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The word entrepreneur is derived from the French verb enterprendre. It means to undertake. The term entrepreneur was applied to business initially by the French economist, Cantillon, in the 18 th century, to designate a dealer who purchases the means of production for combining them into marketable products An entrepreneur is a person who has possession of a new enterprise, venture or idea and assumes significant accountability for the inherent risks and the outcome. OR An Entrepreneur is the person who bears risk, unites various factors of production and carries out innovations. An Entrepreneur can therefore be defined as an individual or group of individual who tries to create something new who organizes production and undertakes risks involved in the establishment and operation of a business enterprise.

E: xamine needs, wants, and problems to see how they can improve the way needs and wants are met and problems overcome. N: arrow the possible opportunities to one specific "best" opportunity. T: hink of innovative ideas and narrow them to the "best" idea. R: esearch the opportunity and idea thoroughly. E: nlist the best sources of advice and assistance that they can find. P: lan their ventures and look for possible problems that might arise. R: ank the risks and the possible rewards. E: valuate the risks and possible rewards and make their decision to act or not to act. N: ever hang on to an idea, no matter how much they may love it, if research shows it won't work. E: mploy the resources necessary for the venture to succeed. U: nderstand that they will have to work long and hard to make their venture succeed. R: ealize a sense of accomplishment from their successful ventures and learn from their failures to help them achieve success in the future

According to Cantillon - An entrepreneur is

the agent who buys factors of production at certain prices in order to combine in to a product with a view to sell it at uncertain prices in future

J.B. Say A French economist, has defined an

Entrepreneur as the economic agent who unites all means of production land of one , the labour of another and the capital of yet another and thus produces a product. By selling the product in the market he pays rent of land, wages of labour, interest on capital and what remains is his profit.

JOSEPH SCHUMPETER :An entrepreneur is an innovator who brings

economic development through new combination of factors of production

PETER DRUCKER: Entrepreneur Is one who always searches for change,

respond to it and exploits it as an opportunity . Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or services.
E.E. HAGGEN: An entrepreneur is an economic man who tries to maximize

his profits by innovations. Innovations involve problem- solving and the entrepreneurs gets satisfaction from using his capabilities in attacking problems.
F.H. KNIGHT: a person who bears uncertainty (risk which cannot be insured

& is incalculable) can be reduced by taking insurance.

On the basis Of Ownership Clarence Danhof Classification Arthur H. Cole Classification

On The Basis Of Scale

Of Enterprise

TYPES OF ENTREPRENEURS Following are the classification of entrepreneurs on the basis of common characteristics Entrepreneur I II III IV A. Clarence Danhof B. Arthur H. Cole C. On the basis D. On the basis Classification Classification of ownership of scale of enterprise 1. Aggressive/Innovative 1. Empirical 1. Private 1. Small Scale 2. Imitative/ Adoptive 2. Rational 2. Public 2. Large Scale 3. Fabian 3. Cognitive 4. Drone


Aggressive in experimentation and clever in putting attractive possibilities into practice. He is the one who introduces a new product or a new method of production or opens a new market or explore new source of supply of raw material or carry out a new type of organization. as per the Schumpeter innovative entrepreneur are real entrepreneur.


They are those who imitate the successful entrepreneurs in techniques innovated by others Imitative entrepreneurs are revolutionary and important.

FABIAN ENTREPRENEURS: Fabian entrepreneurs are characterized by very great caution and scepticism to experiment any change in their enterprises. They usually do not take any new challenge. They imitate only when it becomes perfectly clear that failure to do not so would result in a loss of the relative position in the enterprise. DRONE ENTREPRENEURS: They are characterized by a refusal to adopt any change even at cost of severely reduction of profit. FORCED ENTREPRENEURS:

They become entrepreneurs on account of circumstances

According to the type of Business

Agricultural Entrepreneur i. Plantation ii. Horticulture iii. Dairy iv. Forestry

Industrial Entrepreneur
i. Large ii. Medium iii. Small

Business Entrepreneur

Corporate Entrepreneur

Trading Entrepreneur

According To The Type Of Business

Agricultural Entrepreneur: Agricultural Entrepreneur are those entrepreneur who undertake agricultural activities such as raising and marketing of crops, fertilizers and other inputs of agriculture. Corporate Entrepreneur: Corporate entrepreneur is a person who demonstrate his innovative skill in organizing and managing a corporate undertaking. A corporate undertaking is a form of business organization which is registered under some statute or act which gives it a separate legal entity.

