlling is the last one.
2. Planning aims at future. Plans represent the future course of action to be adopted under
specified conditions. They are prepared with an eye on the future. It is useless to plan for
whatever has happened. Control, on the other hand, seeks to evaluate performance. It is an
investigation of whatever has happened. Generally we say that "Planing is looking ahead
and control is looking back."
But in one sense planning is looking back and control is looking ahead. Plans are based on a
review of the past events. Control involves a review of performance but the corrective action
is for the future. We cannot control and correct the events, which have already taken place.
The experience gained from these events can be used to avoid undersirable events in future.
Q. 4. (a) Explain marketing mix. Why is it important for a firm ? (7½)
Ans. Marketing Mix: The concept of marketing mix is a deliberate, intentional and careful
choice of organization, product, price, place, promotion, policies and strategies. They all,
when cautiously selected and clubbed together in right proportion, enhance the product to
attract the customers.
According to William Stanton, marketing mix is basically a combination of four elements -
product, price, distribution channel and promotional activities used to satisfy the needs of an
organization's target market. It represents the entire marketing programme of a firm and is
formulated on the basis of a specific market. It builds a link between the firm and its
customers. It helps the firm to increase sales and profits. Its goal is to effectively satisfy the
needs and desires of consumers. As the desires of consumers change, this mix also changes.
Thus, marketing mix is consumer-oriented and a dynamic concept.
Components of Marketing Mix
It is mainly a combination of four elements, each of which is a combination of other factors,
thus also called mix. They are as follows:
(i) Product Mix : It consists of various features of the product offered for sale and taking of
several decisions regarding quality, size, package, brand name, label, etc.
(ii) Price Mix : It involves decisions with respect to the price of the product, discount
offered, credit, terms of payment, etc. Price is the money value of the good and it is computed
on the basis of cost of the production and marketing the product, income level of the
customers, competition, desired profit, etc.
(iii) Place Mix: It includes all activities involved in transfer of ownership and physical
possession of the product from producers to the consumers. The aim is to make the goods
available at the right place and at the right time. It includes channels of distribution (route
through which goods move from producers to buyers, number and type of middlemen
required) and physical distribution (activities involved in moving goods from producers to
buyers and storage of goods).
(iv) Promotion Mix: It includes all the activities required to persuade and stimulate
customers to get attracted and buy the product. Its elements are advertising, publicity, sales
promotion and personal selling.
Importance of Marketing Mix : A proper marketing mix provides the following benefits :
(i) Marketing mix helps in increasing sales volume and profits by satisfying the needs and
wants of customers.
(ii) Marketing mix maintains a balance between different elements of marketing system.
(iii) Marketing mix serves as the link between a business enterprise and its customers. It helps
in pursuing customer-oriented marketing by focussing attention on the satisfaction of
customers.
(iv) Marketing mix requires modification whenever the requirements of customers change.
(v) Marketing mix suggests that its four components (product, price, promotion and
distribution) are interrelated and interdependent. Therefore, decisions or changes in one
component will affect decisions or components in the other elements.
(b) Explain the Functions of Financial Management. (7½)
Ans. Functions of Financial Management : The functions of the financial management are
as follows :
1. Formulation of Objectives : The formulation of objectives is the basic function of
financial management. These objectives must be in tune with the overall objectives of the
enterprise. The finance manager should also take into confidence other functional managers
to achieve coordination in financial management.
2. Estimating the requirements of Capital: A business requires funds for both long-term as
well as short-term. The financial management must prepare budgets of various activities to
estimate the financial requirements of the business properly. If the business has insufficient
capital, it will not be able to meet its commitments in time. If there are surplus funds, the
management may become extravagant in spending.
3. Determining the Capital Structure: Once the requirement of capital funds has been
determined, a decision regarding the kind and proportion of various sources of capital has to
be taken. Kind and proportion of various sources of capital is known as capital structure. For
this, the financial manager has to determine the proper mix of equity and debt and short-term
and long-term debt ratio. These decisions have to be taken in the light of costs of raising
fiance from different sources, period for which funds are required and other relevant factors.
4. Choice of Sources of Finance : The management can raise finance from various sources
like shareholders, debentureholders, banks and other financial institutions, public deposits,
etc. The choice of the source or sources of finance should be done very carefully as these
sources involve different costs and conditions. For example, public deposits carry higher
rates of interest but do not create charge on the assets of the company. A company may like-
this source if it does not want to create a charge over its assets. Similarly, if a company does
not want to dilute ownership, it will depend upon sources other than issue of shares.
5. Investment Decision : The funds procured from various sources are to be prudently
invested in various assets in order to optimize the return on investment. The investment of
long-term funds requires a careful assessment of various alternatives through capital
budgeting and opportunity cost analysis. A part of the long term funds has to be invested in
the working capital of the firm.
While taking investment decisions, financial manager should be guided by three important
principles, viz, safety, profitability and liquidity.
6. Disposal of Surplus : The financial manager has to decide how much to retain and how
much to distribute as dividend to shareholders out of the surplus of the company. The factors
which affect these decisions include the earnings of the company, market price of its shares,
the requirements of funds for self-financing, the future prospects and so on.
7. Management of Cash : Cash is required to make payment to the creditors, purchase
materials, pay to labour and to meet day-to-day expenses. There should not be shortage of
cash at any time as it would damage credit-worthiness of the enterprise. Also there should not
be excess cash. Such cash would remain idle and there would not be any return on this idle
cash. Excess cash may be invested in near-cash assets which may converted into cash when
needed. To know the cash requirement during different periods, the management should
prepare a cash flow statement in advance.
8. Financial Controls : Evaluation of financial performance is an important task of financial
management. The overall measure of evaluation is Return on Investment (ROI). The other
techniques of financial control and evaluation are budgetary control, cost control, break-even
analysis, internal audit and ratio analysis.
OR
(a) What are the causes of poor employer-employee relations ? How can these be
improved ? (7½)
