Business Organization and Management

Business Organization
and Management
Text and Cases
Vijay Kumar Kaul

Dean, Faculty of Applied Social Sciences and Humanities
and
Head, Department of Business Economics
University of Delhi
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Associate Editor—Acquisitions: Anshul Yadav
Assistant Editor—Production: Barun Kumar Sarkar
Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd
This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold,
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or cover other than that in which it is published and without a similar condition including this condition
being imposed on the subsequent purchaser and without limiting the rights under copyright reserved
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or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or other-
wise), without the prior written permission of both the copyright owner and the publisher of this book.
ISBN: 978-81-317-5449-8
First Impression
Published by Dorling Kindersley (India) Pvt. Ltd, licensees of Pearson Education in South Asia.
Head Office: 7th Floor, Knowledge Boulevard, A-8(A), Sector 62, Noida, UP 201309, India.
Registered Office: 11 Community Centre, Panchsheel Park, New Delhi 110017, India.
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Printer:
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To
my mother, Smt. Madan Mohini Kaul,
and my father, the late Shri Madhusudan Kaul
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Contents
Preface xxv
Acknowledgement xxix
About the Author xxxi
PART I: UNDERSTANDING THE ENVIRONMENT

OF BUSINESS
1. Introducing Business and Economy 2
1.1 Introduction 3
1.2 What is business? 4
1.2.1 Understanding business 4
1.3 Different business activities 6
1.3.1 Business activities 6 z 1.3.2 Business activities in India 7
1.4 Evolution of business and emerging markets 10
1.4.1 Evolution of business 10
1.5 Why study business? 13
1.6 Business: Executing for the present and adapting for
the future 13
1.7 Business and economy 14
1.7.1 Economic system 15 z 1.7.2 Global economic system 15
1.7.3 Micro- and macroeconomics 16 z 1.7.4 Different types of economic
systems 16
1.8 Indian economy and business today 17
1.8.1 Indian economic policies 17 z 1.8.2 Performance of Indian
economy and business 18 z 1.8.3 Innovation and Indian
business 20
1.9 Challenges ahead 21
Summary 25
Questions 26
Endnotes 26
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vi Contents
2. Dynamics of Business Environment:

Globalization, Liberalization and Privatization 29
2.1 Introduction 30
2.2 Dynamics of business environment 31
2.2.1 Economic environment 31 z 2.2.2 Competitive environment 32
2.2.3 Political and legal environment 33 z 2.2.4 Technological
environment 33 z 2.2.5 Socio-cultural environment 34
2.2.6 Ecological environment 34
2.3 Changes in economic policy and Indian business environment 34
2.4 Globalization 35
2.4.1 Defining globalization 35 z 2.4.2 Features of
globalization 36 z 2.4.3 Evaluation of globalization 39
2.4.4 The case for globalization 39 z 2.4.5 The case against
globalization 40 z 2.4.6 India’s experience with globalization 40
2.5 Liberalization 41
2.5.1 Concept and features of liberalization 41 z 2.5.2 Indian context of
liberalization 41 z 2.5.3 Impact of liberalization in India 42
2.6 Privatization 43
2.6.1 Concept and features of privatization 43 z 2.6.2 Privatization
in India 43 z 2.6.3 Benefits 44 z 2.6.4 Criticism 44
2.6.5 India’s experience with privatization 44
2.7 Impact of globalization, liberalization and privatization 45
2.7.1 Expansion of markets and increased competition 45 z 2.7.2 New
avenues of entrepreneurial opportunities 46 z 2.7.3 Increased
availability of finance 46 z 2.7.4 Availability of global
funds 46 z 2.7.5 Efficiently managed businesses have global
opportunities 46 z 2.7.6 Increased demand for ethical and socially
responsible behaviour 46
2.8 Response of Indian enterprises 47
Summary 48
Questions 50
Endnotes 50
3. Global Business and Multinational Corporations: Rise

of Multinational Corporations from Emerging Markets 53
3.1 Introduction 54
3.2 Domestic to international business 54
3.2.1 Logic of international business 54 z 3.2.2 Restrictions on
international business 56 z 3.2.3 Status of global business 56
3.3 Motivation to internationalize 58
3.3.1 Motivation 58 z 3.3.2 Emergence of multinational enterprises 58
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Contents vii
3.4 Multinational corporations (MNCs) 60

3.4.1 Defining MNCs 60 z 3.4.2 Types of MNCs 60
3.4.3 Features of MNCs 60
3.5 Methods of entering foreign markets 61
3.6 Role of MNCs 63
3.6.1 The case for MNCs 63 z 3.6.2 The case against MNCs 64
3.7 Emergence of MNCs from emerging markets 64
3.7.1 History of MNCs in India 64 z 3.7.2 New industrial policy, 1991 65
3.8 Indian multinational enterprises 65
3.8.1 Rise of Indian enterprises 65 z 3.8.2 Indian multinational
enterprises: Features and challenges 67
Summary 69
Questions 70
Endnotes 71
4. Business, Society and Ethics 73

4.1 Introduction 74
4.2 Relationship between business and society 74
4.3 The evolution of social responsibility (SR) in business 76
4.3.1 Defining SR 76 z 4.3.2 Evolution of SR 77 z 4.3.3 SR in
India 78 z 4.3.4 Why should business be socially responsible? 79
4.4 Areas of social responsibility 79
4.4.1 Responsibility to employees: Creating jobs that work 80
4.4.2 Responsibility to customers 80 z 4.4.3 Responsibility to
investors 80 z 4.4.4 Responsibility to community 81
4.4.5 Responsibility to the environment 81
4.5 Business ethics 82
4.5.1 Defining business ethics 82 z 4.5.2 Ethical issues 83
4.6 Ethical behaviour 84
4.6.1 Factors affecting ethical behaviour 84 z 4.6.2 Encouraging
ethical behaviour 87
Summary 88
Questions 89
Endnotes 89
PART II: ENTREPRENEURIAL OPPORTUNITIES

IN BUSINESS
5. Entrepreneurship and Innovation 94
5.1 Introduction 95
5.2 Entrepreneurs and innovators 95
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5.2.1 Understanding the entrepreneur and the innovator 95

5.2.2 Entrepreneurs and innovators in developing countries 95
5.2.3 Entrepreneurship 96 z 5.2.4 Who can be an entrepreneur? 97
5.3 Entrepreneurship in India 98
5.4 Motivation and importance of entrepreneurs 99
5.4.1 Motivation 99 z 5.4.2 Importance of entrepreneurs 100
5.5 Process of innovation and its types 101
5.5.1 Innovation types 102 z 5.5.2 What drives
innovation? 102 z 5.5.3 Innovation process 102
5.5.4 Evolution of the life cycles of industries and enterprises 103
5.6 Entrepreneurial opportunities 104
5.6.1 Identifying opportunities 104 z 5.6.2 Entrepreneurship
opportunities in India 106 z 5.6.3 Challenges to entrepreneurship
in India 107
Summary 109
Questions 110
Endnotes 110
Further readings 111
6. Small Businesses and Franchising 113

6.1 Introduction 114
6.2 Small enterprises in India 114
6.2.1 Defining small enterprises 114 z 6.2.2 Status of small businesses 116
6.3 Importance of SMEs 117
6.3.1 Advantages of small businesses 117 z 6.3.2 Disadvantages of
small businesses 118 z 6.3.3 Entrepreneurs opportunities and small
enterprises 118
6.4 Small businesses, globalization and government support 120
6.5 Franchising 122
6.5.1 Understanding franchising 123 z 6.5.2 Types of franchising 124
6.5.3 Franchising: Small and big businesses 125 z 6.5.4 Successful
entrepreneurship through franchising 126 z 6.5.5 Growth of franchising
in India 126 z 6.5.6 Challenges 127
6.6 Network marketing 127
6.6.1 Concept and business model 129
6.7 Challenges for small businesses 131
6.7.1 Globalization and WTO 131 z 6.7.2 Absence of entrepreneurial
mindset 131 z 6.7.3 Lack of business thinking and ethical
base 131 z 6.7.4 Infrastructural and other challenges 131
Summary 133
Questions 134
Endnotes 135
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Contents ix
7. Outsourcing to BPOs and KPOs 137

7.2 Outsourcing: Strengthening big and empowering small 138
7.2.1 Outsourcing and small business 138 z 7.2.2 Nature and scope of
business activities in BPO industry 139
7.3 Advantages and limitations of BPO 142
7.3.1 Advantages 143 z 7.3.2 Limitations 144 z 7.3.3 BPO risks
faced by Indian companies 144
7.4 BPO in India: Opportunities and challenges 145
7.4.1 Opportunities 145 z 7.4.2 Challenges 145
7.4.3 Opportunities 146 z 7.4.4 South to see rural BPO revolution 147
7.5 From BPO to KPO—moving up the value chain 148
7.5.1 Knowledge process outsourcing 148 z 7.5.2 Importance
of KPO 150 z 7.5.3 Differentiating KPO from BPO 150
7.6 Factors affecting growth of KPO 151
7.6.1 Key factors influencing KPO growth 151 z 7.6.2 Future of BPO
and KPO 151
Summary 153
Questions 154
Endnotes 154
8. Information Technology Revolution: E-commerce

to E-business 157
8.2 Information and electronic revolution 159
8.3 E-commerce and its operation 160
8.3.1 Defining e-commerce 160 z 8.3.2 Scope and importance of
e-commerce 161 z 8.3.3 Benefits and limitations of
e-commerce 163 z 8.3.4 E-commerce operation 164
8.3.5 Resources required for implementation of e-commerce 164
8.4 E-commerce models and their growth 165
8.4.1 Types of e-commerce models 165 z 8.4.2 Growth of
e-commerce 166 z 8.4.3 Government support to e-commerce 167
8.5 M-commerce 168
8.6 E-business 168
8.6.1 Defining e-business 168
8.7 The future of e-commerce in India 169
8.8 Ethical and social issues 170
Summary 172
Questions 173
Endnotes 173
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PART III: SETTING UP OPERATIONS

9. Setting Up and Managing Business 178
9.2 Identifying business opportunities and undertaking market
analysis 181
9.2.1 Identifying business opportunities 181 z 9.2.2 Evaluating business
ideas 182 z 9.2.3 Assessing markets and competitions 182
9.3 Business plan and getting started 184
9.3.1 Establishing goals and objectives 184 z 9.3.2 Ownership pattern
and location decision 184 z 9.3.3 Examining processes and
technologies 184 z 9.3.4 Early funding and financial plan 184
9.3.5 Marketing and distribution decisions 185 z 9.3.6 Internal
organization and personnel 185 z 9.3.7 Preparing business plan 185
9.4 Implementing a business plan 186
9.4.1 Developing business model 187 z 9.4.2 Competitive
advantages 187 z 9.4.3 Launching of a business 187
9.4.4 Deciding growth and scaling up 187
9.5 Risk management by entrepreneurs 188
9.6 Social and ethical issues 188
Summary 190
Questions 192
Endnotes 192
10. Deciding Business Ownership Pattern, Size

and Location 194
10.2 Basic forms of business ownership 195
10.2.1 Sole proprietorship 195 z 10.2.2 Partnership 196
10.2.3 Company 196 z 10.2.4 Special types of business
ownership 196 z 10.2.5 Features of an ideal form of ownership 197
10.2.6 Factors affecting the choice of ownership form 197
10.3 Size and capacity of business 199
10.4 Location 200
10.4.1 Importance of location 200 z 10.4.2 Factors determining
location decisions 200 z 10.4.3 Selection of plant site 201
10.4.4 Factors determining the location 202 z 10.4.5 Clustering
and special economic zones 203 z 10.4.6 Globalization,
technology development and location 204
10.5 Ethical and social consideration in location decision 205
Summary 206
Questions 207
Endnotes 208
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Contents xi
11. Operations: Designing and Producing Quality

Products and Services 210
11.2 Production and operations management 212
11.2.1 Defining production and operation 212 z 11.2.2 Importance
of production and operation 213 z 11.2.3 Evolution of production
technology 215
11.3 Planning and controlling of operations 216
11.3.1 Planning the production process 216 z 11.3.2 Operational
control 220 z 11.3.3 Mass production and mass customization 222
11.4 Supply chain management 222
11.5 Issues in operations management 224
11.5.1 Managing productivity 224 z 11.5.2 Quality 226
11.5.3 Ethics and environmental issues 227
Summary 229
Questions 230
Endnotes 231
PART IV: MARKETING