Industrial Entrepreneur: He is essentially a manufacturer who identifies the potential needs of customer and tailors product or service to meet the marketing needs. He is a product oriented man who starts an industrial unit because of the possibility of making some new product.
Trading Entrepreneur: Such an entrepreneur undertakes trading activities and is not concerned with the manufacturing work. He identifies potential market, stimulates demand for his product line and creates a desire and interest among buyers to go in for his product. Business Entrepreneur: Business entrepreneurs are individuals who conceives an idea for a new product or service and then create a business to materialize their idea into reality. They take both production and marketing resources in their search to develop a new business opportunity.


Running an online business is certainly more difficult than most people understand. Many believe they can get online and start making money instantly. While there are some opportunities that give you the chance to make a few bucks here and there instantly, it takes a great deal of effort and determination to actually start a career online. You have to be willing to devote your time and energy toward the business.

One of the most difficult things to get used to as an Internet newbie is the endless amount of freedom you are given. You have no one to tell you what to do, when to do it by or how to do it. It is up to you to remain focused and put aside the countless distractions you will face from working at home.

Next on the list for qualities of a good entrepreneur is excitement. The wonderful thing about the Internet is you get to do something you have an interest in and enjoy. Therefore, show it in how you run your business. People are much more willing to listen to you and pursue your business if they see how excited you really are to be running it.

When first starting out, there is nothing more difficult than investing a great deal of time and seeing little results. What you have to understand is that it takes time to generate traffic. It takes time to create that first sell. And it certainly takes time to create a regular flow of traffic and customers. Whatever you do, do not give up just because you are not rich after the first month. You have to be patient.

Characteristics of Entrepreneur
1. 2. 3. 4. 5. 6. 7. Good Organizer. Foresight. Independence. Highly Optimistic. Desire for High Achievement. Hard Worker. Specialized Knowledge of his Field.

8. 9. 10. 11. 12. 13. 14. 15. 16.

Excellent Communicator. Human Relation Ability. Business Secrecy. Clear Objectives. Mental Ability. Pro-Active. Common Sense. Creativity. Ability to lead i.e. Leadership.

An entrepreneur is a person who initiates a business venture. there are some essential feature of an entrepreneur which are describe below. RISK TAKING CAPABILITY: Every business has risk of time money etc .so an entrepreneur must have the risk taking capability. CREATIVITY AND INNOVATION: An entrepreneur has an initiator possesses creativity and innovative power. NEED FOR ACHIEVEMENT: The entrepreneur has strong desire to achieve the goal of business. he is always driven by the needs for achievement. NEED FOR AUTONOMY: An entrepreneur does not like to be under anybody. it is the need for autonomy which drives a person to be an entrepreneur. INTERNAL LOCUS OF CONTROL: An entrepreneur believes in him his work. EXTERNAL LOCUS OF CONTROL: He also believes in fate for ultimate result. SELF CONFIDENT: An entrepreneur has confidence in him.

LEADERSHIP CAPABILITY: An entrepreneur must have leadership capability to lead works under him
INDUSTRIOUSNESS: A successful entrepreneur must have leadership capability to lead workers working under him. DECISION MAKING CAPABILITY: The entrepreneur has capability to take quick decision

ADAPTABILITY: He has the capacity to adapt with any kind of situation that arise in the enterprise
FORESIGHTNESS: The entrepreneurs have a good foresight to know about future business environment. OTHERS: The other feature are dynamism, ambition, education and training, long term involvement, future orientation.

Qualities of a Good Entrepreneur

1. 2. 3. 4. 5. 6. 7. 8. Initiation Watching for Opportunities A strong need for achievement Persistence - Try-try till you succeed Information Seeker Quality Conscious Commitment to Work Efficiency Lover

9. 10. 11. 12. 13. 14. 15. 16. 17.

Proper Planning Self Confidence Assertiveness Persuasion Efficient Monitoring Concern for employees Energetic Resourceful Willingness to Work Hard

Planning Organizing Decision Making Innovation Risk Bearing Uncertainty Bearing Managing Finance Perceiving Market Opportunities Marketing of the Product Management
Diversification of Production Expansion of the Enterprise Maintaining Cordial Employer and Employee Relations Tracking Labor Problem Co-coordinating with outside Agencies Managing Relations With Costumer and Supplier Responding to the Competition

Gaining command over scarce resources Dealing with Public Bureaucracy Acquiring and Assembly of the Factory Engineering Parallel Opportunities Marketing Customer Relation Introduction of New Product and Techniques Investing in R&D of Product


OPTIMUM UTILISATION OF RESOURCESResources are put to proper use by Entrepreneurs. They combine various resources like Land, Labour, Capital, Technology, and Organisation to produce goods. GENERATION OF EMPLOYMENTProvides employment opportunities by establishing new industries, mills, factories etc , and thus reduces the burden on government of employing the youth of the country in some thing productive reducing unemployment problem. IMPROVEMENT IN LIVING STANDARD OF PEOPLE- By providing quality goods & services to the people


Government incentives encourage entrepreneurs to establish industry units in rural & backward areas- create employment opportunities in industrially backward areas.

benefit of customers- by regulating taking market research.

