Organization is an

arrangement of people brought together to

accomplish some
specilic purpose.
Characteristies of Organizations:
Goals
People
Structure

Nonmanagerial employees are people who work on a job and have no

respons1bility lor oversceing the
of others. work
Managers are individuals who direct & oversee the activities of other people in the organization.

Top
Managers
Middle Managers
First-Line Managers
Nonmanagerial Employees

role of the top level Role of The middle level Role of The lower level

1. determines the objectives, l-gives recommendations to 1-directs the workers

policies and plans of the
organization.
2. They mobilizes (assemble
and bring together
available resources.
3. does mostly the work of
thinking. planningand
deciding ithe Brain of the
organization).
4. spend more time in
planningand organizing.
5. prepare long-term plans
made for 5 to 20 years.
6. has maximum authority
and responsibility. They
are the top or final
authority in the
organization.
the top level.
2- It executes (implements)
the policies and plans which
are made by the top level.
3-Itco-ordinate the activities
of all the departments.
4-link between the top level
and the lower level
5- spend more time in
coordinating and
communicating.
6- prepare short-term plans
made for 1 to 5 years.
7-limited authority and
responsibility.
8- directly responsible to the
chief executive officer and
board of directors.
employees.
2- develops morale in the
workers.
3-link between workers and
the middle level.
4- informs the workers about
the decisions which are taken
by the management, and
performance, difficulties,
feelings, demands, etc., of the
workers
5-more time in directing and
controlling.
6- managers make daily,
weekly and monthly plans.
7- limited authority but
important responsibility of
getting the work done.
S- report to the middle level

Management is the process of getting things done. effectively and elficiently, through other people.

Managers can transform organizations.

Sam Walton - Wal-Mart

Jack Welch GE
Steve.Jobs - Apple
Meg Whitman - eBay

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Functions of a manager:
Planning
Organizing
Staffing
Directing
Controlling

Pamiy Lead to

Peinrg goals Deredninngonang Monltodng

esablishin aneedsa d2yes Archielving ihe
slategy ardobedoneay ouer o eneu 0aeon
developingOwiwil actons.ivoved hatineyar8 slatcd
Pans to bepone and n deangWi ccompished
coordinate Vhois todo1e0pe s planned
2Cvues

What Skills Do Managers Need?

Conceptual skills are the skills managers use
toanalyze and diagnose complex situations. and in
with working well with other people both individually
Interpersonal skills are those skills involved
groups.
Technical skills are the job-specific knowledge and techniques needed to perform work tasks.

DECISION ANALYSIS

from among the available options.

A decision is the selection of an action
standard
considered to be the best according to some prefixed
fact that two or more alternative courses of action
to
characterized by the
All decision making situations are
choose from.
where the decision maker is faced with several
Decision analysis is used to determine optimal strategies
future events.
decision alternatives, and uncertain

Decision-Making Conditions
certainty
When managers make decisions,
they face three conditions risk

uncertainty

tax laws for Rs.100.It purchases

the book for Rs.80 per copy. Since
A bookstore sells a particular book of become outdated and can be
of the tax laws change every year, the copies unsold at the end of a year
some this book is between 18 and
to experience, the annual demand for
disposed off for Rs.30 each. According past
23 copies. the year, the problem before store's
that the order for this book can be placed only once during
Assuming the next year.
of the book should be purchased for
manager is to decide how many copies
The decision
making process involves the
STEP 1: ldentification of the various possiblefollowing steps:
Ei. outcomes(states of nature or events) for the deciSion proDic
There arc six possible cyents
E 18 copies are demanded.
E2 19 copies are demanded.
Es 20 copies are demanded.
E 21 copies are demanded.
E 22 copies are demanded.

E 23 copies are demanded.

STEP 2: Identification of all the courses of action that are available to the decision maker [Aj|.
There are six possible actions.

A Buy 18 copies.
A2 Buy 19 copies.
As Buy 20 copies.

A Buy 21 copies.

As Buy 22 copies.
A6 Buy 23 copies.