12. Understanding Consumer and Marketing 234
12.2 Customer and marketing 236
12.2.1 Marketing concept 236 z 12.2.2 Four types of utility 237
12.3 Evolution of marketing 238
12.3.1 Production orientation 238 z 12.3.2 Sales orientation 238
12.3.3 Marketing orientation 239
12.4 Markets and market research 239
12.5 Understanding consumers and building relationships 239
12.6 Developing marketing strategy 240
12.6.1 Market segmentations 240 z 12.6.2 Target marketing 241
12.6.3 Positioning 241 z 12.6.4 Marketing mix 242
12.6.5 Application of marketing mix 243
12.7 Ethics and social issues in marketing strategy 244
Summary 246
Questions 247
Endnotes 248
13. Creating and Pricing Products 250

13.2 Products, PLC and product mix 252
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xii Contents
13.2.1 Defining a product 252 z 13.2.2 Product line and product

mix 254 z 13.2.3 Product life cycle 255 z 13.2.4 Managing
the product mix 256
13.3 Branding, packaging and labelling 258
13.3.1 Defining brand 258 z 13.3.2 Choosing, protecting and building
brands 261 z 13.3.3 Packaging 263 z 13.3.4 Labelling 263
13.4 Pricing products 263
13.4.1 The meaning of price 264 z 13.4.2 Factors affecting pricing 264
13.5 General pricing strategies 266
13.5.1 Basic pricing strategies 266 z 13.5.2 Other pricing strategies 266
13.6 Ethical issues in product and pricing 267
Summary 269
Questions 271
Endnote 271
14. Promotion of Products and Services 273

14.2 Integrated marketing communications 274
14.2.1 Defining the concept 274 z 14.2.2 The role of promotion 275
14.2.3 Promotion mix 277 z 14.2.4 Elements of promotion mix 277
14.3 Advertising 277
14.3.1 Major steps in developing an advertising campaign 278
14.3.2 Advertising media selection 279 z 14.3.3 Advertising planning
process 281 z 14.3.4 Endorsement of brands by celebrities 282
14.4 Personal selling and sales promotion 282
14.4.1 Personal selling 282 z 14.4.2 Sales promotion 282
14.5 Public relations and publicity 284
14.5.1 Public relations 284 z 14.5.2 Publicity 285
14.6 Promotional planning 285
14.6.1 Planning 285 z 14.6.2 Factors influencing promotion mix 285
14.6.3 Determination of promotion mix 286 z 14.6.4 Innovation
and promotion 286
14.7 Promotion and some issues 287
14.7.1 Entrepreneurial opportunities in promotion/advertising 287
14.7.2 Ethical and social considerations in advertising and promotion 287
Summary 290
Questions 291
15. Physical Distribution, Wholesaling and Retailing 294

15.2 Distribution: getting the product at the right place 296
15.2.1 Meaning and importance of distribution 296
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Contents xiii
15.3 Types of distribution channels 298

15.3.1 Distribution channels 298 z 15.3.2 Choice of channel of
distribution 300
15.4 Marketing intermediaries: Wholesalers 303
15.5 Marketing intermediaries: Retailers 304
15.5.1 Retailers 304 z 15.5.2 Classification of store formats 306
15.5.3 Types of retail formats 306 z 15.5.4 Theories of retailing 307
15.5.5 Innovations in retailing 307 z 15.5.6 Retail marketing
strategies 308
15.6 Physical distribution and other issues 309
15.6.1 Elements of physical distribution system 309 z 15.6.2 Ethical
and social concerns 310
Summary 312
Questions 312
PART V: MONEY, FINANCE AND INVESTMENT

16. Money, Finance and Financial Institutions 316
16.2 Money 317
16.2.1 Definition of money 317 z 16.2.2 Kinds of money 318
16.2.3 Importance of money 319 z 16.2.4 Functions of money 319
16.2.5 Money supply 320
16.3 Finance and financial systems 320
16.3.1 Definition of finance 320 z 16.3.2 Financial system 321
16.3.3 The Indian financial system 322 z 16.3.4 Financial
institutions 322 z 16.3.5 Financial markets 322
16.4 Globalization of financial systems 324
16.5 Banks as financial institutions 325
16.5.1 Definition of a bank 325 z 16.5.2 Banking in India and its
evolution 326
16.6 Types of banks 327
16.6.1 Commercial banks 327 z 16.6.2 Development banks 328
16.6.3 Cooperative banks 329 z 16.6.4 Specialized banks 329
16.7 Functions of commercial banks 329
16.7.1 Primary functions 329 z 16.7.2 Secondary functions 330
16.8 E-banking (electronic banking) 330
16.9 The reserve bank of India: A central bank 331
16.9.1 Functions of a central bank 331 z 16.9.2 The Reserve Bank of
India 331 z 16.9.3 Evolution of the Reserve Bank of India and economic
challenges 332
16.10 Ethics and social responsiveness 332
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xiv Contents
16.10.1 Inclusive banking 333 z 16.10.2 Social responsiveness 333

16.10.3 Islamic banking 333
Summary 334
Questions 335
Endnotes 336
17. Financial Management 338

17.2 Financial management 340
17.2.1 Defining financial management 340 z 17.2.2 Evolution
of financial management 341 z 17.2.3 Objectives of financial
management 341 z 17.2.4 Scope or role of financial management 342
17.2.5 Functions of a finance manager 344
17.3 Meaning of financial planning 345
17.3.1 Developing the financial plan 346
17.4 Alternative sources of funds 347
17.4.1 Short-term finance 347 z 17.4.2 Sources of long-term finance 349
17.5 Capital structure: Making decisions on using financial leverage 351
17.5.1 Capital structure and capital gearing 351 z 17.5.2 Factors
affecting capital structure 352 z 17.5.3 Optimum capital structure 353
Summary 355
Questions 355
Endnotes 356
18. Understanding Securities Markets and Investment

Opportunities 358
18.2 Developing an investment programme 360
18.3 Securities markets 363
18.3.1 Defining securities markets 363 z 18.3.2 Stock exchange 364
18.3.3 Functions of the stock exchange 365 z 18.3.4 Globalization,
integration of stock exchanges and increased volatility 366
18.3.5 Methods or techniques for marketing new securities 366
18.4 Stock exchanges in India 368
18.4.1 Origin of Indian stock exchanges 368 z 18.4.2 Over-the-Counter
Exchange of India (OTCEI) 368 z 18.4.3 NSE 368 z 18.4.4 BSE and
SENSEX 369 z 18.4.5 SENSEX movement: Impact of economic factors
or sentiments 371
18.5 Regulations of securities markets 373
18.5.1 Objectives of SEBI 373 z 18.5.2 Functions and the role
of SEBI 373
18.6 Ethical and social issues in securities market and investment 374
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Contents xv
Summary 377
Questions 378
Endnotes 378
19. Risk and Insurance 380

19.2 Business risk: Meaning and causes 381
19.2.1 Meaning of business risks 382 z 19.2.2 Nature of business
risks 382 z 19.2.3 Causes of business risks 382 z 19.2.4 Types of
business risks 384
19.3 Risk management 386
19.3.1 Avoiding risks 387 z 19.3.2 Preventing risks 388
19.3.3 Shifting risks 388 z 19.3.4 Assuming risks 389 z 19.3.5 Sharing
or spreading risks 389
19.4 Insurance 389
19.4.1 Meaning of insurance 389 z 19.4.2 Brief history of
insurance 390 z 19.4.3 Importance of insurance 390
19.4.4 Principles of insurance 392
19.5 Insurance in India: Status and challenges 393
19.5.1 Status 393 z 19.5.2 Performance 394 z 19.5.3 Constraints
and challenges 396
Summary 397
Questions 398
Endnotes 398
PART VI: HUMAN RESOURCES

20. Planning and Management of Human Resources 402
20.2 Human resource management: A people-centred approach 404
20.2.1 Importance of HRM 404 z 20.2.2 Defining HRM 405
20.3 Human resource management process 406
20.3.1 Identify and selecting competent employees 406
20.3.2 Imparting knowledge and skills 410 z 20.3.3 Retaining
competent and talented employees 410
20.4 Factors affecting the HRM process 410
20.4.1 Governmental laws 411 z 20.4.2 Employee/labour unions 411
20.4.3 Demographic trends 411
20.5 Current issues and challenges 411
20.5.1 Globalization and ethics 412 z 20.5.2 Managing downsizing 412
20.5.3 Managing workforce diversity 413 z 20.5.4 Managing sexual
harassment 413 z 20.5.5 Managing work–life balance 413
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xvi Contents
Summary 414
Questions 416
Endnotes 416
21. Talent Management: Attracting and Retaining

Human Resources 418
21.2 Talent shortage and need for special focus 419
21.2.1 Talent and shortage 419 z 21.2.2 Importance of talent 420
21.2.3 Talent management: Changing orientation of human resource
management 422
21.3 Developing talents through training and development 423
21.3.1 Nature and purpose of training 423 z 21.3.2 Importance and
need for training 423 z 21.3.3 Orientation 424 z 21.3.4 Training
process 424
21.4 Strategies for retaining talent 426
21.4.1 Employee performance appraisal 426 z 21.4.2 Compensation
and benefits 427 z 21.4.3 Career systems and development 429
Summary 431
Questions 432
Endnotes 432
PART VII: MANAGEMENT PROCESS, PLANNING

AND ORGANIZING
22. Understanding the Management Process 436
22.2 Management 438
22.2.1 Manager, challenges and salary 438 z 22.2.2 Defining
management 440 z 22.2.3 Nature of management 440
22.2.4 Manager 441 z 22.2.5 Levels of management 441
22.3 What do managers do? 442
22.3.1 Management functions 442 z 22.3.2 Management roles 443
22.4 Managerial skills and competence: Key to managerial success 444
22.4.1 Managerial competencies 445
22.5 Changing nature of management: Need for value-based management 447
22.5.1 Changes influencing management 448
Summary 452
Questions 453
Endnotes 453
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23. Evolution of Management Thinking 456

23.2 Evolution of management 459
23.2.1 Adam Smith, industrial revolution and management thoughts 459
23.2.2 Lean manufacturing, toyotism and recall of cars 460
23.3 The classical approach 461
23.3.1 Scientific management 461 z 23.3.2 The theory of
bureaucracy 462 z 23.3.3 Administrative management 463
23.4 Behavioural approaches 463
23.4.1 Early advocates 464 z 23.4.2 Hawthorne studies and human
relation movement 464 z 23.4.3 Organizational behaviour 464
23.5 Management science approach 465
23.5.1 Quantitative management and operations research 465
23.5.2 Total quality management 465 z 23.5.3 Management
information system 465
23.6 Contemporary approaches 465
23.6.1 System approach 466 z 23.6.2 Contingency approach 466
23.7 Management theory and the twenty-first century 467
Summary 469
Questions 470
Endnotes 471
24. Planning 473
24.2 Planning: Coping with uncertainty 474
24.2.1 Defining planning 474 z 24.2.2 Purpose of planning 475
24.2.3 Types of planning 476
24.3 Organizational planning process 477
24.4 Organizational objectives and plans 478
24.4.1 Objectives 478 z 24.4.2 Characteristics of well-designed
objectives 479 z 24.4.3 Importance of objectives 479
24.4.4 Types of objectives 479 z 24.4.5 Budgets 479
24.4.6 Management by objectives 480 z 24.4.7 Strengths and
weaknesses of MBO 481 z 24.4.8 Types of plans 481
24.5 Social and environmental issues in planning 483
Summary 485
Questions 486
Endnotes 486
25. Strategic Management: Planning and Growth
Strategies 488
25.2 Strategic planning 489
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25.3 Strategic management 491

25.3.1 The strategic management process 491 z 25.3.2 Business
model and strategy 493 z 25.3.3 Importance of strategic
management 494
25.4 Strategy formulation: Three types of strategies 495
25.4.1 Corporate strategies 496 z 25.4.2 Growth strategies 496
25.4.3 Stability strategies 502 z 25.4.4 Renewal and divestment
strategies 502 z 25.4.5 Managing corporate strategies 502
25.5 Business strategy 503
25.5.1 Porter’s model of competitive forces 504 z 25.5.2 Competitive
strategies 504
25.6 Strategy implementations and control 505
Summary 507
Questions 508
Endnote 509
26. Decision-making Process and Creative