HELP AGRICULTURAL SECTOR- Providing high yielding variety of Seeds, Fertiliser, Insecticides Pesticides, Agricultural equipments Machineries etc many entrepreneurs buy agricultural produce for further processing.

PROMOTE INTERNATIONAL TRADE- Exporting goods mfg by them help govt to earn FE.

HELP COMMUNITY AT LARGEBy providing welfare activities- adopting villages, schools, stating educational institutes, healthcare services, sports. CAPITAL FORMATIONPooling the savings of people by issuing shares/ debenturesoffering more returns comparatively. DISTRIBUTION OF INCOME & WEALTHBy establishing in rural / backward areas, entrepreneurs not only balance regional development but also redistribution of income & wealth.

Gap Filling (Demand & Supply)

Entrepreneur also works toward the gap filling (Demand & Supply)Product , Service, Employment etc.

Help in increasing GDP

Plays Important Role in Social Development

Causes Of Success And Failure Of Entrepreneur

An entrepreneur may sometime become successful and sometime becomes failure. There are some causes of such success and failure. They are noted below:

1. Selection Of Business: It is an important aspect. That means an

entrepreneur has to determine what type business he is going to start. Form various points of view the feasibility of the business should be tested.

2. Proper Planning: Proper planning is also important. For planning, planning

premises like political, economic, social premised should be considered first. The steps of planning should be followed properly. would fall. So whether the enterprise is big or small the initial capital should be sufficient enough. market should be identified. Both for long term and short term it should be considered. transportation is not good the enterprise would fall.

3. Initial Capital: if the initial capitals are not an optimal level the organization 4. Determination 0f Market Demand: Through research the demand in the 5. Marketing Of Product: If the promotion policy, channel of destitution,

6. Education And Experience: One of the important tasks of the entrepreneurs is to select right person for the right post because the success of an enterprise depends on the right selection of employees. 7. Joint Initiative: One may have much money and another may have more merit. Through joint initiative it can be balanced. But sometime for joint initiative misunderstanding arise, or sometimes corruption occur which may result in fall of enterprise. 8. Employment: Recruitment and appointment should be properly done. Those who have specialized skill should be appointed to that specialized job. Inefficient, corrupted employees may be responsible for fall of business. 9. Location Of Business: Site selection is an important factor. While starting a new business, an entrepreneur should think about the location of the business. In this case, many factors should be considered such as availability of raw materials, proper communication system, availability of labor, marketing facilities and so on. 10. Qualities Of Management: The management must have a minimum quality to success otherwise it would fall. These are the common few causes for which one enterprise may become successful and another may fall.

B. HIGGINS: The function of seeing investment &

production opportunities; Organising an enterprise to undertake a new production process; raising capital; hiring labour, arranging for raw material, finding a site & combining these factors of production into a going concern; introducing new techniques, new commodities, discovering new sources of natural resources & selecting top-managers for day-to-day operations.

SCHUMPETER: Entrepreneurship is based on purposeful & systematic innovation. It includes not only the independent businessman but also company directors & managers who actually carryout innovative functions.

Entrepreneurship is a attempt to create value through recognition of business opportunity, the management of risk taking appropriate to the opportunity & through the communicative & management skills to mobilise human, financial & material resources, necessary to bring a project to completion.

Thus Entrepreneurship is a combination of various qualities like organisation skills, innovativeness, risk-bearing, managing uncertainty, ability to bring things together & use factor of production, analysing market opportunities, observing the change taking place in the market, methods & technologies, studying the tastes & preferences of consumers.

1. 2. Entrepreneur is employer Independent in operation 1. 2.

Intraprener is employee Depends on the organization to implement his ideas. Does not bear all the risk.


Bears all the risk involved in enterprise.



Exhibits higher need for achievement.


May not have high need achievement


Profit is the reward.


Attractive salary, promotion & incentives are the reward. Should have some professional or technical qualification.


May not have formal qualification.



Do not have any boundary for operations.


He has to operate within the organisational policies.

1. 2. Entrepreneur is employer Independent in operation 1. 2.



Bears all the risk involved in enterprise.



Exhibits higher need for achievement.



Profit is the reward.



May not have formal qualification.



Do not have any boundary for operations.


Strong desire to do something new. To be independent in Life. Making the maximum use of technical/professional knowledge. Occupational experience/background. Passionate about particular activity. Dissatisfaction with present job. To attain self-satisfaction.