Ans. Causes of poor employer-employee relations : See Q. 7., [Page 154].
Measures for improving employer employee relations: See Q. 7., [Page 154].
(b) What is Lease Finance ? Explain its merits and demerits. (7½)
Ans. Lease Finance : See Q. 3. (b), [Page 145].
Merits of Lease Finance : See Q. 3. (b), [Page 145].
Demerits of Lease Finance : See Q. 3. (b), [Page 145].
SECTION - C
Q. 5. Write short notes on any two of the following : (7½ each)
(a) Resolution of Conflict,
(b) Resistance to Change
(c) Market Segmentation
(d) Objectives of Financial Management.
Ans. (a) Resolution of Conflict: The following methods may be adopted for resolving
conflicts :
1. Problem Solving. This method is best to remove misunderstanding. Under this method, an
attempt is made to bring the conflicting parties together and to share the mutual problem. The
focus in on sharing of information to avoid misunderstanding between them and to find out
areas of common interest, Question of who is right or who is wrong should be avoided.
2. Smoothing. It is a technique of suppressing differences existing between parties to the
conflict and emphasise common interest. Sharing of opinions certainly removes
misunderstanding and both parties realise that they are not far apart.
3. Compromise. Compromise is a well accepted technique for resolving conflict. It is a
process of bargaining where the poarties negotiate on the basis of give and take to arrive at
some agreement. There is no question of who is winner and who is loser because each party
is expected to sacrifice something in exchange for getting something. Compromise is
commonly used where the conflict involves differences in goals values or attitudes. This is a
quite effective method of conflict resolution between management and workers.
4. Confrontation. The various actions enumerated above may not bring resolution of conflict
between parties if they take very rigid stand. In such a case, the parties are left to
confrontation to settle the conflict themselves. This strategy may result into win-lose
situation. The parties concerned may settle their score by applying their strength against each
other. One party's gain is another party's loss. Parties use weapons like arguments and fights
to win over each other. This technique is used when both parties adopt a very rigid stand.
5. Avoidance. Another method of overcoming conflict is its avoidance. It involves
withdrawal of parties from the picture of the conflict. When parties to the conflict fail to
arrive at mutually agreed solution they may detach themselves from the conflict believing
that avoidance is better than wasting time and energy on childish arguments. It is a deliberate
decision to take no action or to stay out of a conflict situation. In this situation, conflict is
neither resolved not eliminated.
(b) Resistance to Change: As change is a natural process, resistance to change is also a
nature phenomenon.
Some of the important reasons why people resist change in organization are as follows :
1. Fear of Economic Loss. People resist change when they perceive that they will loose
some economic benefits. Some examples of economic loss are given below :
— Fear of technological unemployment
— Fear of reduced working hours and consequently reduced monetary benefits.
— Fear of demotion and consequently less pay.
— Fear of increased workload without corresponding increase in the wages.
2. Obsolescence of Skills. It is possible that due to change, old skills and techniques may
become usless. For example, an experienced accountant resists the introduction of a
computer due to the fear that his experience becomes useless and it might affect his salary
and position in the organiation.
3. Problem of Adjustment. Perhaps most important factor for resistance to change is the
problem of adjustment. Every individual tries to maintain a sort of equilibrium. When change
comes, it requires people to make adjustments so as to cope with the new situation. People
seek status quo because after establishing equilibrium, they may not like it to be disturbed.
Status gives them more
satisfaction because the present equilibrium has been achieved by eliminating those forces
which create discomforts. When change is introduced this equilibrium does not remain as
satisfactory as it was before the change. New methods of production may create various
problems because people have to engage themselves again in the process of forming a new
equilibrium.
4. Fear of Unknown. Change causes uncertainty and risk during transition period. The
unknown poses a constant threat to the people because the impact of change is unknown.
5. Ego Defensiveness. Sometimes people resist change because it hurts their ego. For
example, an ego defensive branch manager may resist even a good suggestion from salesman
because he feels that his ego may be deflated if he accepts his suggestion.
6. Social Displacement. Introduction of change often causes a social displacement of people
by breaking-informal groups and relationships. When the friendship with fellow-members is
interrupted, employees will oppose changes.
7. Threat to Power and Influence. When people at higher level consider change as a
potential threat to their position and influence, they resist it.
8. Peer Pressure. People may resist change because the group to which they belong opposes
the change. Every group has its own norms and pressure on its members to resist change.
9. Organizational Structure. Sometimes it becomes difficult to introduce change due to
organizational structure. In other words organizational structure do not accept change.
For example, in a typical bureaucacy wherein jobs are narrowly defined, line authority is
clearly defined, and the flow of information is stressed from top to bottom. New ideas do not
get approval.
10. Other considerations. Some employees may consider that every change is for the benefit
of the company and management rather than their fellow orkers or even the general public.
Hence, they resist the change.
(c) Market Segmentation : See Q. 4., [Page 123].
(d) Objectives of Financial Management: See Q. 1., [Page 133].
 B. Com. /I YEAR
Business Organisation And Management-2014
(Admissions of 2006 onwards)
PAPER-I
(Correspondence)
Time : 3 Hours Maximum Marks : 75
All questions are compulsory and carry equal marks.
Q. 1. What is business system ? What are the problems in creating effective. integration
among various sub-systems of business ?
Ans. Business System : Business is an important system which is created to satisfy human
wants through the production and distribution of goods and services. The business
organization is the heart of the business system. It takes the inputs from its environments and
supplies its output to the environment. The inputs of a business system include materials,
machinery or equipment, manpower, information, technology, money etc. These human,
physical and financial resources are converted into goods and services which constitute the
output of the business system. The business system operates under the influence of
environment consisting of economic, social, political, legal, cultural and other factors.
Business system gets feedback of information from the environment. The feedback influences
the future operation of the system.
According to B. O. Wheeler, "the business system is a combination of all resources,
organizations and institutions which are directly or indirectly related to the production of
goods and services for the satisfaction of human needs". It is a total entity comprising
innumerable interlocking sub-systems.
The concept of business system has been illustrated in Fig. 1. It is clear that the system
receives inputs from the environment. The inputs are converted into output with the help of
creation process. The output is supplied to the environment which provides feedback (or
functioning of the system.