Problem-solving 511
26.2 Decision making 513
26.2.1 Defining decision making 513 z 26.2.2 Characteristics of
decision making 513 z 26.2.3 Coping with uncertainty 514
26.2.4 Increased complexity of decisions 515
26.3 Types of decisions 516
26.3.1 Programmed decisions 516 z 26.3.2 Non-programmed
decisions 517 z 26.3.3 Three types of decisions 518
26.3.4 Individual and group decisions 519
26.4 Decision-making process 519
26.4.1 Defining and diagnosing a problem 520 z 26.4.2 Developing
objectives and criteria 521 z 26.4.3 Developing alternatives 521
26.4.4 Analysing alternatives 521 z 26.4.5 Selecting an
alternative 521 z 26.4.6 Implementing the alternative 521
26.4.7 Evaluating decision effectiveness 521
26.5 Decision-making models 522
26.5.1 The economic model or the rational model 522 z 26.5.2 The
administrative man model or the bounded rationality model 522
26.5.3 Intuition and decision making 523
26.6 Creativity and innovation in decision making 523
26.7 Information technology and decision making 524
Summary 526
Questions 527
Endnotes 527
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27. Organizational Structure and Design:

Creating Flexible Organization 529
27.2 Organizing and organizational structure 531
27.2.1 Defining organizing 531 z 27.2.2 Organizational structure 531
27.2.3 Evolution of organizational structure 532
27.3 Key elements of organizational structure 533
27.3.1 Work specialization 533 z 27.3.2 Formalization or standard-
ization 534 z 27.3.3 Departmentalization 534 z 27.3.4 Coordina-
tion 537 z 27.3.5 Chain of command 538 z 27.3.6 Authority 538
27.3.7 Centralization and decentralization 539 z 27.3.8 Line and staff
authority 539
27.4 Forms of organizational structure 540
27.4.1 Mechanistic and organic structures 540 z 27.4.2 Traditional
organizational designs 541
27.5 Contemporary organizational structure 541
27.5.1 Factors influencing organizational structure 541 z 27.5.2 Project
organization 542 z 27.5.3 Matrix organization 543 z 27.5.4 Network
organization or virtual organization 544
Summary 546
Questions 546
Endnotes 547
PART VIII: DIRECTING AND CONTROLLING

28. Motivating and Satisfying Employees 550
28.2 Motivation: Concept, nature and significance 552
28.2.1 Concept 552 z 28.2.2 Nature of motivation 552
28.2.3 Sources of motivation 552 z 28.2.4 Significance 553
28.3 Early theories of motivation 553
28.3.1 Maslow’s hierarchy of needs theory 553 z 28.3.2 Herzberg’s
two-factor theory 554 z 28.3.3 Comparison between Maslow’s and
Herzberg’s theories 555 z 28.3.4 Mcgregor’s Theory X and
Theory Y 556 z 28.3.5 Ouchi’s Theory Z 556
28.4 Contemporary theories of motivation 557
28.4.1 Goal-setting theory 557 z 28.4.2 Reinforcement theory 557
28.4.3 Job-design theory 557 z 28.4.4 Equity theory 558
28.4.5 Expectancy theory 558
28.5 Current issues in motivation 559
28.5.1 From theory to practice 559 z 28.5.2 Cross-cultural
challenges 560 z 28.5.3 Ethics and motivation 560 z 28.5.4 Stock
options 561
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xx Contents
Summary 562
Questions 563
Endnotes 563
29. Leadership: Developing Vision to Transforming

Organizations 565
29.2 Leadership 567
29.2.1 Concept 567 z 29.2.2 Characteristics of leadership 567
29.2.3 Leading and managing 567 z 29.2.4 Significance of
leadership 568 z 29.2.5 Leadership and power 568
29.2.6 Leadership styles 569 z 29.2.7 Likert’s system
4 management 570
29.3 Evolution of leadership theories 571
29.3.1 Trait theories 572 z 29.3.2 Behavioural theories 572
29.3.3 The managerial grid 572 z 29.3.4 Contingency theories or
situational approach 572 z 29.3.5 Transformational–transactional
leadership 574
29.4 Current issues 574
29.4.1 Ethics and corporate social responsibility 574 z 29.4.2 Leading
across cultures 575
Summary 576
Questions 577
Endnotes 577
30. Communicating in the Age of Internet 579

30.2 The nature and function of communication 581
30.2.1 Defining communication 581 z 30.2.2 Functions of
communication 581
30.3 The communication process 582
30.3.1 Channels and information richness 583 z 30.3.2 Methods
of communicating interpersonally 583 z 30.3.3 Organizational
communication 584
30.4 Information technology and communication 586
30.5 Communication problems 587
30.5.1 Barriers to communication 587 z 30.5.2 Overcoming
barriers to communication 588 z 30.5.3 Fostering effective
communication 589 z 30.5.4 Ethics and communication 589
Summary 591
Questions 591
Endnotes 592
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Contents xxi
31. Managerial Control and Techniques 593

31.2 Control: Nature and significance 594
31.2.1 Nature of control 594 z 31.2.2 Significance of control 595
31.3 The control process 596
31.4 Controlling for organizational performance 597
31.4.1 Organizational performance 597 z 31.4.2 Measures of organizational
performance 597 z 31.4.3 Types of control 598 z 31.4.4 Financial
controls 599 z 31.4.5 The balanced scorecard approach 600
31.4.6 Information controls 602 z 31.4.7 Benchmarking of best
practices 602 z 31.4.8 Automation-based control 602
31.5 Current issues 603
31.5.1 Ethics and accountability 603 z 31.5.2 Control for cross-cultural
differences 604
Summary 605
Questions 606
PART IX: MANAGING FOR FUTURE

32. Contemporary Management Thinking 610
32.2 Challenges before business and management 611
32.3 Peter F. Drucker: change, innovation and global managers 612
32.3.1 Change: Shift to knowledge and knowledge society 612
32.3.2 Management concepts: MBO, knowledge workers, core
competencies 612 z 32.3.3 Ethics and social responsibility 613
32.4 Michael Porter: Competitive strategies, innovation, clusters 613
32.4.1 Change: Globalization of businesses, innovation and entrepre-
neurs 613 z 32.4.2 Management concepts: The five-forces model and
the value chain 614 z 32.4.3 Ethics and social responsibility 616
32.5 Peter Senge: Learning and organizations 616
32.5.1 Change: System and learning 616 z 32.5.2 Management concepts:
Learning organization 616 z 32.5.3 Ethics and social responsibility 618
32.6 C. K. Prahalad: Core competency to bottom of the pyramid 618
32.6.1 Change 618 z 32.6.2 Management concepts: strategic intent and
core competency 619 z 32.6.3 Ethics and social responsibility 620
32.7 Michael Hammer: Quality, business process reengineering 620
32.7.1 Change 620 z 32.7.2 Management concepts: Business process
reengineering 620 z 32.7.3 Ethics and social responsibility 621
32.8 Thomas J. Peters: Management by chaos; excellent companies 621
32.8.1 Change 622 z 32.8.2 Management concepts 622
32.8.3 Ethics and social responsibility 622
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xxii Contents
Summary 624
Questions 624
Endnotes 624
33. Strategic Change: Managing Change and Renewal 627
33.2 Strategic change 629
33.2.1 Defining changes 629 z 33.2.2 Nature of strategic
change 629 z 33.2.3 Need for strategic change 630
33.3 Management of strategic change 631
33.3.1 Factors influencing change 631 z 33.3.2 Planning and
preparation for change 632 z 33.3.3 Anticipating resistance to
change 633 z 33.3.4 Strategies to overcome resistance to change 633
33.4 Implementing changes 634
33.4.1 Technology-based methods 634 z 33.4.2 Organizational redesign
methods 634 z 33.4.3 Task-based methods 635 z 33.4.4 People-
oriented methods 635
33.5 Social change and the entrepreneur 637
Summary 639
Questions 639
Endnotes 640
34. Knowledge Management and Learning Organizations 641

34.2 Learning, learning organizations and knowledge management 642
34.3 Knowledge management 644
34.3.1 Knowledge 644 z 34.3.2 The importance of knowledge 645
34.3.3 Process of knowledge management 646 z 34.3.4 Knowledge cre-
ation 647
34.4 Learning organization 648
34.4.1 Peter Senge’s learning organization 649 z 34.4.2 Features
of a learning organization 650
Summary 653
Questions 653
Endnotes 654
35. Managing Diversity 656

35.2 Diversity 657
35.2.1 Defining diversity 657 z 35.2.2 Diversity: National context
and legal frameworks 658 z 35.2.3 Advantages of diversity in
organizations 658
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Contents xxiii
35.3 Managing diversity 659

35.3.1 Challenges that managers face when working with a diverse
population 659 z 35.3.2 Strategies for promoting diversity in
organization 660
35.4 Implementing diversity programmes 663
35.4.1 Elements of a successful diversity programme 663
35.4.2 The diversity officer 663
Summary 665
Questions 665
Endnotes 665
36. Corporate Governance 667

36.2 Corporate governance: Need and significance 668
36.2.1 Defining corporate governance 668 z 36.2.2 Driving forces
for CG 670 z 36.2.3 Significance of CG 671
36.3 Problems of CG in India 673
36.4 Fundamental principles of CG 674
36.5 Development of CG 675
36.5.1 Companies Act, 1956 675 z 36.5.2 Other acts and
regulations 675 z 36.5.3 Development of best practices 676
36.6 The mechanism for CG 677
36.6.1 Main issues 677 z 36.6.2 SEBI code on CG 678
36.7 CG and emerging issues 679
Summary 680
Questions 681
Endnotes 681
Index 683
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A01_KAUL4498_01_SE_PREL.indd xxiv 04/08/11 4:53 PM
Preface
This book is the outcome of my academic journey spanning three decades. The process of transformation
of the business environment of a nation and its management, and the role of innovation in ushering in
this change, have always fascinated me. In the course of my persistent research on these issues, I have
noticed that people, institutions, enterprises and societies in general respond to the forces of change
in two distinct ways. There are some who react to survive; others, probably fewer in number, behave
proactively by anticipating the forces of change and continuously endeavour to strengthen their capa-
bilities and knowledge base by inventing new modes of behaviour, objects and systems to deal with the
unfolding reality. The latter, undoubtedly, add much more value, and create wealth and happiness not
only for them, but for the society at large.
Changes in business environment, business practices and innovative measures are governed by global
competitiveness, institutional initiatives and government policy. In my academic pursuit, somehow,
since the very beginning, I have closely tracked responses of business enterprises to changes in business
environment ushered in by the factors mentioned above. As a young scholar during the 1980s, when the
Government of India initiated long overdue reforms in trade and industrial policies aimed at promot-
ing efficiency and productivity of Indian industries, I wrote an M.Phil. dissertation entitled ‘Managerial
attitude towards change and innovation’. The study found that the middle-level management was most
responsive to the gathering challenges of a new business environment as reflected in the adoption of a
slew of innovative measures by firms aimed at improving their operational efficiencies. Subsequently, my
Ph.D. thesis, ‘Success strategies of Indian enterprises’, examined the issue of business strategy adopted by
firms in view of the changing business climate of the country. The study found that during the latter half
of the 1980s, in order to expand and make profit, large firms, apart from improving their operational
efficiency, went in for sharpening their marketing and competitive strategies. Indian enterprises were
found to have increased their product diversification in the pre-1980s era. However, as the decade of the
’90s unfolded and economic reforms went deep and wide, large firms switched over to acquiring focus by
restructuring and realigning their operations and product lines. Simultaneously, there was an attempt to
modernize their plants, acquire knowledge through strategic alliances and outright purchase of technol-
ogy and knowledge systems. There was increased focus on knowledge acquisition and innovation.
Globalization of national economies and establishment of the World Trade Organization (WTO), with
its own rules for regulating the conduct of international business, has opened up vast world markets for the
Indian firms. However, to cash in on this opportunity, Indian firms, and the economy, in general, will have to
strive hard to develop themselves as a competitive hub of knowledge creation, and set up new institutions and
strengthen existing ones, wherever required—tasks, by no means small, in an era of global competitiveness.
Knowledge, without doubt, will continue to be the key driver in global economic growth throughout
the twenty-first century. No wonder, global firms and nations have, therefore, laid extraordinary emphasis
on knowledge acquisition and innovation. In this context, an important feature of knowledge-related
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xxvi Preface
activity—its spatial distribution—is worth emphasizing. Knowledge and capability creations are clustered
in regions and locales spread all over the world, with strong linkages to each other. Performance of a
firm, today, critically depends on the cluster to which it belongs. Policies and new institutional initiatives
aimed at promoting efficiency and productivity of firms, therefore, needs to take note of this fact. The
study ‘Emerging knowledge-based economy, Canadian competitiveness and strategic response of high-
tech firms’ (2000), sponsored by Shastri Indo-Canadian Institute and conducted by me in the University
of Alberta, Canada, clearly demonstrates the pivotal role of clusters and an intertwined, well-calibrated
government policy towards them, in promoting innovation and knowledge growth. In my own account
of the tale of two cities, I discovered to my delight, how two entirely different routes to industrial growth
were adopted by the cities of Calgary and Edmonton, both located in the state of Alberta.
A window of opportunity to see these ideas in operation in the Indian context came my way when
I had to write a report on the ‘Impact of WTO on small-scale industries in Punjab and Haryana’ as part
of the core group of Y. K. Alagh Committee set up by the Punjab and Haryana governments to examine
the impact of WTO on agriculture and small-scale industries (SSIs) of their respective states. The study
took me to several district industrial centres in Punjab and Haryana and enabled me to have extensive
interaction, among others, with entrepreneurs and representatives of trade associations and government
officials to understand the problems faced by the SSIs, in particular with regard to those with linkages
to WTO, and identify possible solutions. As it turned out, few districts in these states could throw up
vibrant industrial clusters with strong trade associations and quality educational institutions. The vast
majority of districts wore the picture of being a mere agglomeration of industries without any linkage or
interaction with each other. To develop these industrial districts into innovative clusters clearly called for
setting up of institutions such as knowledge parks, along with institutional mechanisms that would allow
greater effective collaboration among the industry, the academia and the government.
The role of policy and institutions in business innovations were further underlined in another study,
‘A strategic approach to innovation and international competitiveness of chemical industry in India’,
sponsored by the Department of Scientific and Industrial Research (DSIR), Ministry of Science and
Technology, Government of India in 2003–04. The chemical industry is a global industry representing
big multinational corporations (MNCs) operating on a global scale. The study led to suggestions of
strengthening of the dynamic capabilities of Indian enterprises and chemical innovation systems along
with the setting up of chemical parks and knowledge parks. In 2006, a visit to innovative clusters in
France, such as ‘Sophia Antipolis’, and automobiles clusters near Paris further strengthened my views
regarding the efficacy of clusters and government policy in promoting innovation.
In promoting innovation in emerging areas such as nanotechnology, and in international cooperation