Utilizing Government grants & subsidiary. To continue ancestor business. Financial assistance from Institutions. Availability of resources. Encouragement from big business houses. Availability of sick units/ easy financial terms. Encouragement from family members.

1. IDENTIFICATION OF OPPORTUNITIES: The product to be produced or service to be provided should be carefully selected. Thus the idea to select such a product may originate from different sources. The important sources of business idea are as follows: a) Market observation: Analysis of demand & supply for goods, availability of raw materials, profit range, likely change in future demand. b) Consumer survey: taste & preferences of consumers, considerable no of consumers

C) Competing Alternative Product: No of manufacturers, Degree of competition, to manufacture either better quality goods at same price or even to provide same quality goods at a cheaper rate. d) Development In Other Countries: borrowing business ideas attending trade fairs in foreign countries through trade delegation sponsored by Chambers of commerce/ government or collaboration/ joint venture with foreign producer.

e) Product profiles: Various government & non-government agencies prepare & publish product profiles which can be a basis for business idea generation.

f) Trade Fairs and Exhibitions:

g) Government Policies: Announcement of concession, grants to manufacture certain products.

h) Research Institutes: Many research Institutes

like private government help in borrowing patents from them (private government) and produce the product.

i) Research & Development: In case of big

companies , to develop new products, or to modify existing products.

j) Brain Storming Sessions: In case of large and

multinational companies to come out with new ideas- by forming groups of employees of different levels and allowing them to deliberate & suggest some new ideas.


a) Technical Feasibility: The product chosen should be technically feasible I e should be capable of being manufactured using some technology. b) Commercial Viability: Refers to cost benefit analysis to know whether the product would yield expected rate of return.

c) Financial & Managerial Considerations: Amount of finance required, sources of finance to be worked out & managerial sources, its availability & its cost.

d) Final selection: Products which pass through all the tests(be technically feasible, commercially viable) are considered for final selection. some points may be allotted for each test and that product which gains highest points may be selected for production.

DECIDING THE LOCATION Many factors influence the location of the unit. 1) Availability of raw materials. 2) Market accessibility 3) Human resource 4) Supply of power 5) Fuel & water 6) Transportation 7) Government policies- subsidies & incentives. 8) Climate. 9) Scope for further expansion.


Whether under sole proprietorship or partnership or joint venture. (partnership act-1932). Factors affecting ownership forms are:

1) EASE OF FORMATION- Sole proprietorship is easy to form. 2) CAPITAL REQUIRED- Small business less capital required then sole proprietorship is applied. If the business requires high capital joint venture is applied.

3) EXTENT OF LIABILITY- Unlimited liability in case of sole proprietorship & partnership, limited liability in case of joint stock company and cooperatives. 4) CONTROL- The complete control lies with the proprietor in case of sole proprietor. In case of partnership control is as per partnership deal. In case of joint companies & cooperatives, control is different from ownership. 5) CONTINUITY OF BUSINESS: Joint stock companies enjoy continuity of business because ownership is different from management. 6) FLEXIBILITY: Sole proprietorship is more flexible


maintained by sole proprietorship.

8) GOVERNMENT REGULATIONS: Sole proprietorship

is subject to minimum regulations & interference. Partnership comes under partnership act, societies under cooperative societies act & companies under company act.

9) TAX LIABILITY: The tax structure of the government

is to be considered to decide the type of organization.

REGISTRATION & LICENSING It is necessary in case of starting industrial units. Certificate of registration will be issued in two stages. 1) Provisional Registration Certificate:
It is the initial registration to starting a small scale industry. It is issued for 1 year which can be extended for another six months. This certificate can be used for

To get an industrial plot or industrial shade. To avail bank loan. To get license from local administration. To get water & power supply. For procuring plant machinery & raw materials. To get NOC from PC board.

2) Permanent Registration Certificate: It is issued when all the formality of establishing the unit is over. This certificate will be useful for: a) To apply for subsidies & incentives b) To avail bank loan c) To get income tax & sales tax concession d) To avoid central excise duty concession

6] SPECIFIC CLEARANCES 1) Conversion of agricultural land: through an application to concerned local authority. 2) Urban land ceiling clearance: taking permission to hold vacant land beyond the limit through special permission. 3) Building plan approval: to be approved by local authority.

4) Factories Act: obtain permission from authorities ex- permission from inspectorate of factories to start factory. 5) Trade license: from local authority ex-certificate from local municipality for a hotel industry. 6) Pollution control board clearance: getting NOC from PC board. 7) Sales tax registration: from the state & centre authorities to sell & purchase goods.