STEP 3: Determination of the pay-off function which describes the

different combinations of the acts & events|Pij|.
consequences resulting from the

Construct thepay-off table.

A pay-off table represents the matrix of the conditional values associated with all the
of the acts and the events.
possible combinations
Let. D = demand in units for the book (Event)

Q quantity decided to be purchased (Action)

P profit
When. D2 Q then P = 100Q 8 0 Q

P 20Q
When, D Q then P 100D 30(Q- D) - 80Q
P- 100D + 30Q - 30D - 80Q
P 70D-50Q

3
PAY-OFF TABLE

20Q 20x18 70D 50Q= 70D 50QQ= 70D - 50Q=

=18 360 (70x18) -
70D - 500Q= 70D 50Q-
(50x19) = 310
(70x18) -
(50x20) =260
(70x18)- (70x18) -
(70x18)
(50x21) = 210 (50x22) = 160 (50x23) = 110

20Q 20x18 200 20x19 70D 50Q= 70D 50Q 70D 50Q =
70D 50Q
=19 360 380 (70x19)- (70x 19)- (70x19) (70x19)-
(5Ox20) =330 (50x21) = 280 (50x22) = 230 (50x23) = 180

20Q 20x18 20Q- 20x19 200 20x20 70D - 50Q =

=20 360 380 =400 (70x20) -
70D 50Q = 70D 50Q
(70x20)- (70x20) -
(50x21)= 350 (50x22) = 300 (50x23) = 250

200 20x18 20Q 20x19 200 20x20 200 20x2

=
360 380
70D 50Q= 70D 500
400 420 (70x21)-
=

(70x21)-
(50x22) =370 50x23) 320
E-22 200 = 20x18
200 20x19 20Q 20x20 200 20x21 20Q 20x22
360 380 =400 = 420
70D 50Q=
=440 (70x22) -
(50x23) = 390

20Q 20x18 200 20x 19 20Q 20x20 200 20x21 200 20x22 200 20x23
23 360 380 =400 = 420
=440 =460

The resultant outcomes of the various combinations of the acts

and events can
alternatively be
lerms of the expressed in
opportunity lost/regret.

is the amount of pay-off foregone by not adopting the optimal course of action

which would give the highest pay-off. for each possible event

The pay-off matrix can be'transformed into an opportunity loss/regret matrix by subtracting from the
highest profit value in each row, all other value in that row.
OPPORTUNITY LOSS/REGRET TABLE

-18 20
A
21 22 23

50 00 I50 200 250

=18

20 50 100 150 200

-19

40 20 S0 100 TSO
20

60 40 20 0 50 100
=21

E-22 80 60 40 20 50

100 80 60 40 20 0
-23

DECISIONS UNDER UNCERTAINTY

The decision situations where decision maker cannot assess the probabilities of the various states of
nature/events.

G)LAPLACE PRINCIPLE

Act Mean(Expected)Pay-of
(360+360+360+360+360+360)/6 = 360
A =18
(310+380-+380+380+380+380) / 6 = 368.3
A2=19
SELECTED]
As=20 (260+330+400+400+400+400)/6= 365

A=21 (210+280+350+420+420+420)/6 360

As=22 (160+230+300+370+440+440)/6 323.3

AG=23 (110+180+250+320H390+460)/6=285

(i)MAXIMIN or MINIMAX PRINCIPLE

Principle adopted by pessimistic decision makers.

In case of profit:
considered & among them the maximum
The minimum pay-offs resulting from various strategies are
value is selected.

Minimunm profit associated with various actions:

As: Rs.260 As Rs.160 Sinee the
A: Rs.360
maximu1of
theseis Rs.360
A2: Rs.310 A4: Rs.2110 Ao: Rs.110 SO, A1 is selccted.

5
In case of costs:
Minimax Choosing the best(minimum) cost from the set of worst (maximum) cost
(iii)MAXIMAX or MINIMIN PRINCIPLE
Principle adopted by optimistic decision makers.
In case of profit:
vaue
The maximum pay-offs resulting from various strategies are considered & anong them the highest
selected.
Maximum profit associated with various actions:
AtRs.360 A:
Rs.400 As Rs440 Since the maximum
of these is Rs.460
A2: Rs.380 A4: Rs.420 AG: Rs.460 so. Ar is selected.