Fig. 1: Sub-systems of a Business system.

Problems in creating effective integration among various sub-systems of business : See
Q. 3., [Page 9].
Q. 2. (a) Discuss various sources from which a business idea may be discovered.
Ans. Various sources from which a business idea may be discovered :
See Q. 9., [Page 24].
(b) What is service sector ? Describe the causes of rapid increase in service sector in
India.
Ans. Service sector (Tertiary sector): See Q. 1 OR (b)—[Page 257].
Causes of rapid increase in service sector in India : See Q. 4 [Page 31].
OR
(a) What is decision-making ? Describe the characteristics of decisionmaking.
Ans. Decision-making : See Q. 12., [Page 54].
Characteristics of decision-making : See Q. 12., [Page 54].
(b) What is functional departmentation ? Explain its merits and demerits. Ans.
Functional departmentation : See Q. 1. (Point -1), [Page 63].
Merits (Advatages) of Functional Departmentation : See Q. 1. (Point 1) [Page 63].
Demertis Limitation of Functional Departmentation : See Q. 1 (Point 1) [Page 63].
Q. 3. (a) What is managerial grid ? Explain its components and utility.
Ans. Managerial Grid : See Q. 4., [Page 92].
Components and utility of Managerial Grid : See Q. 4., [Page 92].
(b) Critically examine Ouchi's theory Z of motivation.
Ans. Ouchi's theory Z of motivation : See Q. 6., [Page 103].
OR
(a) What is Market Segmentation ? Explain bases for Market Segmentation.
Ans. Market Segmentation : According to William Stanton, market segmentation is "the
process of taking the total heterogeneous market for a product or service and dividing it into
several markets or segments, each of which tends to be homogeneous in all significant
respects." Market for ready-to-wear clothes can be divided into segments such as infants,
kids, teenagers, women and men. It can help focus corporate resources much more sharply
than otherwise. It is based on the fact that a market is made up of different types of buyers
who respond in different manners to the same programme. It is customer-oriented and
identifies the distinction among consumers. Its objective is to recognize the different desires
and needs of different customers so that a proper mix of products can be designed to satisfy
all of them. Its process has the following steps :
(i) In the beginning, total market is identified, and then divided into major segments.
(ii) After this, potential of each segment is estimated. Unique features and needs of each
market segment is also determined.
(iii) Ultimately few segments are selected for the firm to focus on.
Bases for Market Segmentation :
1. Geographic : It is the simplest method of segmenting the market. People who live in
different geographical locations have different buying habits like life style of people living in
metro cities like Delhi, Mumbai is different from people living in Ujjain and Varanasi.
2. Psychographic: Customers are divided into different segments on the basis of their
personality, lifestyle and attitude (achievers, traditionalists, etc). Rogers has recognized
several buyer personalities on the basis of how they adopt a new product. They are as follows
:
(i) Innovators (eager to try new goods),
(ii) Early Adopters (influential people who often try new product),
(iii) Early Majority (deliberate before trying a new good),
(iv) Late Majority (cautiously adopt new products),
(v) Laggards (suspicious of change and innovation, so don't undertake the risk of trying a new
product).
3. Behaviourist: Here, customers (markets) are classified on the basis of their knowledge,
attitude and use of actual products. Various variables can be used for this segmentation. They
are—purchase occasion (when the product is being used), user status (regular users,
occasional users and non-users) and benefits sought
' (like low price, perfect taste, and speed e.g. economy fare and business class fares in air
travelling).
4. Product-Space : Customers are asked to compare the existing brands on the basis of their
knowledge of the products and also with their best brands. This is analysed to perceive the
features that must have been used as bases to compare the brands and then customers are
classified according to their ideal brand.
5. Volume : Customers are categorized as heavy, medium and light users. Attention should be
given to all types of users as they have opportunities and potential to increase sales volume as
consumers might change from non-users to light users and from light to heavy users through
advertising.
6. Demographic : Here, age (toddlers, kids, teenagers, youngsters, middle aged, adults,
retired), sex (male, female), education (graduate, undergraduate, post graduate, illiterate, etc),
income (various income slabs i.e. low income, middle and high income groups) and
occupation (student, agriculture, industry, trade, service, households, institutions) are used as
basis for market segmentation.
7. Benefit : Consumer buying habits depend on the benefits they look in a specific product.
Buyers seek as many benefits as possible in a good but the importance of these benefits differ
from one buyer to another like few buyers give importance to freshness while buying a
toothpaste whereas others might want taste etc. The benefits segments are as follows :
(i) status seeker (emphasize the prestige of the brand),
(ii) swinger (modern user),
(iii) conservative (prefers popular and successful brands),
(iv) rational man (focuses on value, durability and economy),
(v) inner-directed man (focuses on sense of humour, honesty, etc), and
(vi) hedonist (concerned with sensory benefits).
(b) Discuss basic dynamics of employer-employee relations.
Ans. Dynamics of empliyer-employee realtions : See Q. 6., [Page 152].
Q. 4. (a) What is financial management ? Explain its objectives.
Ans. Financial Management: See Q. 1., [Page 133].
Objectives of Financial Management: See Q. 1. [Page 133]
