PRINCIPLES OF MANAGEMENT

Ques No 1 Define Forecasting. Explain quantitative techniques of Forecasting?

Ans
1. Forecasting is an important part of planning, and managers need forecasts that will allow them
to predict future events effectively and in a timely manner. Environmental scanning establishes the
basis for forecasts, which are predictions of outcomes. Virtually any component in an organization’s
environment can be forecasted. Forecasting relates to future events. It is needed for planning process
because it devises the future course of action.
2. It defines the probability of happening of future events. Therefore, the happening of future
events can be precise only to a certain extent. Forecasting is made by analysing the past and present
factors which are relevant for the functioning of an organisation. The analysis of various factors may
require the use of statistical and mathematical tools and techniques.

3. Forecasting is the process of assessing the future normally using calculations and projections
that take account of the past performance, current trends, and anticipated changes in the foreseeable
period ahead. Forecasting provides a logical basis for determining in advance the nature of future
business operations and the basis for managerial decisions about the material, personnel and other
requirements Neter and Wasserman have defined forecasting as “Business forecasting refers to the
statistical analysis of the past and current movement in the given time series so as to obtain clues
about the future pattern of those movements.”

4. Factors Affecting Forecasting . The forecasting requires assessment of two sets of factors.

(a) External Factors . The outside forces which influence business operations, such as the
weather, government activity and competitive behaviour. These forces are
uncontrollable.

(b) Internal Factors. The internal marketing methods or practices of the firm that are likely
to affect its operations, such as product quality, price, advertising, distribution and service.

5. Types of Forecasting. Forecasting techniques are two types quantitative and qualitative.

(a) Quantitative Forecasting. It applies a set of mathematical rules to a series of past data
to predict outcomes. These techniques are preferred when managers have sufficient hard data
that can be used.

(b) Qualitative Forecasting. This aspect uses the judgment and opinions of knowledgeable
individuals to predict outcomes. Qualitative techniques typically are used when precise data are
limited or hard to obtain.

3. Quantitative Forecasting Techniques .

(a) Input-Output Analysis . According to this method, a forecast of output is based on
given input if relationship between input and output is known. Similarly, input requirement
can be forecasted on the basis of final output with a given input-output relationship. The
basis of this technique is that the various sectors of economy are inter related and such
inter-relationships are well-established, e.g. coal requirement of the country can be
 predicted on the basis of its usage rate in various sectors like industry, transport, household,
etc. and how the various sectors behave in future. This technique yields sector-wise
forecasts and is extensively used in forecasting business events as the data required for its
application are easily obtained.

(b) Regression Analysis . Regression analysis is meant to disclose the relative

movements of two or more inter-related series. It is used to estimate the changes in one
variable as a result of specified changes in other variable or variables. In economic and
business situations, a number of factors affect a business activity simultaneously. It helps in
isolating the effects of such factors to a great extent, e.g. by knowing there is a positive
relationship between advertising expenditure and volume of sales or between sales and
profit, it is possible to have estimate of the sales on the basis of advertising, or of the profit
on the basis of projected sales, provided other things remain the same.

(c) Business Barometers . A barometer is used to measure the atmospheric pressure. In

the same way, index numbers are used to measure the state of an economy between two or
more periods. These index numbers are the device to study the trends, seasonal
fluctuations, cyclical movements, and irregular fluctuations. These index numbers, when
used in combination with one another, provide indications as to the direction in which the
economy is proceeding. Thus, with the business activity index numbers, it becomes easy to
forecast the future course of action. However, it should be kept in mind that business
barometers have their own limitations and they are not sure road to success. All types of
business do not follow the general trend but different index numbers have to be prepared for
different activities, etc.

4. Role of Forecasting. Since planning involves the future, no usable plan can be made unless
the manager is able to take all possible future events into account. Thus forecasting is a critical
element in the planning process. Every decision in the organisation is based on some sort of
forecasting. It helps the managers in the following ways.

(a) Basis of Planning. Forecasting is the key to planning. It generates the planning
process. Planning decides the future course of action which is expected to take place in
certain circumstances and conditions. Unless the managers know these conditions, they
cannot go for effective planning. Forecasting provides the knowledge of planning premises
within which the managers can analyse their strengths and weaknesses and can take
appropriate actions in advance before actually they are put out of market. Forecasting
provides the knowledge about the nature of future conditions.