In case of costs:
The minimum cost for each alternative is considered & then the alternative which minimizes the minimum
cost is selected.

(iv)HURWICZ PRINCIPLE
lt stipulates that a decision maker's view fall somewhere between extreme pessimism and extreme
optimism.
Forthis,anindex of optimism, a, is defined on a scale ranging from 0 o 1.
Act Ma Min Criterion Value=u(Max Value) + (1-0(Min
Valuc)
(0.6 x 360) + (0.4 x 360) = 360
Ai 360 360

(0.6 x 380) + (0.4 x 310) = 352

A2 380 310

(0.6 x 400) + (0.4 x 260) = 344

As 400 260

(0.6 x 420) + (0.4 x 210) = 336

A4 420 210

(0.6 x 440) + (0.4 x 160) = 328

As 440 160

460 110 (0.6 x 460) + (0.4 x 1 10) =

320
A6

Since the value associated with Ai is the maximum so the decision is to choose Ai.

DECISIONS UNDER RISK

(i)Maximum Likelihood Principle
for a demand level of21 copies, we would consider the
Eg: if it is known that the probability is the highest
from adopting different strategies for this demand level.
pay-offs resulting
A-23
A-18A-19A 20 A-21

380 400 420 370 320

E-21 360

Decision is to buy 21 copies.

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(i)Expectation Principle
Even probabilities are assigned.
A bookstore sells a particular book of tax laws for Rs.100.It purchases the book for Rs.80 per copy. Since
some of the tax laws change every year, the copies unsold at the end of a year become outdated and can be
disposed off for Rs.30 each. According to past experience, the annual demand for this book is:

Demand E-18 E3-20F 21 E-23

Probability 0.05 0.10 0.30 0.40 0.10 0.05

For each action, do the following:

Multiply the payoff by the probability of that payoff occurring. Then add those values together. Select the
action with the maximum expected pay-off.

Probability A 18 A 19 A 20 A-21 -22A-23

E=18 0.05 360 310 260 210 160 110

E2=19 0.10 360 380 330 280 230 180

Es=20 0.30 360 380 400 350 300 250

E=21 0.40 360 380 400 420 370 320

Es-22 0.10 360 380 400 420 440 390

E-23 0.05 360 380 400 420 440 460

360 376.5 386 374.5 335 288.5

Calculation of Expected Opportunity Loss/Expected Regret

For each action, do the following:
Multiply the regret value by the probability of that regret occuring. Then add those values together. Select
the action with the minimum expected regret.

A-18 A-19 As 20 A 21 As 22 A-23

E=18 0.05 0 50 100 150 200 250

E=19 0.10 20 0 50 100 150 200

Es-20 0.30 40 20 0 50 100 150

E=21 0.40 60 40 20 0 50 T00

E-22 0.10 80 60 40 20 0 50
E23 0.05 100 80 60 40 20

51 34.5 (25 36.5 16 122.5

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Expected value of perfect information (EVP)

EVPI = Expected pay-off of perfect information (EPPI) - Expccted Pay-Off (EP)

EPPI = (0.05 x 360) +(0.10 x 380) + (0.30 x 400) + (0.40 x 420) + (0.10 x 440) + (0.05 x 460) 41

EVPI = EPPI E P
=
411 -

386
F 25

BUSINESS ENVIRONMENT
GENERAL

EXTERNAL

All business organizations TASK

are affected
by two main environments
INTERNAL

GENERAL ENVIRONMENT
PESTLE ANALYSIS

POLITIKAL ECONOMIC SoCIAL TECHNOLOGY LEGAL ENVIRONMENT

Govt policy Economic Population Level of Industry Environnmental

Political growth growth innovation regulation policies
stability Interest rates Age Technology Licenses and Climate change
Foreign trade Inflation rates distribution incentive permits Carbon footprint
policy Unemployment Lifestyles Automation Employment
Trade rates Culture R&D activity and consumer
restrictions Exchange rates protection
Tax poliey laws
Corruption Antitrust laws
Protection of
IP

TASK ENVIRONMENT
PORTER'S FIVE COMPETITIVE FORCES
Competitive environment is the environment which organization's face within its specific area of
operation, & this can be understood at an industry level.