(b) Discuss operative functions of human resource management.
Ans. Operative functions of Human Resource Management : Operative Functions : The
operative functions of HRM are as follows :
1. Procurement : It refers to a series of activities undertaken by the HR managers for filling
the present and future vacancies of the organization. The activities include job analysis and
designing, HR planning, recruitment and, finally, the selection of suitable employees. Job
analysis refers to determination of specific tasks as well as responsibilities connected to a job
and identifying the skills, knowledge and abilities required for the job holder.
HR planning involves choosing and placing the right person at the right job and at the right
time.
Recruitment involves gathering a pool of applicants from which suitable employees may be
selected. Selection involves screening, testing, interviewing and hiring the most suitable
employees for the organization.
2. Development : Development refers to employees' training as well as management
development. HR managers are responsible for conducting and supervising training and
development programmes for employees. The purpose of a training and development
programme is to increase the employees' competencies in their job by improving their
knowledge, skills and abilities. Training and development is widely accepted method for
enhancing the employee skills, increasing the individual and organizational performance,
improving the employee morale, and achieving the business growth and success.
3. Compensation : Compensation refers to the determination of the pay scale and other
benefits for the employees. HR managers must devise ways to ensure fair and equitable pay
rates. In addition, HR managers should regularly manage the performance evaluation system
of the organization, and continuously design reward systems such as performance-linked
incentive plans and bonus and flexible work schedules.
4. Maintenance : The maintenance function aims at retaining efficient and experienced
employees in the organization. In this regard, HR managers are responsible for offering a
wide range of HR programmes covering occupational safety, health promotion and physical
fitness, recreation activities, transportation, employee suggestion schemes, career counselling
and growth for creating a positive work environment.
5. Integration : The integration function consists mainly of industrial relations and aims at
ensuring good relations between the management and the employees. HR managers have to
implement industrial relations programmes which ensure ethical and fair treatment in
disciplinary action, grievance redressal, and career management processes. They should also
counsel the employees and the management to prevent and, when necessary, resolve disputes
over labour agreements or other labour relation issues.
OR
(a) What is planned change ? Discuss its features.
Ans. Planned Change : See Q. 1., [Page 156].
Feautres of Planned Change : See Q. 1., [Page 156].
(b) Explain the main steps in managing change.
Ans. Steps in managing change : See Q. 2., [Page 156,157].
Q. 5. Write notes on any two of the following:
(a) Product life cycle
(b) Matrix organization
(c) Lease finance
(d) Benefits of E-commerce.
Ans. (a) Product life cycle : See Q. 6., [Page 127].
(b) Matrix organization : See Q. 1., [Page 70].
(c) Lease finance : See Q. 5. (b), [Page 143].
(d) Benefits of E-commerce : See Q. 5., [Page 32].
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 B. Com. /I YEAR
Business Organization and Management-2015
(Admissions of 2006 onwards)
PAPER-I
(Non-Collegiate)
Time: 3 Hours Maximum Marks: 55
All questions are compulsory.
All parts of every question should be answered together.
The maximum marks printed on the question paper are applicable for the students of regular
colleges (CAT. A). These marks will, however, be scaled up proportionately in respect of the
students of NCWEB/SOL at the time of posting of awards for compilation of result.
Q. 1. (a) Define business system. Discuss various sub-systems of business system.
Explain the interaction between various sub-systems of a business system. (6)
Ans. Business system : See Q. 1. [Page-5].
Various sub-systems of business system : See Q. 2. [Page-7].
Interaction between various sub-systems of a business system : See Q. 2.
[Page-7].
(b) What is operating procedure of e-Commerce ? Explain the resources required for it.
(5)
Ans. Operating procedure of e-Commerce : See Q. 11. [Page-37].
Resources required for successful implementation of e-Commerce :
See Q. 6. [Page - 34].
OR
Describe the steps involved in entrepreneurial process. (11)
Ans. Steps involved in entrepreneurial process.: See Q. 1. [Page-221].
Q. 2. (a) What is planning ? Explain the steps in planning process. (6)
Ans. Planning : See Q. 2. [Page-40].
Steps in planning process.: See Q. 2. [Page-42].
(b) Explain the factors determining the extent of decentralisation of authority in an
organisation. (5)
Ans. Factors determining the extent of decentralisation of authority in an organisation.:
See Q, 8. [Page-183].
OR
What are the characteristics of informal groups ? Explain the merits and demerits of
these groups. (10)
Ans. Characteristics of informal groups : See Q. 2. [Page-84].
Merits and demerits of informal groups : See Q. 4. [Page-85].
Q. 3. (a) What is Network organisation ? Explain its merits and demerits.
(6)
Ans. Network organisation: See Q. 4. [Page-73].
Merits and demerits of Network organisation: See Q. 4. [Page - 73].
(b) Explain the characteristics of decision making. (5)
Ans. Characteristics of decision making: See Q. 12. [Page - 54].
OR
(a) What are common barriers to communication in an organisation ? How can these
barriers be removed (6)
Ans. Common barriers to communication in an organisation .: See Q. 4. [Page - 109].