(b) Promotion of Organization . The objectives of an organisation are achieved through

the performance of certain activities. What activities should be performed depends on the
expected outcome of these activities. Since expected outcome depends on future events
and the way of performing various activities, forecasting of future events is of direct
relevance in achieving an objective.

(c) Facilitating Co-ordination and Control . Forecasting indirectly provides the way for
effective co-ordination and control. Forecasting requires information about various factors.
Information is collected from various internal and external sources. Almost all units of the
organisation are involved in this process. It provides interactive opportunities for better unity
 and co-ordination in the planning process. Similarly, forecasting can provide relevant
information for exercising control. The managers can know their weaknesses in the
forecasting process and they can take suitable action to overcome these.

(d) Success in Organisation . All business enterprises are characterised by risk and have
to work within the ups and downs of the industry. The risk depends on the future happenings
and forecasting provides help to overcome the problem of uncertainties. Though forecasting
cannot check the future happenings, it provides clues about those and indicates when the
alternative actions should be taken. 

5. Advantages of Forecasting .

(a) Optimum Resource Management It enables a company to commit its resources with
greatest assurance to profit over the long term.

(b) Product Development. It facilitates development of new products, by helping to

identify future demand patterns.

(c) Organisation Participation . Forecasting by promoting participation of the entire

organisation in this process provides opportunities for teamwork and brings about unity and
co-ordination.

(d) Accurate Review. The making of forecasts and their review by managers, compel
thinking ahead, looking to the future and providing for it.

(e) Information. Forecasting is an essential ingredient of planning and supplies vital facts
and crucial information.

(f) Coord & Control . Forecasting provides the way for effective coordination and control.
Forecasting requires information about various external and internal factors. The information
is collected from various internal sources. Thus, almost all units of the organisation are
involved in this process, which provides interactive opportunities for better unity and
coordination in the planning process.

(g) Weakness Analysis . Forecasting can provide relevant information for exercising
control. The managers can know their weakness in forecasting process and they can take
suitable action to overcome these.

(h) Dept Integration. A systematic attempt to probe the future by inference from known
facts helps integrate all management planning so that unified overall plans can be
developed into which divisional and departmental plans can be meshed.

(i) Overcoming Uncertainty . The uncertainty of future events can be identified and
overcomes by an effective forecasting. Therefore, it will lead to success in organisation.

6. Limitations of Forecasting .
 (a) Basis of Forecasting . The basis used for making forecasts are assumptions,
approximations, and average conditions which are not always an absolute.

(b) Reliability of Past Data . The forecasting is made on the basis of past data and the
current events. Although past events/data are analysed as a guide to the future, a question
is raised as to the accuracy as well as the usefulness of these recorded events.

(c) Time and Cost Factor . Time and cost factor suggest the degree to which an
organisation will go for formal forecasting. The information and data required for forecast
may be in highly disorganized form; some may be in qualitative form. The collection of
information and conversion of qualitative data into quantitative ones involves lot of time and
money. Therefore, organisation have to tradeoff between the cost involved in forecasting
and resultant benefits.

Ques No 2 Describe Management by Objective in details?

Ans
1. The term "management by objectives" was first popularized by Peter Drucker in his 1954 book
'The Practice of Management'. Management by Objectives (MBO) is a process of agreeing upon
objectives within an organization so that management and employees agree to the objectives and
understand what they are in the organization.

2. The essence of MBO is participative goal setting, choosing course of actions and decision
making. An important part of the MBO is the measurement and the comparison of the employee‘s
actual performance with the standards set. Ideally, when employees themselves have been involved
with the goal setting and the choosing the course of action to be followed by them, they are more
likely to fulfill their responsibilities.

3. The process of setting objectives in the organization to give a sense of direction to the
employees is called as Management by Objectives. It refers to the process of setting goals for the
employees so that they know what they are supposed to do at the workplace. MBO defines roles
and responsibilities for the employees and help them chalk out their future course of action in the
organization. It guides the employees to deliver their level best and achieve the targets within the
stipulated time frame.