8) Central Excise Registration: to get registration from central excise authorities if the goods are excisable. 9) Bureau of Indian Standard (BIS) certificate: 10) Fruit product order 1955: license through ministry of food processing 11) Food Adulteration Act: that can get from local authorities in case of sale of food & food articles.

12) Power Loom Registration: 13) Drugs & cosmetics license: In case of manufacturing drugs & cosmetics. 14) Approval for Hotels: From department of
tourism in case of big hotels.

15) 100% Export oriented units: To get permission

from the concerned expert council.


1) FINANCE- Getting finance from Banks/ financial

2) BUILDING- To be constructed in case no industrial shade is allotted. 3) PLANT & MACHINERY- Placing purchasing order
for plant & machinery. 4) RAW MATERIALS- Get the raw materials through private party or through government. 5) HUMAN RESOURCES- Appointment of workers & management personnel.

1. 2. Entrepreneur is employer Independent in operation 1. 2.

Intraprener is employee Depends on the organization to implement his ideas. Does not bear all the risk.


Bears all the risk involved in enterprise.



Exhibits higher need for achievement.


May not have high need achievement


Profit is the reward.


Attractive salary, promotion & incentives are the reward.

Should have some professional or technical qualification.


May not have formal qualification.



Do not have any boundary for operations.


He has to operate within the organisational policies.








Strong desire to do something new. To be independent in Life. Making the maximum use of technical/professional knowledge. Occupational experience/background. Passionate about particular activity. Dissatisfaction with present job. To attain self-satisfaction.

Utilizing Government grants & subsidiary. To continue ancestor business. Financial assistance from Institutions. Availability of resources. Encouragement from big business houses. Availability of sick units/ easy financial terms. Encouragement from family members

Importance of Motivation
Excite Employees Maintaining Human Relations Raises Productivity Efficiency Raises Morale Affable Industrial Relations Facilitates Changes Employees Involvement Increases Reduces Malingering and Absenteeism Reduces the chances of Accident Generates the feeling of importance in the mind of employees

Maslows Hierarchy of Needs

NEEDS General Examples Organizational Examples

Achievement Status Friendship Stability Food

Esteem Belongingness Security Physiology

Challenging job
Job title Friends at work Pension plan Base salary


Type of Need Examples


Thirst, sex, hunger


Security, stability, protection

Love and Belongingness

To escape loneliness, love and be loved, and gain a sense of belonging

4 Esteem Self-respect, the respect others 5 Self-actualization To fulfill one's potentialities

How to Motivate

Financial Incentives

Non- Financial Motivation


Status Responsibility Pleasant Job Atmosphere Timely and Out of Turn Promotion Job Security Acknowledgment of Work Social Importance Healthy Competition


1. 2. 3. 4. 5. 6. 7. Educational Background Occupational Experience Desire To Work Independently Desire To Branch Out To Manufacturing Family Background Assistance From Government Assistance From Financial Institution

8. 9. 10. 11. 12. 13. 14. 15.

Availability Of Technology/Raw Material Profit Margin Desire For Taking Personal Responsibility Anticipation Of Future Possibilities Success Stories Of Entrepreneurs To Gain Social Prestige Heavy Demand Technical Knowledge


Choosing An Idea


Selection Of Product

The Adoption Process

Product Innovation

Product Planning And Development Strategies

Government Import Policies Experience Required Percentage of Profit

Subsidies Offered by Government

Market Penetration Market Development Product Development Diversification

Available Market for the Product

Product Type Licensing Policies Of Government

Decision is something that always come before actual action. That is why Decision making process is a process which involves high degree of MENTAL EXERCISE. Decision Making means choosing of one of the best among available alternatives.

The Nature of Decision Making

Decision Making
The act of choosing one alternative from among a set of alternatives.

Decision-Making Process
Recognizing and defining the nature of a decision situation, identifying alternatives, choosing the best alternative, and putting it into practice. An effective decision is one that optimizes some set of factors such as profits, sales, employee welfare, and market share. Managers make decisions about both problems and opportunities.

Types of Decisions
Programmed Decisions
A decision that is a fairly structured decision or recurs with some frequency or both.
Example: Starting your car in the morning.

Non-programmed decisions
A decision that is relatively unstructured and occurs much less often than a programmed decision.
Example: Choosing a vacation destination.

Decision-Making Conditions
The decision maker faces conditions of...




Level of ambiguity and chances of making a bad decision




Distinguishing Between Decision Making Conditions

Decision Making Under Certainty
A condition in which the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative.

Decision Making Under Risk

A condition in which the availability of each alternative and its potential payoffs and costs are all associated with risks.

Decision Making Under Uncertainty

A condition in which the decision maker does not know all the alternatives, the risks associated with each, or the consequences of each alternative.