How can these barriers be removed ? See Q. 4. [Page -109].
(b) Discuss the nature and process of planned change. (5)
Ans. Nature and process of planned change: See Q. 1. and Q. 2. [Page -156]
Q. 4. (a) Critically examine McGregor's Theory 'X' and Theory 'Y' of motivation. (6)
Ans. McGregor's Theory 'X : See Q. 3. [Page -101].
Critical appraisal : The assumptions of Theory 'X' are negative in nature. Therefore, it is a
traditional approach to motivation. External control is considered appropriate for dealing with
unreliable, irresponsible and immature people. According to McGregor, an organisation built
upon Theory 'X' will have close supervision and control of subordinates and high
centralisation of authority. Leadership will tend to be autocratic, and workers will have very
little (if any) say in decisions affecting them. The climate in a Theory 'X' organisation tends
to be impersonal.
McGregor's Theory /Y': See Q. 3. [Page -101].
Critical appraisal: Theory 'Y' represents a modern and dynamic nature of human beings. The
theory is based on assumptions which are nearer to reality. An organisation designed on the
basis of Theory 'Y' is characterised by decentralisation of authority, job enrichment,
participative leadership and two-way communication system. The focus is on self-control and
responsible jobs. Theory 'Y relies on self-control and self-regualtion.
(b) Explain the importance of Human Resource Management. (6)
Ans. Importance of Human Resource Management. : See Q. 3. [Page - 149]
OR
(a) What is marketing mix ? Describe its components. (6)
Ans. Marketing mix : See Q. 3. [Page - 122]
Components of marketing mix : See Q. 3. [Page -122]
(b) Discuss the Venture Capital as a source of finance. (5)
Ans. Venture Capital as a source of finance.: See Q. 5. (A) [Page - 142]
Q. 5. Write short notes on any two of the following: (2 x 5½)
(a) IPO
(b) Need for Planned Change
(c) Nature of Conflicts
(d) Leadership Styles.
Ans. (a) IPO : See Q. 5.(c)[Page - 43](Point 1)
(b) Need for Planned Change : See Q. 4. [Page -160]
(c) Nature of Conflicts : See Q. 1. [Page -161]
(d) Leadership Styles.: See Q. 2. [Page - 90]
 B. Com. /I YEAR
Business Organization and Management-2015
(Admissions of 2006 onwards)
PAPER-I
(Correspondence)
Time: 3 Hours Maximum Marks : 75
All questions are compulsory.
All parts of every question should be answered together.
Q. 1. (a) Explain the elements and significance of business environment. (8)
Ans. Elements and significance of business environment : See Q. 7. [Page -14] and Q. 6.
[Page -12]
(b) What is feasibility study ? What are different aspects involved in it ? (7)
Ans. Feasibility study : See Q. 1. [Page - 220] (Point 3)
Different aspects involved in feasible study: See Q. 2.(b)[Page - 244].
OR
Explain the basic considerations in setting up a business enterprise. (15)
Ans. Basic considerations in setting up a business enterprise : See Q. 10.
[Page-26]
Q. 2. (a) State the risks involved in e-Commerce transactions. How can these risks be
prevented ? (8)
Ans. Risks involved in e-Commerce transactions: See Q. 8. [Page - 35].
How can these risks be prevented ? : See Q. 9. [Page - 35].
(b) "Planning is meaningless without control and control is aimless without planning".
Critically examine this statement. (7)
Ans. “Planning is meaningless without control and control is aimless without planning"
: See Q.3.[Page - 114].
OR
(a) Explain the reasons for the growth of service sector in India. (8)
Ans. Reasons for the growth of service sector in India.: See Q.4.[Page - 31].
(b) Explain the nature and significance of planning. (7)
Ans. Nature and significance of planning : See Q. 2. [Page - 40] and Q. 5. [Page-43].
Q. 3. (a) Explain the principles which can be helpful in designing a sound organisation.
(8)
Ans. Principles which can be helpful in designing a sound organisation: See Q. 5. [Page -
61].
(b) What is functional departmentation ? Explain its merits and demerits. (7)
Ans. Functional departmentation : See Q. 1. [Page - 63].
Merits and demerits of functional departmentation: See Q. 1. [Page - 63].
OR
(a) What are the features of an informal organisation ? State its merits and demerits. (8)
Ans. Features of an informal organisation: See Q. 3.[Page - 59].
Merits and demerits of an informal organisation/groups : See Q. 4.
[Page-85].
(b) Explain the process and principles of delegation of authority. (7)
Ans. Process and principles of delegation of authority : See Q.2. [Page 76] and Q. 3.
[Page-77].
Q. 4. (a) What is lease finance ? Explain its merits and demerits. (8)
Ans. Lease finance: See Q. 5. [Page -143].
Merits and demerits of Lease finance: See Q. 5. [Page -143].
(b) Critically examine Maslow's Need Hierarchy Theory of Motivation. (7)
Ans. Maslow's Need Hierarchy Theory of Motivation : See Q. 2. [Page-98].
OR
(a) Explain the main features of debentures. Describe their advantages and
disadvantages. (8)
Ans. Main features of debentures : See Q. 3.[Page-135] (Point 4).
Advantages and disadvantages of debentures : See Q. 3.[Page-135] (Point 4).
(b) Explain the functions to be performed in the process of marketing. (7)
Ans. Marketing Functions. The marketing function of a business organization encompasses
those activities which are necessary to move goods and services from the producer to the
consumers in a manner that satisfies the needs of the organisation as well as the needs of the
customers or consumers.
Broadly speaking, marketing consists of three process. First is concentration which implies
gathering products and materials acquired from different places at a central point. Second is
dispersal which involves dispersal of goods from the central point to ultimate users at
different places. The third process is equalisation by which a balance is created between the
demand and supply of goods. The various functions involved in this process are described in
Fig. 1.