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 the sane product or norc broadly the group
austry is recognized as a group of firns producing
OIhenms producing products that are close substitutes lor cach other.
five forces framework developed by Michacl Porter is the most widely known tool lor analy /1np
the competitive environment.
T h e s e lorces determine the intensity of compctition and hence allraclivecness ol an industry

The five competitive forces are:

1.Threat of new entrants
2.Bargaining power of suppliers
3.Bargaining power of customers
4.Threat of substitute products
5.Rivalry among existing competitors

1.Threat of newentrants will enter.

In general, if an industry is profitable new companies
market.
to the established firms in that
Entry of a new firm in a market is seen as a threat
resort to raising barriers to entry.
Managers often strive to reduce the threal of entry they
&

Barriers to entry are the Economies of scale (Eg: Intel)

lactors that make it costly
forpotential competitors to Brand loyalty(Eg: Coca Cola; Pepsi)
enter an industry and
Compete wilh firns already Capital Requirements
in the industry.
Cost disadvantage

Switching Costs (Eg:Windows OS)

Access to Distribution Channel (Eg: HUL)

tariffs and international trade

Government poliey (Eg:Licensing requirements;
restrictions)

2.Bargainingpower ofsuppliers
the firm.
SupplierS provide inputs to terms and conditions of
of goods and services and other
Suppliers' decisions on prices. quality an industry.
on the profit trends of
delivery have significant impact

may have
m o r e power:
Suppliers Airbus and Boeing).
numbers compared to buyers(Eg:
are in concentrated
If they a move to another supplier(Eg:
firms may have
I f there are switching costs associated with
high
located their production unit adjacent to a supplier's manufacturing facilities).
has moved from exploration and retining of oil to
If they are integrate forward (Eg: Reliance
able to
retail petrol pumps).
selling of oil througlh its own
differentiated.
If their product is highly

3.Bargaining power of customers customers who ultimately consume its products or the
be the individual
An industry's buyers may such as retailers and wholesalers.
intermediaries that distribute
the industry's products to end users, and offer more and
sellers to lower prices. improve product quality,
Strong buyers can pressure
better services.

9
Buyers may have more power:
I f buyers are more concentrated than sellers.
More information (with respect to competitive pricing. product specifications, sales process)
If there is credible threat of backward
Integration by buyers.
Eg: IKEA
I the Customer purchases large volumes of standardized products from the seller.
I f switching costs are low.
I t substitute products are available on the market, buyer power is high.

4.Threatof Substitute products

Firms in an industry face competition from the products/services of different businesses or industries
that can satisfy similar customer needs.
Eg: Email is a substitute for postal mail

Threat of a substitute is high:

I f the substitutes available are attractively priced.
Eg: long distance telephone service vs internet based phone services
Movie theatre vs OTT(Netflix)
I f buyer's switching cost to the substitute is low.
Eg: Switching from a branded drug to a generic drug
(Glucophage metformin)
Substitutes based on new technologies can be a particularly potent threat.
Eg:typewriter

5.Rivalry among existing competitors

Competitive rivalry is the intensity of competition between companies in the same industry.

The intensity of rivalry is greatest if:

Competitors are roughly equal in size & power
Industry growth is slow
Exit barriers are high
Eg: Airline industry
The strength of rivalry reflects not just the intensity of competition but also the basis of competition.
Rivalry is especially destructive to profitability if it gravitates solely to price.

Price competition is more liable to occur if:

1.Products or services of rivals are nearly identical & switching costs are low for buyers.
Eg: Airline price wars
2.The product is perishable
Eg: Hotel accommodations; Food products
When all ormany competitors aim to meet the same needs or compete on the same attributes, the
result is zero-sum competition.
Can be avoided by market segmentation.

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