and collaboration, is becoming increasingly important. There is a need to strengthen capabilities in new
technology through training and education, along with generous financial support and an appropriate
policy framework. In trying to be innovative in the areas of new technology, the ethical dimension must
not be forgotten. This is what was learnt in a research project sponsored by the European Commission
and completed in 2007—‘Bridging the gap between Europe and India’s nanotechnology knowledge
bases: Towards an understanding of innovative support structures, training programs and policies’.
Insights acquired during all the above-mentioned research projects and my experience of teaching
courses on strategic management, strategic marketing and international marketing to MBE and MBA
students have gone into the writing of this book on Business and Management. The aim has been at
understanding—with the help of real-life cases and illustrations—the defining changes sweeping the
Indian business scenario and the innovations that have taken place in their working and management
during the last few decades. It is especially targeted at undergraduate students of commerce, management
and engineering for strengthening their understanding of Indian business and management. The focus
on change, innovation, capabilities and strategies will be evident in all the chapters.
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Preface xxvii
OVERVIEW OF THE BOOK

The Indian economic and business environment has changed dramatically after the 1990s. Indian
companies have been building capabilities through restructuring and modernization of plants, using
knowledge through joint ventures or outright purchase of technology. Some companies are focusing on
innovation also and using this to internationalize their activities. A large number of companies having
global ambitions are developing strategies to capture the global market. It is now well researched that it is
the Indian entrepreneurs and companies who are driving the growth of the national economy and pushing
it to develop as an economic power in the years to come. This feature of the Indian economy differentiates
India from China, another global economic power where growth is driven by government enterprises.
Business Insights: There are real-life cases of Indian enterprises at the beginning (Business Insight) and
the end (Business Insight: A Revisit and Case Study) of each chapter. There is a wide diversity in the corpo-
rate cases discussed in the book. These cases discuss renowned companies from various manufacturing
and services sectors of the Indian economy. Some of the prominent names among these companies are:
Reliance, Oil and Natural Gas Corporation, Tata Steel, Tata Motors, M&M, Maruti, Hero Honda, Bajaj
Auto, Bharti Airtel, ITC, Infosys, Wipro, Mahindra Satyam, Ranbaxy, Sintex, Jubilant Life Science, ICICI
Bank, State Bank of India, Aptech, Genpact, Britania, Hindustan Unilever and Asian Paints. All these
cases have been designed and developed for this book.
The book is primarily intended for readers interested to know about business and its management
in the Indian context. Readers may have the ambition to work for a business as an employee, or be a
manager, or a consumer or an investor, or a successful business person. This book would be useful for
students of B.Com. (Hons), B.Com., BBS, BBA and other similar professional and vocational courses. It
would also be a much helpful introductory book for MBA students. For candidates interested in learning
about business and management, it would be an effective aid during training programmes.
Exhibits: In a country like India, with a population of over 1.2 billions and large numbers of consumers
having low to medium level of income, not only a whole range of business opportunities exists but new
opportunities are also being explored by enterprising individuals and groups. In this book, I have attempted
to focus on the entrepreneurial opportunities for businesses and challenges facing them. Each chapter
has an exhibit illustrating entrepreneurial challenge in a real-life Indian enterprise. Indian enterprises
are functioning in a globalized business environment. These enterprises have proved their strength and
competitiveness in a number of industries and services. To achieve their global objectives, they are going
for mergers and acquisitions, and transforming themselves into multinational enterprises. In each chapter,
there is also an exhibit illustrating global business implications for Indian enterprises using a real-life
example. As Indian business is becoming global, these enterprises are expanding in the foreign market,
raising funds from foreign institutional investors and forming strategic alliances with MNCs. All this has
necessitated Indian enterprises to be more transparent and ethical in their functioning. A third exhibit
highlighting the ethical and social responsibilities of different functional areas in business and management
functions is present in each chapter. Such an exhibit also deals with the case study of an Indian enterprise.
Every chapter has been supported by theory and research inputs related to the issues of discussion.
ORGANIZATION OF THE BOOK

There are nine parts in this book: Understanding the Environment of Business; Entrepreneurial
Opportunities in Business; Setting Up Operations; Marketing; Money, Finance and Investment; Human
Resources; Management Process, Planning and Organizing; Directing and Controlling; and Managing
for Future. These nine parts comprise 36 chapters. They give a comprehensive view of the functional
areas, management processes and contemporary topics related to business enterprises.
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xxviii Preface
PEDAGOGY
The book has been designed to adopt a pedagogy that would help in understanding the content easily.
Every chapter follows this pedagogy.
Chapter Objectives: These have been outlined at the beginning of each chapter.
Business Insight and Business Insight: A Revisit: Every chapter starts with the feature Business
Insight, focusing on a real-life situation and on managerial issues involved in an Indian company.
The purpose of this is to stimulate students’ thinking and awareness of various aspects of the topic
to be discussed in the chapter.
A second feature, Business Insight: A Revisit, marks the closing of the same case and is presented after
the main text ends, before the summary. This is intended to stir students’ thoughts about the issues and
approaches covered in the chapter they have just read, and then to apply these ideas to the dilemma or
challenge and the decision posed by the case description. The cases are meant to engage students in some
serious consideration of the issues. At the end of this feature are given a set of questions related to the
key aspects of the case.
Exhibits: There are over a hundred exhibits illustrating cases of various Indian enterprises with a
focus on the following areas:
z entrepreneurial challenges
z global business implications
z ethical and social considerations.
Figures and Tables: In every chapter there are figures and tables clarifying the issues discussed in
the text.
Chapter-end Summaries: Each chapter has summarized the main points at the end, keeping in
view the chapter objectives.
Questions: Each chapter has questions that provide a fairly comprehensive coverage of the major
points and topics contained in the text. The purpose of the questions is to encourage thinking vis-à
-vis mere memorizing of the chapter contents.
Endnotes and References: Endnotes and references are given in the chapters as and where neces-
sary, in order to amplify certain points or provide source details.
Case Studies: Each chapter closes with an exercise in the form of a Case Study, with relevant
questions.
TEACHING AIDS
Teaching aids for students and teachers in the form of PowerPoint presentations and case teaching notes
for chapter-end cases are available at www.pearsoned.co.in/vijaykumarkaul/.
Vijay Kumar Kaul
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Acknowledgement
A book of this size would have been impossible to complete without the help of friends and well-wishers
who provided much support and encouragement. Although it is difficult to give all the names here,
some who played a key role cannot but be identified and sincerely thanked. At the outset, I would like
to thank all the scholars, writers and academicians who have so far worked in the area of Business and
Management. Some such scholars have been referred to in the book; others are more generally known
for their contribution to the disciplines of Business and Management. I sincerely show my indebtedness
to all such scholars from whose work I have learned and drawn necessary knowledge.
Some of my friends, colleagues and research students have been associated with me throughout the
development of this book. They have helped me by reading and editing the manuscript, and suggesting
missing points. They have provided support at different stages during my writing which helped and encour-
aged me to finish the work at the earliest possible. I will be failing in my duty if I do not mention their names.
Some are associated with various organizations under the University of Delhi: J. K. Bareja, Shyam Lal
College; Surendra Kumar, P.G.D.A.V. College; Anu Pandey, Motilal Nehru College; Dr Poonam Verma,
Principal, S. S. College of Business Studies; Dr Usha Krishna, Janki Devi Memorial College; Dr Gayatri
Verma, Lakshmibai College; Dr M. S. Verma, Ram Lal Anand College; Dr Inderjit, Principal, College
of Vocational Studies; Shekhar Singh, Dayal Singh College; Dr Asif Zamir, Fore School of Management;
Dr Neelam Singh, Lady Shriram College; Anshul Taneja, Maharaja Agrasen College; Dr Raman Kumar,
College of Vocational Studies; Dr P. V. Khatri, Shri Shardhanand College; Dr Rabi Narayan Kar, Shaheed
Bhagat Singh Evening College; and Nomita Sharma, S. S. College of Business Studies. Sharma has helped
me in preparing teaching notes in the form of PowerPoint slides and cases teaching notes.
Others are teachers in various departments at the University of Delhi: Professor V. K. Vasal,
Department of Financial Studies; Professor C. P. Gupta, Department of Financial Studies; Professor
I. M. Pandey, Department of Financial Studies; Professor Surender Kumar Bansal, Department of
Business Economics; Dr Ananya Ghosh Dastidar, Department of Business Economics; and Dr Yamini
Gupt, Department of Business Economics.
I am also thankful to Shailendra Kumar, Department of Personnel and Training, Government of

India, and Pankaj Varshney, APJ Institute of Management. My sincere thanks to all of them for their
support and encouragement. I wish that my association with them grows in the days to come.
This book could not have reached the readers without the help of a good publisher. The editorial sup-
port provided by an excellent team consisting of Anshul Yadav, Praveen Tiwari and Barun Kumar Sarkar
of Pearson Education is worth mentioning. My interaction with this team and their suggestions and
editing has added great value to my work. I express my gratitude to all of them for their support. Anshul
Yadav deserves a special word of thanks for his involvement and help.
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xxx Acknowledgement
I have heard that writing a book involves much patience and hard work; that one needs to incur
certain costs as well. In the course of writing this book, I could not give time to my family, especially to
my two lovely little daughters, Vijayeswari and Rajeshwari. Both of them understand their father well
and are very supportive. My wife Surekha needs special mention. She is not only very supportive and
accommodative, but also a good manager. She would complain but understand quickly. I have gained a
lot of knowledge about management from her experience of establishing and managing several libraries
over the last two decades. Another family member who is closely associated with my all pursuits is my
younger brother Omkar Nath Kaul. Sharing of his managerial experiences in the corporate sector has
helped me to understand the intricacies of management, which largely impacted my writing.
Whatever I am today, it is all because of my guru Paramhansa Advaitanadaji and my parents. I have
learnt my real lesson of life, to face ups and downs and do something for the society, from Paramhansaji.
His blessings will continue to enlighten my soul in the years to come. My father has always been encour-
aging me to read and study more and more. Till his last, he had been by my side and guided me. By the
grace of God, my mother is still with me with her blessings. The present work is the fruit of all their
blessings.
Vijay Kumar Kaul
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About the Author
Vijay Kumar Kaul is Head, Department of Business Economics and Dean,