Fig 1 : CLASSIFICATION OF MARKETING FUNCTIONS

I. Functions of Exchange. The process of transferring goods from the seller to the customer
is known as function of exchange. This process involves buying and assembling and selling :
1. Buying and assembling. Buying is the first step in the process of marketing. It refers to
buying of raw materials and components by the producers and finished goods and services by
the dealers. It requires planning of purchases, search for sellers and buying of goods in right
quantity and quality at the right time and right place. Economy and efficiency in a buying
function on the part of manufacturers or traders will enable them to earn more profits.
Assembling involves collection of the same type of goods bought from different places under
a common roof.
2. Selling : The purpose of all marketing activities is to sell the goods or services. Selling
means finding customers, obtaining orders and transferring the goods to them for value or
money. It is the heart of marketing.
II. Physical Distribution. This function relates to the process of transporting goods from the
place of the seller to the place of the buyer. This includes two main functions :
1. Transportation
2. Storing and Warehousing
1. Transportation. It is the process of physically moving the goods and services from the
place of production to the actual place of consumption. It helps in assembling and dispersing
the goods, widens the market and determines scales of production. A good transport system
creates place utility.
2. Storing and Warehousing. Storing is an important function of marketing. It refers to
holding and preservation of goods till they are finally delivered to the buyer. Raw materials
are stored and preserved till they are finally used in the
production process. Storage creates time utility. It ensures regular supply. Warehouses may be
Private, Public or Bonded.
III. Facilitating Function. These functions make the market process easy and include
marketing reserach, product planning and development, pricing, promotion, standardisation
and grading, branding, packaging and risk-taking.
1. Marketing Research. Marketing research is a systematic and intensive investigation of all
phases of marketing on a continuous basis with a view to have better understanding and
knowledge about the present and future marketing problems. According to American
Marketing Association, 'Marketing research is the gathering, recording and analysing of
all facts about problems relating to the transfer and sale of goods and services from the
producer to the consumer." It has a direct impact on the selling activities of a business
concern.
2. Product Planning and Development. It is an important function of both marketing and
production. Product planning and development involves what to produce ? how to produce ?
when to produce ? and for whom to produce ? It consists of planning about the type and
design of the product. It also involves the development of new products and improvement of
the existing products in the light of the consumers' needs and their satisfaction.
3. Pricing. It refers to determining and fixing the price of a product or a service. The sale of a
product or a service depends to a great extent on its price. So it should be very carefully fixed
after considering all influencing factors such as the cost of production, market competition,
nature of the product and its demand, etc. Price should cover not only the cost of production
but also a fair profit margin.
4. Promotion. In marketing process, the term promotion is used to refer to the process of
informing prospective buyer about products, services and the firm and stimulating them to
patronise the firm. Advertising, salesmanship and sales promotion techniques are used to
promote products and services.
5. Standardisation and Grading. Standardisation refers to the process of setting up basic
measures or standards to which the product must conform, and taking steps to ensure that the
goods actually produced adhere to these standards. Standards are determined with regard to
the shape, size, quantity, quality, colour or other special or general features of a product.
Standardisation has now been accepted as an ethical basis of marketing. Grading is the
process of separating products into different lots in accordance with the specified standards.
6. Branding and Packaging. Branding has become an inseparable part of modern mass-
selling process. It is the process of assigning a distinctive brand name or symbol to a product
in order to differentiate it from the competitive products. It helps to give a separate identity to
the product. It facilitates advertising and price control. Packaging refers to wrapping,
compressing, filling or, putting the goods in the bottles, boxes or containers for protecting
them from damage and for making handling easier. The needs of the wholesalers, retailers
and consumers should be kept in mind while deciding packaging.
7. Risk-taking. In marketing, there are innumerable risks which are to be assumed either by
the seller or by somebody else. These risks may be due to
change in demand and prices, loss in storage and transportation, fire and floods, and loss due
to natural hazards, etc. It is insurance which helps to cover the risks in the exchange of goods
and services. Insurance facilitates the smooth exchange of goods by covering risks in storage
and transportation. Business firms can cover the risks on the payment of a nominal premium
to the insurance company and recover the loss, if any.
Q. 5. Write short notes on any two of the following: (2 x 7½ - 15)
(a) Functional and Dysfunctional Aspects of Conflicts
(b) Situational Leadership
(c) Operative functions of Human Resource Management
(d) Process of Rational Decision Making.
Ans. (a) Functional and Dysfunctional Aspects of Conflicts : See Q. 3.
[Page- 163]
(b) Situational Leadership : See Q. 3.[Page-91]
(c) Operative functions of Human Resource Management : See Q. 10 (d)
[Page- 204]
(d) Process of Rational Decision Making. : See Q. 12. [Page-54]
NOTE : Publisher is not responsible for any omissions/errors, if any, occurred in this book
under any circumstances. Though every possible measures have been taken to make this book
up to the mark.
 B. Com. I YEAR (Non-Collegiate)
PAPER I: Business Organisation and Management-2016
(Admissions of 2006 onwards)
Time: 3 Hours Maximum Marks: 55
The maximum marks printed on the question paper are applicable for the students of regular
colleges (Cat. 'A'). These marks will, however, be scaled up proportionately in respect of
students of NCWEB/SOL at the time of posting of awards for compilation of result.
All questions are compulsory.
All parts of every question should be answered together.
Q. 1. (a) "Business is an open system involving close interaction with its environment."
Comment. (5)
Ans. Business System: See Q. 1. [Page 5].
Business System is an open System involving close interaction with its environment: A
system may be closed or open. A closed system does not have any interaction with the
external environment and is self-dependent. For instance, mechanical systems are closed
systems and concentrate on internal relationships only, i.e., interaction between sub-systems.
On the other hand, an open system has an active interaction with the external environment. It
can respond to changes in the external environment through the feedback mechanism.