The Classical Model of Decision Making
obtain complete . . . and end up with

When faced with a

decision situation, managers should . . .

and perfect information

a decision that best eliminate uncertainty serves the interests evaluate everything

of the organization.
rationally and logically

Steps in the Rational Decision-Making Process

Step 1. Recognizing and defining the decision situation 2. Identifying alternatives Detail Some stimulus indicates that a decision must be made. The stimulus may be positive or negative. Both obvious and creative alternatives are desired. In general, the more important the decision, the more alternatives should be considered. Each alternative is evaluated to determine its feasibility, its satisfactoriness, and its consequences. Example A plant manager sees that employee turnover has increased by 5 percent. The plant manager can increase wages, increase benefits, or change hiring standards.

3. Evaluating alternatives

Increasing benefits may not be feasible. Increasing wages and changing hiring standards may satisfy all conditions.

Step 4. Selecting the best alternative

Detail Consider all situational factors, and choose the alternative that best fits the managers situation. The chosen alternative is implemented into the organizational system.

Example Changing hiring standards will take an extended period of time to cut turnover, so increase wages. The plant manager may need permission from corporate headquarters. The human resource department establishes a new wage structure. The plant manager notes that, six months later, turnover has dropped to its previous level.

5. Implementing the chosen alternative

6. Following up and evaluating the results

At some time in the future, the manager should ascertain the extent to which the alternative chosen in step 4 and implemented in step 5 has worked.

Evaluating Alternatives in the Decision-Making Process

Are the alternatives Is the alternative Yes feasible? satisfactory? Is the alternative Yes consequences Yes consideration Retain for further





Eliminate from consideration

Eliminate from consideration

Eliminate from consideration

Characteristics Of Decision Making

An Intellectual Activity.

Decision is always taken at high levels but affects all levels this makes it a very sensitive issue. Involves A Process Of Selection.
Involves The Collection of Data. An Element of Assurance.

Evaluating Alternatives Available.

Choosing Best Alternatives.

Decision is Always Result Oriented i.e. it will always provide result no matter right or wrong.

Decision is based on Data collected that is why data collected plays very vital role in end result.

Fundamentals of Decision Making

Atmosphere or Situation in which Decision are Taken Moment Of Decision Psychological Factors Communication of Decision Participation of Employees Insight of Good Decision

Making decisions has been identified as one of the primary responsibilities of any manager. Decisions may involve allocating resources, appointing people, investing capital or introducing new products. If resources like men, money, machines, materials, time and space were abundant, clearly any planning would be unnecessary. But, typically, resources are scarce and so there is a need for planning. Decision making is at the core of all planned activities. We can ill afford to waste scarce resources by making too many wrong decisions or by remaining indecisive for too long a time.


Planning is a process Selection of course of action Planning is flexible Takes place at All level of organization Looks into future Counterbalance uncertainty Attention on objectives Omnipresent function Help in controlling Co-ordination

Steps Involved in Sequenced Planning

Determination of Objectives Establishment of planning Premises Determination of Alternatives Course Evaluation of Alternatives and Selection of Course of Action Preparation of Derivatives of Plans Timing and Sequence of operations Securing Participation of Employees Consider the Strategy Providing follow up to the proposed Course of Action

Importance of Sequenced Planning

It facilitates the process of decision making Best possible use of resource Reduces cost resulting higher profitability






What are the most common ways we communicate?


Ways to Communicate
Ways to Communicate
Non verbal







Downwards Communication : Highly Directive, from Senior to subordinates, to assign duties, give instructions, to inform to offer feed back, approval to highlight problems etc. Upwards Communications : It is non directive in nature from down below, to give feedback, to inform about progress/problems, seeking approvals. Among colleagues, peers at same level for information level for information sharing for coordination, to save time. In modern business environment communication extends beyond written or spoken words to listened word. Visual dimension added by T.V., computers has given to new meaning to communication. COMMUNICATION NETWORKS Formal Network Informal Network : : Virtually vertical as per chain go command within the hierarchy. Free to move in any direction may skip formal chain of command. Likely to satisfy social and emotional needs and also can facilitate task accomplishment.

Lateral or Horizontal Communication :

Forms of Communication in Organizations

Types of Communication Networks
2 2 1 4 Wheel 5 3 4 1 5 5 4

3 Y 1

2 3

1 2

3 Chain

4 2

5 5 4

All channel

Executive Director

Vice President A.G.M. Manager Supervisor Forman

Horizontal Comm.
Supervisor 1 Supervisor 2 Supervisor

Characteristics of Communication
Communication always take place between two or more people

Importance of Good Communication

Good Communication allows a firm to

Learn new skills and technologies. Become more responsive to customers. Improve Quality of their product or service. Foster innovation

Effective communication is needed by all Managers.