Faculty of Applied Social Sciences and Humanities in the University of
Delhi. He completed his postgraduation, M.Phil. and Ph.D. from the
same university. Professor Kaul has over thirty-three years of experience
as teacher, consultant and researcher. His main focus of teaching, training
and research has been in the areas of Innovation and Technology, Business
Policy and Strategy, Strategic Marketing, and International Marketing.
He has also been associated with the Indian Council for Social Science
Research (ICSSR), other professional bodies and several industrial and
trade associations.
Professor Kaul was awarded the Development Study Fellowship by the

Shastri Indo-Canadian Institute to work on a research project in Canada.
He has also worked on projects for several governments and international agencies, such as the
Government of Punjab; the Government of Himachal Pradesh; ICSSR; the Department of Scientific &
Industrial Research (DSIR), Ministry of Science and Technology, Government of India; and the European
Commission.
To his credit, Professor Kaul has over fifty research papers and articles published in reputed jour-
nals. He has participated in and presented research papers at various seminars and conferences in India
and abroad. He made a presentation at the UN Commission on Human Rights in Geneva, Switzerland.
As a part of a delegation on Indo-French cooperation, he visited France and made presentations on
the Indian Industry. He has successfully guided and supervised Ph.D. and M.Phil. research students
working in areas such as Business Strategies, Corporate Governance, Innovation, Small Enterprises and
Entrepreneurship and the World Trade Organization.
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A01_KAUL4498_01_SE_PREL.indd xxxii 04/08/11 4:53 PM
INFORMATION TECHNOLOGY
REVOLUTION
E-COMMERCE TO E-BUSINESS 8
Chapter Objectives
To discuss information and electronic revolu- To define m-commerce, its status and its utility in
tion and its impact on business. creating new business opportunity.
To describe e-commerce, its importance To define e-business and its implications for busi-
and its operation. ness operation.
To describe various models of e-commerce
and the opportunities they have created for
business.
Business Insight Asian Paints: E-commerce to E-business
Asian Paints is the largest decorative-paints manufac-

turer in India. It has been among the initial companies
to use information technology (IT) in its supply chain
management. With the emergence of the Internet, it has
made substantial investment in the Internet-enabling of
its organization. The company has made a very effective
use of IT in its operation and has moved from e-com-
merce to e-business. It uses IT for efficient data collection,
demand forecasting, efficient use of working capital,
collection of online information about flow of materials
across factories and other locations, and interaction with
customers.
Asian Paints is using IT to connect better with its customers. The company is offering not only products but
also several services to customers. The services offered by the company range from colour recommendations
to ‘feng shui’ consultations.
(Continued )
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158 Entrepreneurial Opportunities in Business
It also has the customer-complaint-handling process to ensure that complaints are addressed and
closed quickly. For this, the company uses a scalable customer relationship management (CRM) system that
maps the major business processes of Asian Paints Home Solutions and provides visibility in all customer
interactions.
Its Web site www.asianpaints.com has received Web Marketing Association’s WebAward 2008 for
outstanding achievement in web development in the Consumer Goods Standard of Excellence category. The
company believes that the Internet medium presents a very exciting channel to interact with its consumers
and is going to be the preferred media for modern consumers involved in the process of getting their houses
coloured, hence the Internet forms a very important part of the company’s communication strategy. In addi-
tion, the company has a very good supply chain, which has been integrated through the use of IT. This has
led to better availability and utilization of resources, less wastages and lower transaction and coordination
costs.
8.1 INTRODUCTION
Emergence of computers, telecommunications technologies, and the Internet has transformed the
business and its operation all over the world. These technological developments are transforming tra-
ditional commerce activities into electronic commerce and business into electronic business. In India,
although the total volume of business through e-commerce is not very large, it is growing very fast.
The growth is likely to accelerate with the wide spread of mobile phones and the growing knowledge
of its use for different activities. The recent release of 3G spectrum by the Government of India to
Indian telecom service providers will have a significant impact in improving the telecom infrastruc-
ture capability and expanding the networking all over the country, which in turn will give a big push
to e-commerce.
A country like India can become industrialized and modernized if it can extensively apply IT to
enhance productivity and international competitiveness and develop e-commerce and e-governance
applications. An information-based society or knowledge-based society is composed of IT products
and IT applications in the society and economy as a whole. Many Asian countries are taking advantage
of e-commerce through the opening of economies, which is essential for promoting competition and
diffusion of Internet technologies. The Internet is boosting efficiency and enhancing market integra-
tion in developing countries. Mckinsey Quarterly,1 a business journal, has predicted that Asia’s emerg-
ing markets are poised for explosive digital growth. China and India together have some 500 million
Internet users, which is likely to increase by 700 million more by 2015. It is estimated that within five
years, this increase may generate revenues of more than US$80 billion in Internet commerce, access fees,
device sales and so forth. At present in India, only 7 per cent of the population, that is, about 81 million
people, is using the Internet. Mckinsey Quarterly has forecasted that by 2015, the number of Internet
users will increase to almost more than 350 million. Further, it has forecasted that about more than
50 per cent of these users will be accessing the web via mobile phones.
The following sections discuss about the information and electronic revolution and its impact
on business and about the evolution of e-commerce, its various models and the opportunities they
have created for business. Further, the sections discuss the status of e-commerce in India, its future
prospects and so on.
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Information Technology Revolution: E-commerce to E-business 159
8.2 INFORMATION AND ELECTRONIC REVOLUTION

Computers and telecommunication technologies have revolutionized the
way individuals interact and businesses operate their various activities. In Electronic commerce,
popularly known as
particular, they have helped in simplifying business procedures and increasing
e-commerce, provides
the overall operational efficiency. They have also helped in developing new
ways to exchange
products and processes. The most popular use of the Internet for business is information between
e-commerce. Electronic commerce, popularly known as e-commerce, pro- individuals and
vides ways to exchange information between individuals and companies. It helps companies.
companies to approach customers by collecting and analysing business informa-
tion, conducting customer transactions and maintaining online relationships with customers by means
of telecommunications networks. The relationship with telecommunications networks or the Internet
can be of two types: business to business (B2B) and business to consumer (B2C). E-commerce provides
a foundation for launching new businesses, extending the reach of existing companies, and building
and retaining customer relationships. In India also, a growing number of companies are embracing
e-commerce technologies.
Anyone travelling in India would be aware of i-tickets and e-tickets which are being provided by
www.irctc.co.in, the official Web site of the Indian Railways. The phenomenal growth of www.irctc.co.in
underscores the potential of e-commerce in India. Anyone can access the site and know the movement
of trains, their arrival time, departure time, availability of tickets and fare. The Web site has not only
improved the customer interaction, increased the customer’s convenience and added value to the cus-
tomer but has also improved the functioning of the Indian Railways in terms of maintaining records and
delivering services.
For the efficient functioning of an organization, a proper record of all transactions with customers,
suppliers, employees and the government needs to be maintained. As an organization grows from a
small to a large level and then on to a multi-plant, multi-location and multinational level, its require-
ment of maintaining records and coordinating all the activities of its business becomes complex. Several
attempts have been made by the business enterprises over time to develop some methods and tech-
nologies to take care of this complex requirement. In the 1950s, companies began to use computers to
store and process internal transaction records, but the volume of information flow between businesses
continued to be on paper. By the 1960s, businesses that were engaged in large volumes of transactions
had begun exchanging transaction information on punched cards or magnetic tape. Later, advances in
data communications technology eventually allowed trading partners to transfer data over telephone
lines instead of shipping punched cards or magnetic tapes to each other. Small or low-volume trading
partners could not afford to participate in the benefits of these paper-free exchanges. Several industry
groups and large companies decided to make a major effort to create a set of cross-industry standards
for electronic data interchange (EDI).2
With the increased availability of personal computers, which became more powerful during 1980,
companies started using them to construct their own internal networks. At the same time, the Defence
department of the United States and some academic networks collaborated and started sharing their
emails on their network. Later, commercial use of this network was allowed. The privatization of the
Internet was completed in 1995. The opening of the Internet to business activities helped increase
the growth of the Internet dramatically. Along with the development of networking and the Internet,
the development of the World Wide Web (www) was taking place side by side, which gave a big push
to the commercialization of the Internet. The web is a way of thinking about and organizing information
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storage and retrieval, rather than a technology. Many scientists and researchers have made their
contribution to the development of the web. Tim Berners-Lee of European Laboratory for Particle Physics
in Geneva (Switzerland) made an important contribution by proposing a hypertext system to enable
efficient information sharing for members of the high-energy physics community. In 1991, the www
interface became publicly available. In 1995, the web development was marked by rapid commercializa-
tion and technical change.3 The number of World Wide Web users continues to grow rapidly. The use
of the Internet through the World Wide Web and the application of the web have immense potential for
business. These have helped the emergence and growth of e-commerce and now e-business.
8.3 E-COMMERCE AND ITS OPERATION

8.3.1 Defining E-commerce
E-commerce refers to a wide range of online business activities for products and
E-commerce refers to services. It also pertains to any form of business transaction in which the parties
a wide range of online interact electronically rather than by physical exchanges or direct physical contact.
business activities for
E-commerce is usually associated with buying and selling of products and services
products and services.
over the Internet or conducting any transaction involving the transfer of owner-
ship or rights to use goods or services through a computer-mediated network.
Although this definition is popular, it is not comprehensive enough to capture the recent developments
in this new and revolutionary business phenomenon. A more complete definition is that e-commerce is
the use of electronic communications and digital information processing technology in business transactions
to create, transform and redefine relationships for value creation between or among organizations, and
between organizations and individuals.
In India, the online travel industry is very well developed and is booming largely due to the
Internet-savvy urban population. It has opened up new opportunities in India (see Exhibit 8.1). The
rest of the segments, categorized under online non-travel industry, includes e-tailing (online retail),
Exhibit 8.1 An Entrepreneurial Challenge: makemytrip.com
Deep Kalra was working with GE Capital in Delhi 10 years ago. He used to book hotel rooms online.
Once when he was planning a holiday trip to Thailand, he bought top-class rooms for US$110 a night
as against the tariff of US$150 available offline. He realized the power of the Internet and decided to
use it. He decided to float makemytrip.com (MMT). It was not a novel idea. There were 20 other travel
portals such as net2travel, Traveljini, Travelmartindia and so on. Makemytrip is growing big although
other travel portals have been closed. Currently, makemytrip has 40 per cent share of the online travel
space in the country and has raised US$100 million (` 462.95 crore) through an initial public offer
on the NASDAQ. Although the company has not been able to make profit, it has brought down its
losses to US$6.3 million (` 29.18 crore) in 2009–10 from US$18.9 million (` 87.50 crore) two years ago. It
achieved the sales of ` 2,200 crore for the year ended March 2010. The company has built volumes of
customers and a steady turnover and has shown that there is a market for online travel. The company
has consolidated its position by adding products, such as hotels and packages, bus and train bookings,
and car rentals, and, most importantly, by extending its physical reach.
Kalra initially assumed that the Indian market would constitute half of his business, with inbound
traffic through non-resident Indians bringing in the other half. Although his fares were more expensive
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than that of local consolidators in the United States, he could seed the market by harping on
service. Makemytrip leveraged the business process outsourcing (BPO) model by taking the call to
India and servicing the customer at cheaper rates. The entry of low-cost carriers in India offered the
fliers choice and lower fares, thereby opening up the Indian online travel market. Travel portals have
been constrained by the limited reach of the Internet, broadband and credit cards in the country. To
overcome this, the company has opened 20 offices and several stores across the country. The Indian
travel market is a US$20 billion market. To be a dominant player in this market, the company needs to
have a long-term orientation. A company like MMT, staying for a long term in the market, will be able to
exploit the Indian market that would explode as the Internet connectivity improves and as the prices
of PCs or smart phones drop.
Source: Sarkar, R. ‘On a Long Trip to Profits’, Business Standard, 11 August 2010.
online classified and digital downloads (still in a nascent stage). Although e-commerce took a beating
in the dotcom bust, now it is set to grow globally. The global revival of e-commerce is having an
effect in India also, where the B2B, B2C, C2C (consumer to consumer), G2B (government to business)
and G2C (government to citizens) segments are showing rapidly-increasing activity over the past few
years.4 India has its share of success stories in the B2C segment in the form of www.indiatimes.com,
www.rediff.com, www.shaadi.com, www.indiamatrimony.com, www.ebay.com, www.magicbricks
.com, www.monster.com and www.makemytrip.com. These and such other portals are generating a lot
of interest and increasing the transaction traffic. Smaller businesses have jumped onto the bandwagon
by offering products and services online and have successfully carved out niches for themselves. The
online community is growing by leaps and bounds as an increasing number of consumers have started
transacting online. The initial fears and apprehensions the customers had about online transactions
are disappearing.
As defined earlier, e-commerce is ‘the buying and selling of products and services over the Internet or
other electronic networks.’ It promises to make buying and selling a lot more efficient and considerably
cheaper. Figure 8.1 depicts how it works. The first part of the figure shows the traditional way of buying
and selling products—when a product leaves the hands of its maker, it goes through a number of layers of
intermediaries, such as brokers, wholesalers, distributors, retailers or franchisees, before it finally reaches
the buyers.
The fundamental changes e-commerce is bringing to this traditional buying and selling paradigm
are two-fold: (1) much of what we buy and sell will take place over electronic portals and exchanges in
which information is now available instantaneously and transparently. The result is a much compressed
intermediation process and much reduced costs and (2) prices fixed by the makers will also be reduced
significantly because the transparency and seamlessness of information flows dictates that prices are
now determined dynamically through online bidding and auctions. These two effects will combine to
reduce product prices substantially, and hence e-commerce is such a big opportunity. Furthermore,
these cost-down effects are by no means just theories anymore. The example of ITC’s e-choupal and its
utility for the farmers and for the ITC as a business enterprise are well known.
8.3.2 Scope and Importance of E-commerce