4. MBO is a strategic management model that aims to improve the performance of an

organization by clearly defining objectives that are agreed to by both management and employees.
According to the theory, having a say in goal setting and action plans encourages participation and
commitment among employees, as well as aligning objectives across the organization.

5. Steps in Management by Objectives Process

(a) Define organization goals. Setting objectives is not only critical to the success of any
company, but it also serves a variety of purposes. It needs to include several different types
of managers in setting goals. The objectives set by the supervisors are provisional, based
on an interpretation and evaluation of what the company can and should achieve within a
specified time.
 (b) Define employee objectives . Once the employees are briefed about the general
objectives, plan, and the strategies to follow, the managers can start working with their
subordinates on establishing their personal objectives. This will be a one-on-one discussion
where the subordinates will let the managers know about their targets and which goals they
can accomplish within a specific time and with what resources. They can then share some
tentative thoughts about which goals the organization or department can find feasible.
(c) Continuous monitoring performance and progress . Though the management by
objectives approach is necessary for increasing the effectiveness of managers, it is equally
essential for monitoring the performance and progress of each employee in the
organization.
(d) Performance evaluation . Within the MBO framework, the performance review is
achieved by the participation of the managers concerned.
(e) Providing feedback. Most essential step is the continuous feedback on the results
and objectives, as it enables the employees to track and make corrections to their actions.
The ongoing feedback is complemented by frequent formal evaluation meetings in which
superiors and subordinates may discuss progress towards objectives, leading to more
feedback.
(f) Performance appraisal . Performance reviews are a routine review of the success of
employees within MBO organizations.

6. Features of MBO

(a) The process helps the employees to understand their duties at the workplace.
(b) KRAs are designed for each employee as per their interest, specialization and educational
qualification.
(c) The employees are clear as to what is expected out of them.
(d) MBO process leads to satisfied employees. It avoids job mismatch and unnecessary
confusions later on.
(e) Employees in their own way contribute to the achievement of the goals and objectives of the
organization. Every employee has his own role at the workplace. Each one feels indispensable for the
organization and eventually develops a feeling of loyalty towards the organization. They tend to stick
to the organization for a longer span of time and contribute effectively. They enjoy at the workplace
and do not treat work as a burden.
(f) MBO ensures effective communication amongst the employees. It leads to a positive
ambience at the workplace.
(g) It leads to well defined hierarchies at the workplace. It ensures transparency at all levels. A
supervisor of any organization would never directly interact with the Managing Director in case of
queries. He would first meet his reporting boss who would then pass on the message to his senior
and so on. Employees are clear about his position in the organization.
(h) The process leads to highly motivated and committed employees.
(i) It sets a benchmark for every employee. The superiors set targets for each of the team
members. Each employee is given a list of specific tasks.

7. Advantages of MBO They are as follows.

(a) Objectives. Managers can ensure that objectives of the subordinates are linked to the
organization’s objectives.
(b) Commitment. Subordinates have a higher commitment to objectives that they set themselves
than those imposed on them by their managers.
(c) Better communication and Coordination . Frequent reviews and interactions between superiors
and subordinates helps to maintain harmonious relationships within the enterprise and also
solve many problems faced during the period.
(d) Motivation. Involving employees in the whole process of goal setting and increasing employee
empowerment increases employee job satisfaction and commitment.
(e) Clarity of goals.
Ques No 3 What is strategy? Explain different levels of Strategies?
Ans
1. Strategic Planning is a very complicated process that demands a systematic approach to
identify and analyze factors external to the organization and matching them with the firm’s
capabilities .Following are some of the most important characteristics of strategic plans:
(a) They are long-term in nature and place an organization within its external
environment.
(b) They are comprehensive and cover a wide range of organizational activities.
(c) They integrate guide and control organizational activities for the immediate and long-
range future.
(d) They set the boundaries for managerial decision making. Since strategic plans are
the primary documents of an organization all managerial decisions are required to be
consistent with its goals. Strategic plans, thus, set forth the long-term objectives,
intermediate objectives and main purpose or the basic role of an organization.
2. Levels of Strategy-Making .