The Communication Process

Communication consists of two phases:
1. Transmission phase: information is shared by 2 or more people. 2. Feedback phase: a common understanding is assured.

Starts with the Sender who wants to share information.

Sender must decide on a message to share Sender also puts the message into symbols or language, a process called encoding.

Noise: anything harming the communication process.

The Communication Process

Transmission Phase
Message Encoding Medium Decoding



Receiver (now sender)





Feedback Phase

The Communication Process

Messages are transmitted over a medium to a receiver.

Medium: pathway the message is transmitted on (phone, letter). Receiver: person getting the message.

Receiver next decodes the message.

Decoding allows the receiver to understand the message. This is a critical point, can lead to mis-understanding.

Feedback is started by receiver and states that the message is understood or that it must be re-sent.

Communication Issues

Encoding of messages can be done verbally or non-verbally

Verbal: spoken or written communication. Nonverbal: facial gestures, body language, dress.

Sender and receiver communicate based on their perception.

Subjective perception can lead to biases and stereotypes that hurt communication. Effective Managers avoid communicating based on a pre-set belief.

Dangers of Ineffective Communication

Managers spend most of their time communicating so both they and the subordinates must be effective communicators. To be effective: Select an appropriate medium for each message.
There is no one best medium.

Consider information richness: the amount of information a medium can carry.

Medium with high richness can carry much information to aid understanding.

Is there a need for a paper/electronic trail to provide documentation?

Information Richness and Media Type

High Richness
Face-to-face communication Verbal communication electronically transmitted

Verbal communication electronically transmitted

Impersonal written communication

Low Richness

Communication Media
Face-to-Face: highest information richness.

Can take advantage of verbal and nonverbal signals. Provides for instant feedback.
Management by wandering around takes advantage of this with informal talks to workers.

Video Conferences: provide much of this richness.

Reduce travel costs and meeting times.

Verbal Communication electronically transmitted: has next highest richness.

Phone conversations, but no visual nonverbal cues.

Do have tone of voice, senders emphasis and quick feedback.

Communication Media
Personally Addressed Written Communication: lower richness than the verbal forms, but still is directed at a given person.

Personal addressing helps ensure receiver reads it.

Letters and e-mail are common forms.

Cannot provide instant feedback to sender but can get feedback later.
Excellent for complex messages needing follow-up.

Impersonal Written Communication: lowest richness.

Good for messages to many receivers. Little feedback is expected.

Newsletters, reports are examples.

E-Mail Trends

E-mail use is growing rapidly in large firms, and there are even special e-mail etiquette:

Words in all CAPITALS are seen as screaming at the receiver. Punctuate your messages for easy reading and dont ramble on. Pay attention to spelling and treat like a written letter.

E-mail has allowed telecommuting, where workers can work from home and be in touch with e-mail.

Communication Networks
Networks show information flows in an organization.

Wheel Network: information flow to and from one central member. Chain Network: members communicate with people next to them in sequence.
Wheel and Chain networks provide for little interaction.

Circle Network: members communicate with others close to them in terms of expertise, office location, etc. All-Channel Network: found in teams, with high levels of communications between each member and all others.

Communication Networks in Groups & Teams

Wheel Network

Chain Network

Circle Network

All Channel Network

Organization Communication Networks

Organization chart depicts formal reporting channels.

Communication is informal and flows around issues, goals, and projects. Vertical Communication: goes up and down the corporate hierarchy. Horizontal Communication: between employees of the same level.
Informal communications can span levels and departments.

Grapevine: informal network carrying unofficial information through the firm.

Organizational Communications Network

Formal Communication Informal Communication

Technological Advances

Internet: global system of computer networks

Many firms use it to communicate with suppliers.

World Wide Web (WWW): provides multimedia access to the Internet. Intranets: use the same information concepts as the Internet, but keep the network inside the firm. Groupware: software designed to let workers share information and improve communication.
Best for team oriented support.


Send clear and complete messages. Encode messages in symbols the receiver understands. Select a medium appropriate for the message AND monitored by the receiver. Avoid filtering (holding back information) and distortion as the message passes through other workers. Ensure a feedback mechanism is included in the message. Provide accurate information to avoid rumors.

Communication Skills for Managers as Receivers

Pay Attention to what is sent as a message. Be a good listener: dont interrupt.

Ask questions to clarify your understanding.

Be empathetic: try to understand what the sender feels. Understand linguistic styles: different people speak differently.
Speed, tone, pausing all impact communication. This is particularly true across cultures. Managers should expect and plan for this.