E-commerce is generally described as a method of buying and selling products and services electronically.
The main media of e-commerce are the Internet and the World Wide Web, but use of email, fax and
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Traditional Commerce Model
Broker, Distributor,
Manufacturer/
Wholesaler, Buyer/
Service
Retailer, Customer
Provider
Franchise
Efficiency Savings
Manufacturer/
Electronic Buyer/
Service
Exchange Customer
Provider
Electronic Commerce Model
Figure 8.1 Buying and selling model: traditional and new
telephone orders is also prevalent. Web shopping is only a small part of the whole picture. E-commerce
also refers to online transactions of stocks and bonds and buying and downloading of software without
ever going to a store.
In addition, e-commerce includes B2B connections that make purchasing easier for big corporations.
E-commerce helps the organization, merchants and consumers to cut costs while improving the quality
of goods and services and speed of service delivery. Another key element of e-commerce is information
processing. The effects of e-commerce are appearing in all areas of business, from customer service
to new product design. E-commerce facilitates new types of information-based business processes for
reaching and interacting with customers: online advertising and marketing, online order taking and
online customer service. It can also reduce the costs in managing orders and interacting with a wide
range of suppliers and trading partners, areas that typically add significant over-
heads to the cost of products and services.
E-commerce involves E-commerce involves an online transaction which can range from ordering
online transactions online, through online delivery of paid content, to financial transactions such as
which can range movement of money between bank accounts. In financial services, e-commerce
from ordering online, has a positive impact. Online stock trading saw sustained growth throughout the
through online period of broadband diffusion. The emergence of National Stock Exchange (NSE)
delivery of paid and its rapid growth in India have been significantly contributed by NSE’s online
content, to financial
trading system. E-shopping is available to all those who use a computer. In the past
transactions such
year, Amazon, ebay India and indiatimes have seen a rapid growth in categories
as movement of
money between bank such as mobile handsets, jewellery, fashion apparel, books, gift items and so on.
accounts. www.naukri.com, India’s premier recruitment site and www.ICICIdirect.com,
India’s premier stock trading portal are some of the most-used online sites.
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Goldsmith et al.5 have reported that the general category of e-commerce can be classified into two
parts: (a) e-merchandise—selling goods and services electronically and moving items through distribu-
tion channels, for example, through Internet shopping for groceries, tickets, music, clothes, hardware,
travel, books, flowers or gifts; and (b) e-finance—banking, debit cards, smart cards, banking machines,
telephone and Internet banking, insurance, financial services and mortgages online.
Farooq Ahmed6 reported that the enormous flexibility of the Internet has made possible what is
popularly called e-commerce which has made inroads in the traditional methods of business manage-
ment. All the facets of the business tradition with which we are accustomed in a physical environment
can be now executed over the Internet, including online advertising, online ordering, publishing, bank-
ing, investment, auction and professional services. E-commerce involves conducting business using
modern communication instruments: telephone, fax, e-payment, money transfer systems, e-data inter-
change and the Internet.
8.3.3 Benefits and Limitations of E-commerce

Table 8.1 presents the benefits and limitations of e-commerce to business enterprises. The main advan-
tages of e-commerce are as follows: easy global reach; round-the-clock working; production of custom-
ized products and services; low cost of acquiring, serving and retaining customers; easy to establish
Table 8.1 Benefits and limitations of e-commerce
Benefits Limitations
Easy global reach: e-commerce enables to reach High risk: lack of good revenue model, poor
out to customers all over the world customer service and other problems
enhance risk
Round-the-clock working: Web site is open 24 Shortage of talent: shortage of skilled persons
hours, which allows order, delivery and payments at who can handle e-commerce
any time
Customized products and services: products can System and data integrity: integrity of the system
be developed and offered to suit the preferences and protection of data are serious problems
of people residing anywhere in the world
Low cost of acquiring, serving and retaining Lack of security: people have fears to disclose
customers: the cost of advertising, exchange of their credit card number and so on
information and display is reduced
Easy to establish network with suppliers, Vulnerability to competition: competitors may
distributors and retailers extract business intelligence from the Web site
of the organization
Improve customer service: quick response to and Operation problems: Web site crashing,
redressing of customer problems possible. merchandise mix-ups and shipping delays may
come in the way of business
Technology-based customer interface is direct as Unsuitability in some businesses, especially
no middle man is involved perishable items.
Knowledge of customer behaviour: the buying
behaviour of customers is recorded on real-time
basis
Less investment
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network with suppliers, distributors and retailers; improving customer services; improved customer
interface; real-time knowledge of customer behaviour and less investment.
There are some limitations of e-commerce, which come in the way of further growth of e-commerce.
These are as follows: high risk, shortage of talent, system and data integrity, lack of security, vulnerability
to competition, operational problems and unsuitability of e-commerce for certain products.
8.3.4 E-commerce Operation

The operation of e-commerce involves the following steps:
Searching relevant Web site: First, an online buyer logs on to the Internet and selects an item
from the menu that appears on the screen of his computer. Then, the user makes use of a search
engine, such as Google, to find an appropriate seller’s Web site. The user may also approach the
desired seller’s Web site from another Web site which is advertising it or may select the desired
seller from advertisements or on a friend’s recommendation.
Searching the desired product or service on the Web site: There is no salesman on the Web
site to assist the buyer as it is prevalent in the conventional shop. The buyer needs to identify
the desired product or service on the Web site from the picture or description of the product or
service.
Negotiating with the seller: The Web site may specify the prices and terms of sales; otherwise,
the buyer will contact the seller on telephone. The buyer will negotiate with and place an order
with the seller.
Making payment: In an online purchase, the payment can be made through credit card or cheque.
Delivery: In e-commerce, electronic products such as software, music and information can be
delivered online by downloading. Air ticket or insurance policy paid online may be confirmed
online itself, and there is no need for delivery. In some cases, the buyer may be required to collect
goods from the seller’s local distribution centre.
After-sales service: Some suppliers provide online support and after-sales services to their
customers.
8.3.5 Resources Required for Implementation of E-commerce

The resources required for successful implementation of e-commerce are given below:
Designing a good Web site: A business enterprise must develop a comprehensive Web site to
communicate effectively with its customers and business partners. The Web site should provide
detailed information about the firm’s products and services, supported with suitable pictures and
graphs.
Procuring computer hardware: The business enterprise must procure and install computers with
necessary speed, memory and modes to handle the expected volume of business and also get the
necessary Internet service provider (ISP) and application service provider (ASP), server and por-
tals, and email facilities.
Establishing effective telecommunication system: E-commerce requires an effective telecom-
munication system in the form of telephone lines, optic fibre cables and Internet technology.
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Hiring qualified and responsive workforce: Well-trained workers who are capable of working
easily with the Internet and computer network are essential for e-commerce. These workers must
also be trained in handling sales inquiries, processing orders and ensuring prompt delivery. There
should be proper coordination with regard to the receipt of order, delivery of goods and receipt of
payment so as to minimize errors.
Developing reliable payment system: A reliable system of receiving payment for goods sold
must be developed. Adequate information should be made available to enable the customers to
calculate the amount to be paid. An inbuilt system of refunds, in case excess amount is received,
should be created. Business firms must make arrangements with banks and credit card agencies to
facilitate electronic receipts and payment of money.
8.4 E-COMMERCE MODELS AND THEIR GROWTH

8.4.1 Types of E-commerce Models
The main
The main e-commerce models are business to business (B2B), business to consumer e-commerce models
(B2C), business to government (B2G), consumer to consumer (C2C) and mobile are business to
commerce (m-commerce). m-commerce is discussed in the following section. Other business (B2B),
models are discussed subsequently. business to consumer
(B2C), business
B2B e-commerce: B2B e-commerce is simply defined as e-commerce to government
between companies. About 80 per cent of e-commerce is of this type, and most (B2G), consumer to
experts predict that B2B e-commerce will continue to grow faster than the consumer (C2C) and
B2C segment. The B2B market has two primary components: e-frastructure mobile commerce
and e-markets. E-frastructure is the architecture of B2B, primarily consisting (m-commerce).
of the following: logistics, ASPs, outsourcing of functions in the process of
e-commerce, auction solutions software for the operation and maintenance of real-time auctions
in the Internet, content management software for the facilitation of Web site content management
and delivery, and Web-based commerce enablers. E-markets are simply defined as Web sites where
buyers and sellers interact with each other and conduct transactions.
Most B2B applications are in the areas of supplier management (especially purchase order pro-
cessing), inventory management (i.e., managing order–ship–bill cycles), distribution management
(especially in the transmission of shipping documents), channel management (i.e., information
dissemination on changes in operational conditions) and payment management (e.g., electronic
payment systems or EPS).
B2C model: This category comprises commercial transactions between business firms and
their customers. Companies sell products and services online to customers. For example, www.
asianpaints.co.in has B2C applications which also help in taking decision in choosing colours.
C2C model: In this e-business model, consumers sell directly to other consumers through online
classified ads and auctions or sell personal services or expertise online. Examples of consumers sell-
ing directly to consumers are www.ebay.com (auction) and www.tradersonline.com (classified ads).
C2B model: The C2B model, also called a reverse auction or demand collection model, enables
buyers to name their own price, often binding, for a specific good or service generating demand.
The Web site collects the ‘demand bids’ and then offers the bids to the participating sellers.
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8.4.2 Growth of E-commerce