3. Corporate-level strategy . Corporate strategy defines the markets and businesses in which a
company will operate. It is formulated at the top level by the top management of a diversified
company (in our country, a diversified company is popularly known, as ‘group of companies’, such
as Alphabet Inc.). Such a strategy describes the company’s overall direction in terms of its various
businesses and product lines. Corporate strategy defines the long-term objectives and generally
affects all the business-units under its umbrella. The corporate-level strategy is the set of strategic
alternatives from which an organization chooses as it manages its operations simultaneously
across several industries and several markets. A corporate strategy, for example, of P&G may be
acquiring the major tissue paper companies in Canada to become the unquestionable market
leader. There can be four types of strategies a corporate management pay pursue: Growth, Stability,
Retrenchment, and Combination.
(a) Growth strategy. It includes following aspects.
(i) Concentration. It means bringing in resources into one or more of a firm’s
business keeping customer needs, customer functions, alternative technologies,
singly or jointly so as to expand.

(ii) Integration. Integration means joining activities related to the present activities
of a firm. Integration not only widens the scope of business but also a subset of
diversification strategies. Integration can be of following types.

(aa) Horizontal Integration. It means when a firm takes over the other
firm operating at the same level of production or marketing. Recently ICICI
Bank decided to acquire Bank of Rajasthan and Reckit Benkier of UK took
over Paras of India.

(ab) Vertical Integration. When a firm acquires control over another

firm operating into the same value chain. It can be of two types, viz.,
Backward Integration – acquiring a firm engaged in raw materials (Tata
steel buying a coal mine company in Indonesia); and Forward Integration —
acquiring control over a firm/activity taking it nearer to the ultimate
consumer (Reliance Industries, a petro refining company, also starting
petrol pumps).

(iii) Diversification . Adding a new customer function(s), customer group(s), or

alternative technologies to an existing business is known as diversification.
Diversification strategies can be of following types.

(aa) Concentric diversification . Adding new, but related products or

services is known as concentric diversification. It can be market-related
concentric diversification (using common channels); Technology-related (a
bank also selling mutual fund policies-similar procedure); and Marketing
and technology related concentric diversification (Amul, selling butter, curd,
Shrikhand, and buttermilk along with milk). A retailer selling kids wear also
starts selling lady wears is a case of related concentric diversification.

(ab) Conglomerate or unrelated diversification . If a firm takes up

business not related to the existing one neither in terms of customer
groups, customer functions, nor alternative technologies, it is known as
conglomerate diversification – Tata Sons is a conglomerate, as it is
unrelated businesses, steel, power, chemicals, hospitality, education,
publishing, beverages, etc.

(ac) Horizontal Diversification . It means adding new products or

services for present customers. Escort Fortis Hospital may offer bank,
 bookstore, coffee shop, restaurant, drug store in their compound for the
visitors to the hospital.

(iv) Internationalization . It means marketing product/service beyond national

market.

(v) Cooperation. It means cooperation among competitors. It may take the form of
Mergers and Acquisitions (like Tata Motors acquired Jaguar Land Rover facilities
of UK); Joint Ventures (like Indian Oil company floated an oil marketing company
in Sri Lanka in collaboration with a local company), and Strategic Alliances (the
two cooperating firms remain independent but cooperate for synergy).

(vi) Digitalization . It includes computerization, electronisation, and digitalization

(conversion of analogue electrical signals into digital signals).

(b) Stability Strategies . When the firm wants to go for incremental improvement of
its performance, it is known as stability strategy. Basic approach in the stability strategy
is ‘maintain present course: steady as it goes.’ It can be No-change strategy (taking no
decision is a decision too); Profit strategy (lying low and managing profit through cost
cutting, price rise, etc. In times of crisis and recession- as the JK Papers did during
recent recession); Pause or proceed-with-caution strategy (when getting into non-core
business, like Hindustan Unilever selling shoes).