Objectives of Communication
Conveying the Right Message Co-ordination of Effort Sound Internal and External Relations Development of Managerial Skills Effectiveness of Policies Facilitates Decision Making Free Exchange of Information

Importance of Effective Communication

MAXIMUM PRODUCTION AT MINIMUM COST i.e. optimum utilization of resources
Planning Organizing Leading Motivating Co-ordinating Controlling

Building Human Relations(Both Internal & External)

Help them in being Motivated and Focused

Creates Job satisfaction in the minds of Employees

Helps in Avoiding any Confusion

Leadership is a process by which a person influences others to accomplish an objective and directs the organization in a way that makes it more cohesive and coherent. Leaders carry out this process by applying their leadership attributes, such as beliefs, values, ethics, character, knowledge, and skills. When you boil it down, contemporary leadership seems to a matter of aligning people toward common goals and empowering them to take the actions needed to reach them. Sherman, 1995

MANAGER CHARACTERISTICS Administers A copy Maintains Focuses on systems and structures Relies on control Short range view Asks how and when Eye on bottom line Imitates Accepts the status quo Classic good soldiers Does things right LEADER CHARACTERISTICS Innovates An original Develops Focuses on people Inspires trust Long range perspective Asks what and why Eye on horizon Originates Challenges the status quo Own person Does the right thing

Behavioral Theories

Ohio state studies: initiating structure (task or goal orientation) vs consideration (recognition of individual needs and relationships) University of Michigan studies: Employee oriented ( genuine concern for people) vs production oriented genuine concern for task)

Key Characteristics of Charismatic leaders
1. 2. Self Confidence- They have complete confidence in their judgment and ability. A vision- This is an idealized goal that proposes a future better than the status quo. The greater the disparity between idealized goal and the status quo, the more likely that followers will attribute extraordinary vision to the leader.


Ability to articulate the vision- They are able to clarify and state the vision in terms that are understandable to others. This articulation demonstrates an understanding of the followers needs and, hence acts as a motivating force.
Strong convictions about vision- Charismatic leaders are perceived as being strongly committed, and willing to take on high personal risk, incur high costs, and engage in self-sacrifice to achieve their vision.


Behavior that is out of the ordinary- Those with charisma engage in behavior that is perceived as being Nobel, unconventional, and counter to norms. When successful , these behaviors evoke surprise and admiration in followers. Perceived as being a change agent- Charismatic leaders are perceived as agents of radical change rather than as caretakers of the status quo.

Environmental sensitivity- These leaders are able to make realistic assessments of the environmental constraints and resources needed to bring about change.

The Activities of Successful & Effective leaders

Type of Activity Description categories Derived from free Observation
Exchange Information Routine Communication Handling paperwork Planning Traditional Management Decision Making Controlling Interacting with outsiders Socializing /Politicking Motivating/Reinforcing Human Resource Management Disciplining/Punishing Managing conflict staffing



What skills do leaders need?

Personal Skills

Coping with stressors Managing time Delegating

2.Managing stress

1.Developing Self-awareness

3. Solving Problems creatively

Determining values and priorities Identifying cognitive style Assessing attitude toward change

Using the rational approach Using the creative approach Fostering innovation in others

Gaining power Exercise influence Empowering others

Coaching Counseling Listening

5. Gaining power and influences

4. Communication supportively 7. Management conflict

6. Motivating others

Identifying causes Selecting appropriate strategies Resolving confrontations

Diagnosing poor performance Creating a motivating environment Rewarding accomplishment


Empower your inner child-children are genuine, speak their mind-so do successful leaders Be slightly weird-effective leaders have their own approach to do things Embrace compensation-everyone likes money, but successful leaders can talk about it Focus carefully successful leaders are able to handle more than 2-3 things at a time because they are able to filter out extraneous information and focus on critical issues Speak openly- successful leaders say what they think Don't get even-get mad-good leaders let off steam and get on to the next issue Keep up on the latest developments- successful leaders know the latest jargon and trends

Business Ownership

This type of enterprise is owned by a single person. He sows, reaps, and harvest the output of his efforts. He manages his own business. Sole proprietorship is the simplest form and easiest form. It does not require legal recognition and attendant formalities.

Main Features of Sole Proprietorship

One man Ownership No separation between ownership and management Unlimited Liabilities: It means that in case enterprise incur losses, the property of the proprietor can also be utilized for meeting the business obligations to outside parties. All Profits or losses goes to the Proprietor Less Formalities

Simple form of Organisation Owners Freedom to take Decision High Secrecy Tax Advantages Easy Dissolution

Limited Resources Limited Ability Unlimited Liability Limited Life of Enterprise form