E-commerce encompasses all business conducted by means of computer networks. Advances in
telecommunications and computer technologies in recent years have made computer networks an inte-
gral part of the economic infrastructure. More and more companies are facilitating transactions over
the Web. E-commerce provides multiple benefits to the consumers in the form of availability of goods at
lower cost, wider choice and time-saving. People can buy goods with a click of the mouse without moving
out of their house or office. Similarly, online services such as banking, ticketing (including airlines, bus,
railways), bill payments and hotel bookings have been of tremendous benefit for the customers. Most
experts believe that overall e-commerce will increase exponentially in future. B2B transactions will rep-
resent the largest revenue, but online retailing will also enjoy a drastic growth. Online businesses like
financial services, travel, entertainment, and groceries are all likely to grow.7
The evolution of e-commerce is taking place in three phases: in Phase 1, people were buying and
retailing online; Phase 2 marked the arrival of the first generation of market disrupters; today, in Phase 3,
the older generation of online companies such as ebay and Amazon are getting squeezed out by incum-
bents such as Walmart, which are coming in and expanding the market, causing B2C and B2B activity
to explode.8
In India’s e-commerce market, the existing players such as Pantaloon and travel players are entering
and are likely to give a big boost to its growth. Besides an increase in the number of exclusive e-commerce
companies, India is also seeing traditional retailers take the e-commerce route and VCs funding young
companies focused on the online business model.
The most talked about and well-endorsed feature of e-commerce is its global flavour. www.alibaba
.com, a global small business e-commerce company, has beaten all the records of market capitalization.
This site has facilitated the internationalization of small and medium enterprises (see Exhibit 8.2).
Exhibit 8.2 Global Business and Alibaba.com
Alibaba.com—a global small business e-commerce

company operating from China—is an e-commerce
platform connecting millions of buyers and sellers
around the world. In the past 10 years, Alibaba has
become a US$15 billion (£9 billion) Internet trad-
ing platform. The recent financial crisis in the West
in 2008–10 has led to a sharp rise in online trading.
Small- and medium-sized businesses wanted to cut
costs and find new customers, and so they used the
online platform. To expand its operation, the com-
pany decided to buy Vendio which offers the same
Internet business services in the United States as Alibaba, which connects millions of buyers and
sellers around the world. Alibaba.com is the listed unit of the Alibaba Group, of which Yahoo owns
nearly 40 per cent. Small and medium enterprises can accelerate their business processes by iden-
tifying global partners and communicating with them fastly through real-time communication, can
reduce the time taken to negotiate deals and can provide superior customer service and after-sales
service using online tools.
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In the Indian market, Alibaba has witnessed an average of more than 30,000 new user registrations
every month during the first six months of 2010. The company is reported to have 1.45 million users
here, reaching out to 13.6 million registered buyers and suppliers in the international marketplace. There
were more similarities than differences amongst SMEs across different countries. SMEs are looking for
orders and finance.
Sources: Inman, P. ‘Alibaba.com Has Grown to a £7.5bn Trading Platform in 10 Years’, www.guardian.co.uk, 22 January
2010, ‘Alibaba.com to buy US E-commerce site Vendio’, 25 June 2010; Reuters, ‘E-commerce Can Speed up Biz Pro-
cesses’, Hindu Business Line, 4 July 2010; Revathy, L. N. ‘Alibaba Gung-Ho About Investing in India’, Hindu Business Line,
16 September 2010.
Evidently, e-commerce has also started to show its true potential in India. India’s e-commerce solutions are
becoming a sought-after commodity around the world. The e-commerce-based businesses are leaving their
distinct marks of technology competitiveness, viable business model and entrepreneurship. E-commerce
and e-business—can indeed emerge as a major opportunity for India both from local business and a huge
opportunity for software exports to other countries by quickly joining the e-business bandwagon.
The supply chain is growing as an important business activity. Asian Paints has gained competi-
tive advantage through supply chain management. Supply chain management is one of the strongest
drivers of the global e-commerce solutions market, as it spurs B2B transactions. A majority of Indian soft-
ware houses have strong expertise in supply chain and distribution management solutions. A good number
of IT companies find that a web-based consumer business is a major opportunity area, with expected pay-
backs beginning in three to four years. Some of the emerging potential areas of e-commerce services are
Internet application integration; CRM, customer service management (CSM), enterprise resource planning
(ERP) and EDI migration to Web-based models; new IT frameworks and integration with business strategy
(strategic IT consulting); e-commerce training services; business Web site development and maintenance.
8.4.3 Government Support to E-commerce

The Government of India has taken several initiatives to create an environment that is conducive to
e-commerce activity. These initiatives are as follows:9
Announcement of the Information Technology Act 2000, which puts in place a cyber law regime
in the country’s announcement of the ISP policy for the entry of private ISPs in November 1998
Permission to private ISPs to set up international gateways and permission for Internet access
through cable TV infrastructure
Initiation of the setting up of the National Internet Backbone
Announcement of the national long-distance service beyond the service area to the private operators
Complete non-monopolization of undersea fibre connectivity for ISPs on 15 August 2000
Free right-of-way facility, with no charge in cash or kind, to access providers to lay optical fibre
networks along national highways, state highways and other roads
Permission for interconnectivity of government and closed user group (CUG) networks
Establishment of Public TeleInfo Centres (PTIC) having multimedia capabilities has been permitted
100 per cent foreign direct investment has been allowed in B2B e-commerce
Auction of 2G and 3G spectrums for service providers from 2008–10
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8.5 M-COMMERCE
M-commerce is the buying and selling of goods and services through wireless technology that is
handheld devices such as cellular telephones and personal digital equipments and satellite television sys-
tems. M-commerce enables users to access the Internet without needing to find a
M-commerce is the place to plug in. Japan is seen as a global leader in m-commerce. As content delivery
buying and selling of over wireless devices becomes faster, more secure and scalable, it is believed that
goods and services
m-commerce will surpass wireline e-commerce as the method of choice for digital
through wireless
commerce transactions. This may well be true for the Asia Pacific where there are
technology that is
handheld devices such more mobile-phone users than there are Internet users. The scope of m-commerce
as cellular telephones is very high in the following industries:
and personal digital Financial services, including mobile banking (when customers use their
equipments and
handheld devices to access their accounts and pay their bills) and brokerage
satellite television
systems.
services (in which stock quotes can be displayed and trading conducted from
the same handheld device)
Telecommunications, in which service changes, bill payment and account reviews can be con-
ducted from the same handheld device
Service or retail, as consumers are given the ability to place and pay for orders on the fly
Information services, which include the delivery of entertainment, financial news, sports figures
and traffic updates to a single mobile device.
8.6 E-BUSINESS
8.6.1 Defining E-business
Generally, the terms e-commerce and e-business are two distinct concepts that are being used inter-
changeably. In e-commerce, information and communications technology (ICT)
E-business is the is used in inter-business or inter-organizational transactions (transactions between
transformation of and among firms or organizations) and in B2C transactions (transactions between
an organization’s firms or organizations and individuals). In e-business, on the other hand, ICT is
processes to deliver used to enhance one’s business. It includes any process that a business organization
additional customer
(either a for-profit, governmental or non-profit entity) conducts over a computer-
value through
the application
mediated network. A more comprehensive definition of e-business is the transfor-
of technologies, mation of an organization’s processes to deliver additional customer value through
philosophies and the application of technologies, philosophies and computing paradigm of the new
computing paradigm economy.
of the new economy. E-business affects the whole business and the various activities in which it
operates. It enables a much more integrated level of collaboration between the
different activities of an enterprise. Adopting e-business also allows compa-
nies to reduce costs and improve customer response time. Organizations that transform their busi-
ness practices continue to benefit immensely from innumerable new possibilities brought about by
technology.10
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There are three primary processes which are supported and strengthened by e-business:11
(i) Production processes, which include procurement, ordering and replenishment of stocks; processing
of payments; electronic links with suppliers; and production control processes, among others;
(ii) Customer-focused processes, which include promotional and marketing efforts, selling over the
Internet, processing of customers’ purchase orders and payments, and customer support, among
others.
(iii) Internal management processes, which include employee services, training, internal information shar-
ing, video conferencing and recruiting. Electronic applications enhance information flow between
production and sales forces to improve the productivity of the sales force. Workgroup communica-
tions and electronic publishing of internal business information are likewise made more efficient.
8.7 THE FUTURE OF E-COMMERCE IN INDIA

There is a growing realization that the opportunities presented by e-commerce are big and are get-
ting bigger. There is a need to develop mass usage of its application. This requires easier access to the
Internet, navigation and ease-of-use factors that are critical for the quick adoption of e-commerce.
Convenient and secure modes of payment are a must, as is the need to explore other facets of
e-commerce such as m-commerce. Support from the government is also a must. Many national
governments are investing significant portions of their financial budgets in ICT. A government can
play two positive roles in the development of e-commerce: direct promotion through applications of
e-commerce principles in government administration and procurement and in the provision of public
services and facilitation of the development of e-commerce by providing a legal, regulatory and infra-
structural environment that encourages the development of e-commerce. There are some barriers to
e-commerce adoption in India, which need to be taken care of:
Limited Internet access among customers and SMEs
Poor telecom and infrastructure for reliable connectivity
Multiple gaps in the current legal and regulatory framework
Multiple issues of trust and lack of payment gateways
Considering these problems and challenges, there are four areas which need to be focused to give a
big push to e-commerce in India:12
The government has a very important role with respect to the positive business environment for
deployment of new telecom technologies. The government can create a positive environment to
build infrastructure and allow a fair competitive play among the competitors.
Technology or solution providers, industry bodies and government should educate Indian businesses
more on the potential benefits from e-commerce. The apex industry bodies such as the CII, FICCI
and ASSOCHAM should coordinate among themselves and with the government to educate people
who are in decision-making positions in Indian organizations. IT education would be a major driv-
ing force towards the development, adoption and growth of e-commerce in India. To keep pace with
the changing software and hardware scenario, it is necessary to emphasize on the current IT trends
and develop quality programmes to impart training and education in contemporary topics.
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Businesses planned to cater to retail consumers will have to create awareness and provide reassurances
before wooing the consumer to buy. Most of the content in the Internet is in English or other foreign
languages, and a large portion of the content and applications is not accessible to the majority of the
Indian population. Creative solutions need to be found for overcoming this challenge. Although, on
one hand, local language content and applications need to be developed; on the other hand, voice
applications on the Internet accessible through a normal touch-tone telephone need to be devel-
oped. The society as a whole needs to guard itself against the emergence of a digital divide, in which
the section of the population with access to Internet gains significant advantage over the others.
Government should play the most active role by enacting cyber laws, making positive interven-
tions when needed and ensuring adequate infrastructure.
8.8 ETHICAL AND SOCIAL ISSUES

Internet-based e-commerce has posed many threats because of being what is popularly called faceless
and borderless. There are several ethical issues related to e-commerce, and there are also some socially
responsible companies that are making use of e-commerce to promote social and community welfare.
ITC’s e-Choupal is one of the examples discussed in Exhibit 8.3. There are also several ethical issues that
are uniquely related to e-commerce. Jackie Gilbert and Bette Ann Stead13 reported the following ethical
issues related to e-commerce.
Privacy: Privacy has been and continues to be a significant issue of concern for both current and
prospective e-commerce customers. With regard to Web interactions and e-commerce, the fol-
lowing dimensions are most salient: first, privacy for an individual is a moral right. It consists of
not being interfered with and having the power to include and exclude the information as per his
requirement and convenience; second, privacy is a desirable condition with respect to possession
of information by other persons about himself or herself on the observation or perception of him-
self or herself by other persons.
Exhibit 8.3 Social Responsiveness: ITC’s E-Choupal
ITC’s e-Choupal is a multilingual, Web-based e-procurement solution providing comprehensive

information to farmers. The e-Choupals leveraged the Internet to empower small and marginal farmers
by linking them directly with buyers. Launched in 2000 with six installations, the number of e-Choupals
grew to 6,500 in 2007. The e-Choupal model enables farmers to obtain information on mandi prices
and good farming practices and to place orders for agricultural inputs such as seeds and fertilizers.
Each kiosk having Internet access is run by a sanchalak, a trained farmer. The computer is housed in
the sanchalak’s house and is linked to the Internet via phone lines or by a very small aperture terminal
(VSAT) connection. Each installation serves an average of 600 farmers in the surrounding 10 villages
within about a 5 km radius. The sanchalak bears some operating cost, but in return earns a service fee for
the e-transactions done through their e-Choupal. The model was meant to be a win-win. While farmers
benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower
net cost of procurement, having eliminated costs in the supply chain that do not add value.
Source: AGM chairman speech, ITC, June 2010, www.itcportal.com.
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Security concerns: In addition to privacy concerns, other ethical issues are related to e-commerce.
The Internet offers unprecedented ease of access to a vast array of goods and services. The rap-
idly expanding arena of ‘click and mortar’ and the largely unregulated cyberspace medium have,
however, prompted concerns about both privacy and data security.
Other ethical issues: They are related to computers as target for crime, Internet gambling, phishing
and copyrights.
Business Insight: A Revisit Asian Paints
Asian Paints is India’s largest paint company with a turnover of ` 7,706 crore in the year ending March 2011. Since
its establishment in 1942, the company has been making considerable efforts to become a global company.
With its strong consumer focus and innovative spirit, the company is now ranked among the top 10 decorative
coatings companies in the world. The company has played an active role in expanding its product offerings,
bringing about technological innovation and expanding its distribution network to include small towns.
It has its presence in almost all the segments through its brands Royale in the premium segment, Apcolite
in the mid-segment and Gattu, Tractor, Utsav and 3-Mango in the lower segment. It has also drawn on the
world’s latest technology for its manufacturing capabilities in areas such as powder coatings and high-
tech resins. The company places strong emphasis on its own in-house R&D, creating new opportunities by
effectively harnessing indigenous creativity. The company currently operates in 21 countries, has 29 paint
manufacturing facilities all over the world and is servicing consumers in over 65 countries.
Asian Paints has a very good supply chain structure, which includes 19,000 dealers and 65 sales offices,
and the entire supply chain has been integrated through the use of IT. This could lead to better availability
and utilization of resources, less wastages and lower transaction and coordination costs. All this would
lead to lower costs for the supplier and Asian Paints and, therefore, lower prices. Asian Paints has about
1,600 stock-keeping units (SKU; one SKU would mean a product of a particular pack and shade), of which
about 300 to 350 are fast moving with extremely high liquidity at the counter. This puts great pressure on
the demand forecasting and inventory management functions of the company. The tie-up for the supply
chain management processes has helped the company derive significant savings. The automation of the
distribution system has enabled the company to handle the extra volumes of business.
The company has implanted the supply chain management chain within the enterprise resource plan-
ning on its completion.
Its Web site asianpaints.com has received Web Marketing Association’s Web Award 2008. It is India’s
largest paint company that is leveraging IT to connect better with its customers. The number of potential
colour shades that customers could ask for is as much as 15,000. From investing in back-end IT, the company
has been investing heavily in IT that communicates to its customers. The company has equipped its ‘territory
sales incharges’ (TSIs) with laptops so that the paint maker connects directly with consumers. TSIs are
connected to the company on a real-time basis to source or transfer information on a secure platform. For
dealing with ‘large-project’ sales, where the customers are hotels, builders, or housing societies, the company
has provided TSIs with laptops as they need full-scale technical data, pricing and quotation letter while
talking to a customer at the site.
(Continued )
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It has also drawn on the world’s latest technology for its manufacturing capabilities in areas such as
powder coatings and high-tech resins, thus ensuring that its product quality lives up to exacting international
standards, even in the most sophisticated product categories. The company places strong emphasis on its
own in-house R&D, creating new opportunities by effectively harnessing indigenous creativity.
Source: www.asianpaints.com.
Questions
1. In how many different activities has Asian Paints used the Internet?
2. What types of benefits occur to the company by adopting e-business model?
SUMMARY
5 Information and electronic revolution and its impact on business