A business is an open system since it continuously interacts with the environmental forces
such as suppliers, customers, competitors, government, etc.
It obtains inputs like raw materials, labour, capital, technology and information from the
environment. It performs operations upon the inputs to produce desirable outputs and they are
supplied to the environment (i.e., customers). Through feedback, the environment's
evaluation of the output produced becomes part of the inputs for further organisational
activity. If the environment is satisfied with the output produced, business operations
continue, otherwise changes are initiated within the business system to meet fully the
requirements of the customers.
The open system view-point acknowledges the influence of environment on the
organisational activity. The organisation's ability to respond to the changing environment
determines its effectiveness in the long-run.
The benefits of business system approach are as follows :
(i) The systems approach helps in the formulation of business objectives, plans and policies
which are logical in the context of the prevailing environment.
(ii) It gives proper emphasis to inputs and output of the business system.
(iii) It considers the organisation as a whole and not merely the collection of separate
departments such as production, marketing, finance, personnel, etc. A business system
represents an integrated structure of operations.
(iv) This approach puts stress on the ever-changing environment of the business and the need
to manage change. Thus, it directs attention to the inter-relationship between business and
environment.
(v) The systems approach stresses dynamic nature of the organisation.
(b) Explain the concept and application of e-commerce. What are its merits ?
(6)
Ans. Concept of e-commerce: See Q. 5. [Page 32] under the heading Meaning of E-
commerce.
Application of e-commerce: See Q. 7. [Page 34].
Merits of e-commerce : See Q. 5. [Page 32] under the heading Benefits of E-commerce.
OR
(a) What is meant by entrepreneurship ? What are the sources to discover business
ideas ? (5)
Ans. Meaning of entrepreneurship: See Q. 2. [Page 18].
Sources to discover business ideas: See Q. 9. [Page 24].
(b) What is the concept of Business Process Outsourcing ? Explain its advantages.
Discuss any two services which can be outsourced successfully. (6)
Ans. Concept of Business Process Outsourcing: See Q. 1. [Page 29].
Advantages of Business Process Outsourcing: See Q. 1. [Page 29].
Two services which can be outsourced successfully: See Q. 2. [Page 30].
Q. 2. (a) "Delegation of authority is the key to management success." Comment. What
are the obstacles in the process of delegation of authority ? Discuss the principles of
effective delegation of authority. (5)
Ans. "Delegation of authority is the key to management success : See Q. 4. [Page 77].
Obstacles in the process of delegation of authority: See Q. 5. [Page 78] under the heading
Barriers or Difficulties in Delegation of Authority.
Principles of effective delegation of authority: See Q. 3. [Page 77].
(b) What is strategy ? Discuss the steps involved in strategy formulation. (6)
Ans. Strategy: See Q. 11. [Page 50].
Steps involved in strategy formulation: See Q. 11. [Page 50] under the heading Process of
Strategy Formulation.
OR
(a) What is Matrix Organisation ? Explain its merits and demerits. (5) Ans. Matrix
Organisation: See Q. 1. [Page 70].
Merits and demerits of Matrix Organisation: See Q. 1. [Page 70].
(b) "Managers cannot be fully rational and objective decision makers in real life". Do
you agree ? Give reasons. (6)
Ans. "Managers cannot be fully rational and objective decision makers in real life": In
classical management, management experts stressed that managerial decisions must be
rational. They argued that the decision-maker is an 'economic man' and he is guided by
economic considerations in choosing solution to a problem. Hence, to maximise the
advantages, he will find the optimum solution. The classical approach is based on the
following assumptions :
(i) The decision-maker wants to maximise economic gains.
(ii) He is fully objective and rational and not influenced by emotions.
(iii) He can identify the problem clearly and precisely.
(iv) He has full information about various alternatives and can evaluate them intelligently to
find out the best alternative.
(v) He has complete freedom to choose the best alternative.
In real life, the decision-maker cannot be completely rational due to several constraints. The
decision-making behaviour is contingent upon personal and environmental factors. Thus,
managers may not be rational decision makers in real life.
The managers are unable to make perfectly rational decisions due to the following reasons.
(i) The individual does not study and analyse the problem fully because of personal bias,
indifferent attitude, etc.
(ii) The manager does not have the full knowledge of the alternatives and/or their
consequences.
(iii) The individual interprets the orgainsational goals in his own way. He may adopt a course
of action which, according to him, will meet the goals effectively.
(iv) The individual aims at 'satisfactory' rather than 'optimum decision'.
(v) The decision-making situation may involve multiple goals which can't be maximized
simultaneously. Further, these goals may be of conflicting nature.
(iii) The effectiveness of a decision is dependent upon environmental factors which are
uncertain. Thus, the consequences of various alternatives cannot be anticipated perfectly.
The rationality of the individuals is generally affected by the above limitations. The
administrative man seeks decisions which are good enough and do not make undue demands
on his time, efforts and money. It recognises that a man cannot be expected to have full
knowledge and information and his capacity to perceive, retain and retrieve information is not
unlimited.
Rationality requires complete knowledge of the consequences which follow each choice. But
it may not be always possible. Rationality further requires a choice among all possible
alternatives. But a manager may not be able to identify all possible alternatives. Moreover,
decision-making relates to future and it requires some degree of imagination. One may not be
able to imagine objectively because of his frame of mind. Thus, it could be concluded that a
manager cannot be completely rational.
Q. 3. (a) Explain the term "consumer behaviour". What are the objectives of studying
consumer behaviour ? Discuss various factors influencing it. (5)
Ans. Consumer behaviour: See Q. 5. [Page 125].
Objectives of studying consumer behaviour: See Q. 5. [Page 125] under the heading Need
for understanding consumer behaviour.
Various factors influencing consumer behaviour: See Q. 5. [Page 125].
(b) What is Financial Management? Discuss its objectives. (6)
Ans. Financial Management: See Q. 1. [Page 133].
Objectives of Financial Management: See Q. 1. [Page 133].
OR
(a) What is Human Resource Management ? Discuss its functions. (5)
Ans. Human Resource Management: See Q. 1. [Page 147].
Functions of Human Resource Management: See Q. 4. [Page 149].
(b) Define marketing. Distinguish between marketing and selling. (6)
Ans. Marketing: See Q. 1. [Page 119].
Distinction between marketing and selling: See Q. 1. [Page 119].
Q. 4. (a) Explain Herzberg's Two - Factor Theory of Motivation and differentiate it
from Maslow's Theory of Need Hierarchy. (5)
Ans. Herzberg's Two - Factor Theory of Motivation: See Q. 4. [Page 102].
Distinction between Herzberg's Two-Factor Theory of Motivation and Maslow's Theory
of Need Hierarchy

Basis of Distinction Herzberg's Theory Maslow's Theory

1. Arrangement of needs No such arrangement. Hierarchical arrangement of

needs.

2. Formulation In terms of incentives. In terms of needs.

3. Nature of theory Prescriptive. Descriptive.

4. Essence of theory Satisfied needs cause Unsatisfied needs motivate

performance. individuals which cause
performance.

5. Motivator Only higher order needs are Any need can be motivator if
motivators. it is relatively un-satisfied.

6. Applicability Work-oriented - motivational Need oriented-takes into

problems of professional account motivational
workers. problems of all workers.