(c)Retrenchment Strategies . It means substantially reducing the scope of business

activities. It includes turnaround strategy (to bring back to health through internal and
external restructuring); Divestment strategy (Sell-off or hive-off – to sell off a non-core
business divisions; Spin-off -demerging the business activities; and Split-off – division of
business into two separate ownership; Disinvestment – dilution of control through sale of
equity -very recently Government of India has sold stake through FPO in Power Finance
Corporation); and Liquidation Strategy (the last resort in retrenchment, Lehman Brothers
of USA was finally liquidated

4. Business-level strategy. Business strategy defines the basis on which firm wilt compete. It is
a business-unit level strategy, formulated by the senior managers of the unit. This strategy
emphasizes the strengthening of a company’s competitive position of products or services.
Business strategies are composed of competitive and cooperative strategies. The business
strategy encompasses all the actions and approaches for competing against the competitors and
the ways management addresses various strategic issues. As Hitt and Jones have remarked,
the business strategy consists of plans of action that strategic managers adopt to use a company’s
resources and distinctive competencies to gain a competitive advantage over its rivals in a market.
Business strategy is usually formulated in line with the corporate strategy. The main focus of the
business strategy is on product development, innovation, integration (vertical, horizontal), market
development, diversification and the like. Business strategy is concerned with actions that
managers undertake to improve the market position of the company through satisfying the
customers. Improving market position implies undertaking actions against competitors in the
industry. A business-level strategy is the set of strategic alternatives from which an organization
chooses as it conducts business in a particular industry or market. Such alternatives help the
organization to focus its efforts on each industry or market in a targeted fashion.

5. Functional strategy. A functional strategy is, in reality, the departmental/division strategy

designed for each organizational function. Thus, there may be production strategy, marketing
strategy, advertisement strategy, sales strategy, human resource strategy, inventory strategy,
financial strategy, training strategy, etc. A functional strategy refers to a strategy that emphasizes a
particular functional area of an organization. It is formulated to achieve some objectives of a
business unit by maximizing resource productivity. Sometimes functional strategy is called
departmental strategy since each business-function is usually vested with a department. A
functional strategy is concerned with developing a distinctive competence to provide a business,
unit with a competitive advantage. Each business unit or company has its own set of departments,
and every department has a functional strategy. Functional strategies are adopted to support a
competitive strategy. The production department of a manufacturing company develops production
strategy’ as the departmental strategy, or the training department formulates ‘training strategy’
for providing training to the employees. A company following a low-cost competitive strategy needs
a production strategy that emphasizes reducing the cost of operations and also a human resource
strategy that emphasizes retaining the lowest possible number of employees who are highly
qualified to work for the organization. Other functional strategies such as marketing strategy,
advertising strategy, and financial strategy are also to be formulated appropriately to support the
business-level competitive strategy.

6. Operating strategy . Operating strategy is formulated at the operating units of an

organization. A company may develop operating strategy, as an instance, for its factory, sates
territory or small sections within a department. Usually, the operating managers/field-level
managers develop an operating strategy to achieve immediate objectives. In large organizations,
the operating managers normally take assistance from the mid-level managers while developing
the operating strategy. In some companies; managers “develop an operating strategy for each set
of annual objectives in the departments or divisions.
7. Barriers to Strategy Formulation.
(a) Lack of Information. Lack of sufficient information for strategy formulation is the most
common. The quality of financial analysis is generally very poor. Where future is unknown
such an analysis is impossible. And in such situations strategic decisions rely mainly on
judgment and intuition.
(b) Too Much Data. Sometimes strategy formulation may suffer due to too much data but
not enough information. In this age of information explosion, too much of data is a big problem.

(c) Confusion and Dilution. It is true that we treat the CEO as the person responsible for
formulating strategy. In actual practice, there are many managers who participate in policy
formulation. These managers have their own values. Many managers come and many
managers go away from the task of formulation. Thus there is confusion as to who made the
decision and at all if any decision has been made. Sometimes the chosen decision may be a
compromising decision, lacking clarity or direction.

(d) Old Mindset. Business runs in a cyclical mode: There are periods of stability interrupted
by periods of radical and revolutionary change. As times move, senior managers may be out of
touch with the environment either because of becoming lazy or due to overconfidence.

(e) Prior Bad Experience and Fire-Fighting. If the managers had a previous bad experience
with strategy, as the plans have been long, cumbersome, impractical, or inflexible or if
presently it is so engrossed with the crisis management and fire-fighting that it has no time for
strategy formulation any more.

(f)  Content with Current Success. The firms currently doing nice currently feel no need of
any more strategy formulation. To them it is merely waste of time and money.

(g) Other Impediments. Poor reward structure, fear of failure, self-interest (status achieved
using old strategy), fear of unknown (to undertake new roles), different perceptions of a
situation and distrust in management are the other barriers to strategy formulation.