This chapter starts with the case of Asian Paints and introduces the role of information and
electronic revolution in changing the commerce and business activities at large. Although the use
of e-commerce and e-business is not large in India, it is likely to grow fast in the coming years.
Information and electronic revolution consists of computers, telecommunications technologies
and the Internet. The evolution of these technologies over time has been explained.
5 E-commerce: Its importance and operation
E-commerce is the buying and selling of products and services over the Internet or other electronic
networks. The effect of e-commerce is appearing in all areas of business, from customer service
to new product design. There are several advantages of e-commerce such as easy global reach;
round-the-clock working; production of customized products and services; low cost of acquir-
ing, serving and retaining customers; easy to establish network with suppliers, distributors and
retailers; improving customer services; improved customer interface; real-time knowledge of cus-
tomer behaviour and less investment. At the same time, there are some limitations also, which
come in the way of further growth of e-commerce, such as high risk involved; shortage of talent,
system and data integrity; lack of security; vulnerability to competition; operational problems
and unsuitability of e-commerce for certain products. The resources required for the successful
implementation of e-commerce are a well-designed Web site, computer hardware, telecommuni-
cations system, talented workforce and reliable payment system.
5 Various models of e-commerce and their growth
The major different types of e-commerce are B2B, B2C, B2G, C2C and m-commerce. These models
have created a lot of opportunity for growth of all types of business—large, medium and small.
E-commerce is growing at a faster pace. Entry of new players and applications is likely to fuel its
growth in future.
5 M-commerce: Its status and utility in creating new business opportunity
m-commerce is the buying and selling of goods and services through wireless technology such as
cellular telephones. m-commerce has a special role to play in financial services, telecommunication
services and retailing and information services.
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5 E-business and its implications for business operation

E-business affects the whole business and the various activities in which it operates. It enables
a much more integrated level of collaboration between the different activities of an enterprise.
Adopting e-business allows companies to reduce costs and improve customer response time.
Asian Paints, discussed in ‘Business Insight’, is the best example to explain the e-business model.
QUESTIONS
1. What is e-commerce? How does it operate?

2. Explain the opportunities for e-commerce.
3. Discuss the benefits of e-commerce.
4. Explain the resources required for successful implementation of e-commerce.
5. What is m-commerce? What are the problems in the growth of m-commerce?
6. What is e-business? In what way is it different from e-commerce and m-commerce?
ENDNOTES
1. Daga, V., Manuel, N., and Narasimhan, L. ‘Riding Asia’s Digital Tiger’, Mckinsey Q Quarterly,
l
September 2010.
2. Joseph, P.T.S.J. E-commerce—An Indian Perspective, PHI Learning Pvt Ltd, New Delhi, India, 2009.
3. Ibid.
4. E-commerce in India: Overview and Reasons for Growth, http://www.india-reports.com/
summary/ecommerce_in_india.aspx.
5. Goldsmith, E., and McGregor, S.L.T. ‘E-commerce: Consumer Protection Issues and Implications
for Research and Education’, Journal of Consumer Studies & Home Economics, 2000, 24(2): 124–27.
6. Ahmed, F. ‘Electronic Commerce: An Indian Perspective’, International Journal of Law and
Information Technology, 2001, 9(2): 133–70.
7. http://www.gatewayforindia.com/technology/e-commerce.htm.
8. Thakar, G. ‘Country Manager of EBay’, http://www.vccircle.com/500/news/e-commerce-in-
india-are-we-at-an-inflection-point.
9. Singh, A., Thapliyal, M.P., Rauthan, M.M.S., and Joshi, D.K. ‘Enabling E-commerce in India’,
http://bai2006.atisr.org/CD/Papers/2006bai6236.doc, accessed 20 September 2010.
10. http://www.ficci.com/sectors/task-forces/e-business/e-business.htm.
11. Lallana, E., Quimbo, R., and Andam, Z.R. EPrimer: An Introduction to E-commerce, DAI-
AGILE, Philippines, 2000; Andam, Z.R., E-commerce and E-business, e-ASEAN Task Force,
UNDP-APDIP, 2003.
12. Singh, A., Thapliyal, M.P., Rauthan, M.M.S., and Joshi, D.K. ‘Enabling E-commerce in India’,
http://bai2006.atisr.org/CD/Papers/2006bai6236.doc, accessed 20 September 2010.
13. Gilbert, J., and Stead, B.A. ‘Ethical Issues in Electronic Commerce’, Journal of Business Ethics,
2001, 34: 75–85.
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Case Study IRCTC: The Largest E-commerce Portal in India
India’s largest e-commerce Web site is www.irctc.co.in, of the government-owned Indian Railways Catering
and Tourism Corporation (IRCTC). The portal is an online rail ticket reservation platform for booking two types
of tickets: i-ticket and e-ticket. In case of i-ticket, when a customer books a ticket, it is printed from IRCTC’s
operation centre and subsequently delivered to the user’s home or office in over 200 cities across the country
within 24 hours. For e-tickets, customers can book rail tickets online on making payments by either credit
cards or debit cards and print them at home. IRCTC also offers net banking facility to users who have their
accounts in one of more than 27 partner banks for direct debit payment.
IRCTC was created in 1997, as part of the railways’ efforts to corporatize its non-core business, as the rev-
enue and profit from the catering business were not being accounted for on railway books. IRCTC earned
` 688 crore as revenues during 2009–10. Of this, ` 96 crore came from online ticketing services. The over-
all revenue that IRCTC reported from the sale of online tickets was ` 6,138 crore in 2009–10, an increase of
more than 55 per cent from ` 3,967 crore in 2008–09. IRCTC is the biggest e-commerce portal in the country.
At present, every third ticket reserved on the railways is sold on it.
IRCTC has been awarded with numerous awards including the National Tourism Award of Excellence
and national award for e-governance for 2007–08, the ‘Best E-Governance PSU Site’. IRCTC has been set
up by the Ministry of Railways for adopting a professional approach in the catering, tourism and online
booking services and upgrading these services by active public–private participation. Today, Indian Railways
is rendering its services to 13 million passengers every day, spanning global volumes in hospitality and
catering sectors.
IRCTC has a sustainable business model. It charges extra for its services, which makes it sustainable.
The entry of travel portals like Cleartrip, Ezeego1 and Yatra into the fray has given customers more options,
besides enhancing the customer profile. These portals have tied up with IRCTC, and customers can buy rail-
way tickets through these sites too. The portals charge ` 10 to ` 20, in addition to IRCTC charges, as service
fee. IRCTC currently levies additional charges for i-tickets, which ranges from ` 10 to ` 40, and for e-tickets,
which ranges from ` 40 to ` 60. Analysts says that if these charges are reduced or abolished it could increase
penetration and induce more people into e-commerce. The service is mostly used by agents who charge
additional commission apart from charges levied by IRCTC from their customers; this again limits the penetra-
tion level, and if the users are given more payment avenues, then many would be propelled to go for direct
transactions.
Indian Railways has planned to start an alternative portal, developed by the Centre for Railway Information
Systems (CRIS), for ticket booking, which may begin its operations from October 2010. The new portal will
compete with IRCTC for offering sale of online tickets. A senior official at the ministry informed: ‘We have asked
CRIS to develop a portal for providing online ticketing services. We believe the online platforms operated
by IRCTC and CRIS will offer competition to each other and help in generating business.’ The launch would
endanger about 14 per cent of the revenues IRCTC makes from the service charge levied on the sale of online
tickets. IRCTC is already set to lose 80 per cent of its overall revenues, as the management of catering services
on trains and at stations is being taken back by the railways.
‘The online ticketing services provided by IRCTC have redefined the travelling experience of passengers
on the railway network. If the portal continues to offer user-friendly services, it would continue to draw in
M08_KAUL4498_01_SE_C08.indd 174 21/07/11 3:17 AM

numbers. But there are chances that the share of IRCTC in online ticketing sales would fall when the new
portal is launched.’
Sources: Chowdhury, A. ‘IRCTC Becomes the Largest Contributor to E-commerce’, Business Standard, 4 April 2009; IRCTC
Achievements, 11 July 2009, http://www.railwayreservation.net/irctc-achievements.html, accessed 9 October 2010;
Sharmistha Mukherjee, ‘IRCTC Set to Lose Another Revenue Chunk 2010-07-30’, http://sify.com/fi nance/irctc-set-to-lose-
another-revenue-chunk-news--newskh4cbvfhhji.html (accessed 9 October 2010).
Questions
1. Explain the business model of IRCTC.
2. What is the impact of IRCTC portal on railway passengers?
M08_KAUL4498_01_SE_C08.indd 175 22/07/11 10:15 AM

M08_KAUL4498_01_SE_C08.indd 176 21/07/11 3:17 AM

Business Organization and Management

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Business Organization and Management

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Business Organization

Vijay Kumar Kaul

A01_KAUL4498_01_SE_PREL.indd i 04/08/11 4:53 PM

Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd

Compositor: diacriTech, Chennai

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A01_KAUL4498_01_SE_PREL.indd iii 04/08/11 4:53 PM

PART I: UNDERSTANDING THE ENVIRONMENT

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2. Dynamics of Business Environment:

3. Global Business and Multinational Corporations: Rise

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3.4 Multinational corporations (MNCs) 60

4. Business, Society and Ethics 73

PART II: ENTREPRENEURIAL OPPORTUNITIES

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5.2.1 Understanding the entrepreneur and the innovator 95

6. Small Businesses and Franchising 113

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7. Outsourcing to BPOs and KPOs 137

8. Information Technology Revolution: E-commerce

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PART III: SETTING UP OPERATIONS

10. Deciding Business Ownership Pattern, Size

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11. Operations: Designing and Producing Quality

PART IV: MARKETING

13. Creating and Pricing Products 250

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13.2.1 Defining a product 252 z 13.2.2 Product line and product

14. Promotion of Products and Services 273

15. Physical Distribution, Wholesaling and Retailing 294

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15.3 Types of distribution channels 298

PART V: MONEY, FINANCE AND INVESTMENT

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16.10.1 Inclusive banking 333 z 16.10.2 Social responsiveness 333

17. Financial Management 338

18. Understanding Securities Markets and Investment

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19. Risk and Insurance 380

PART VI: HUMAN RESOURCES

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21. Talent Management: Attracting and Retaining

PART VII: MANAGEMENT PROCESS, PLANNING

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23. Evolution of Management Thinking 456

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25.3 Strategic management 491

26. Decision-making Process and Creative

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27. Organizational Structure and Design:

PART VIII: DIRECTING AND CONTROLLING

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29. Leadership: Developing Vision to Transforming

30. Communicating in the Age of Internet 579

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31. Managerial Control and Techniques 593

PART IX: MANAGING FOR FUTURE

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34. Knowledge Management and Learning Organizations 641

35. Managing Diversity 656

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