(b) Why do conflicts arise ? How can these be resolved ? (6)

Ans. Why do conflicts arise ?: See Q. 2. [Page 161].
How can conflicts be resolved ? See Q. 2. [Page 161] under the heading Resolving of
conflict.
OR
(a) Discuss the causes and remedies for resistance to change. (5)
Ans. Causes or resistance to change. : See Q. 3. [Page 158].
Remedies for resistance to change : See Q. 3. [Page 158] under the heading Strategies to
Manage Changes.
(b) What do you understand by employer - employee relations ? Explain their main
objectives. (6)
Ans. Meaning of employer - employee relations: See Q. 6. [Page 152].
Main objectives of employer - employee relations: See Q. 6. [Page 152].
Q. 5. Write short notes on any two of the following:
(a) Managerial Grid. (b) Product Life Cycle.
(c) Process of Control. (d) Equity Shares. (2× 5½)
Ans. (a) Managerial Grid: See Q. 4. [Page 92].
(b) Product Life Cycle: See Q. 6. [Page 127].
(c) Process of Control: See Q. 2. [Page 114].
(d) Equity Shares: See Q. 2. [Page 135] (Point 1).
 B. Com. I YEAR (Correspondence)
PAPER I: Business Organisation and Management-2016
(Admissions of 2006 onwards)
Time: 3 Hours Maximum Marks: 55
The maximum marks printed on the question paper are applicable for the students of regular
colleges (Cat. 'A'). These marks will, however, be scaled up proportionately in respect of
students of NCWEB/SOL at the time of posting of awards for compilation of result.
All questions are compulsory.
All parts of every question should be answered together.
Q. 1. (a) "Business is an economic institution operating in socio-political environment."
Comment. (6)
Ans. "Business is an economic institution operating in socio-political environment.": See
Q. 1. (OR) [Page 217].
(b) Explain the concept of outsourcing. Discuss any five services which can be
outsourced. (5)
Ans. Concept of outsourcing: See Q. 1. [Page 29].
Five services which can be outsourced: See Q. 2. [Page 30].
OR
(a) Explain basic considerations in setting up a business enterprise. (6)
Ans. Basic considerations in setting up a business enterprise : See Q. 10.
[Page 26].
(b) Explain the concept of service. What are the reasons for growth of service sector in
India ? (5)
Ans. Concept of service: See Q. 2. (OR) (a).
Reasons for growth of service sector in India: See Q. 4. [Page 31].
Q. 2. (a) Explain the process of Managerial Planning. What are its benefits ?
Ans. Process of Managerial Planning: See Q. 4. [Page 42].
Benefits of Managerial Planning: See Q. 5. [Page 43] under the heading Need and
Importance of Planning.
(b) What do you mean by departmentation ? How will you choose the right basis of
departmentation ? (5)
Ans. Departmentation: See Q. 1. [Page 63].
Choosing the right basis of departmentation: See Q. 3. [Page 68].
OR
(a) "Whatever a manager does, he does through decision making". Critically examine
the statement. (6)
Ans. Decision making: See Q. 12. [Page 54].
"Whatever a manager does, he does through decision making : See Q. 12. [Page 54]
under the heading Role of Decision-Making.
(b) Define delegation. What are its elements ? Why is it needed ? (5)
Ans. Delegation: See Q. 2. [Page 76].
Elements of delegation : See Q. 2. [Page 76].
Why is delegation needed ? See Q. 4. [Page 77].
Q. 3. (a) What do you mean by leadership ? Explain the importance of leadership in
modern business. (6)
Ans. Meaning of Leadership: See Q. 1. [Page 89].
Importance of Leadership in modern business: See Q. 1. [Page 89].
(b) Discuss the essential features of a good control system. (5)
Ans. Essential features of a good control system : See Q. 4. [Page 116].
OR
(a) Critically compare and contrast the Maslow's Theory of need-hierarchy and
Herzberg's two-factor theory of motivation. (6)
Ans. Comparison of Maslow's Theory of need-hierarchy and Herzberg's two-factor theory of
motivation: See Q. 5. [Page 102].
(b) Distinguish between Formal and Informal Communication. (5) Ans. Distinction
between Formal and Informal Communication : See Q. 3. [Page 108].
Q. 4. (a) Explain the meaning and significance of Market Segmentation. (6)
Ans. Meaning of Market Segmentation : See Q. 4 [Page 123].
Significance of Market Segmentation: See Q. 4. [Page 123] under the heading
Advantages of Market Segmentation.
(b) What do you understand by the term 'change' ? Why do people resist change in an
organisational setting ? (5)
Ans. Meaning of 'change': See Q. 1. [Page 156].
Why do people resist change in an organisational setting ? See Q. 3. [Page 158].
OR
(a) Discuss the meaning and scope of Financial Management. (6)
Ans. Meaning of Financial Management: See Q. 1. [Page 133].
Scope of Financial Management: See Q. 2. [Page 134].
(b) Explain basic dynamics of employer-employee relations. (5)
Ans. Basic dynamics of employer-employee relations: See Q. 6. [Page 152].
Q. 5. Write explanatory notes on any two of the followings:
(i) Buying motives of consumers.
(ii) Owned funds vs. Borrowed funds.
(iii) Operative functions of human resource management.
(iv) Functional and dysfunctional aspects of conflict. (5.5 x 2 = 11)
Ans. (i) Buying motives of consumers: See Q. 5. [Page 125] under the heading Factors
Influencing Consumer Behaviour.
(ii) Owned funds vs. Borrowed funds

Basis of Distinction Owners' Capital Borrowed Capital

1. Meaning It consists of the amounts It includes funds available in

contributed by the owners and the form of loans or credit.
their profit re-invested in the
business.

2. Payment It remains invested It has to be paid back after a

permanently in the business. stipulated period of time.

3. Risk It carries the risks of the The debts of the company are
business. It is also called risk generally secured. In case of
capital. winding up, the creditors are
to be paid first before
anything is paid to the
shareholders.

4. Control The control of the company The suppliers of borrowed

vests in the providers of funds do not have any control
owners' capital. over the company.

5. Security It does not require any It often requires security of

security. tangible assets.

6. Reward Reward for owners' capital is Reward for borrowed capital

dividend. is interest.

7. Priority Dividend is paid after the Payment of interest on

payment of interest on borrowed funds gets priority
borrowed funds. over the payment of dividend
 on equity capital.

8. Nature of Obligation It does not involve any fixed It involves a fixed obligation
obligation as regards payment to pay interest periodically
of dividend and equity capital. and to repay the principal,
when due.

(iii) Operative functions of human resources management : See Q. 4.

[Page 149] (Point 2).
(iv) Functional and dysfunctional aspects of conflict: See Q. 3. [Page 163].