CHAPTER IV FORMS OF BUSINESS ORGANISATION CHAPTER OUTLINE 4.1 Sole Proprietorship 4.2 Partnership Firm 4.

3 Joint Stock Company 4.4 Cooperative Organisation > Summary > Test Questions A private business enterprise may be organised either as a body corporate or as a non-corporate body. In the corporate form, the legal entity of the enterprise is distinct from that of its owners. But in a non-corporate form, the enterprise and its owners are considered as having the same entity. In the corporate form, a business may be organised either as a joint stock company or as a co-operativ e society. In the non-corporate form, it may be organised as a sole proprietorsh ip or as a partnership. Thus, there are four main forms of business organisation in the private sector. 1. Sole Proprietary Concern. 2. Partnership. 3. Joint Stock Company. 4. Co-operative Society. 4.1 SOLE PROPRIETORSHIP Sole proprietorship or individual proprietorship is the simplest and the oldest form of business organisation. Sole proprietorship is a form of organisation in which an individual invests the entire capital, uses his own skills, and is sole ly responsible for the results of business. He may borrow money and may employ a ssistants. But he alone owns and controls the business and bears its losses. According to Wheeler, "the sole proprietorship is that form of business organisa tion which is owned and controlled by a single individual. He receives all the p rofits and risks all of his property in the success or failure of the enterprise". The sole proprietor is not only the exclusive owner but sole founder, and controlle r too. Thus, sole proprietorship is established, financed owned and managed by a single individual who bears all the risks and receives the gains. Salient Featu res : The essential characteristics of sole proprietorship are as follows : 1. Single ownership : The proprietor is the exclusive owner of the business . He fully owns the business. 2. One-man control : In sole proprietary concern, the proprietor carries on business exclusively by himself. He is the sole master and ultimate controller of the firm. He alone decides what is to be done and how. 3. No separate entity of the firm : A sole proprietary concern has no legal existence separate from its owner. The proprietor owns and owes which the firm does. No. distinction is made between the proprietor and the business under law. 4. Unlimited risk : The profits and losses of sole proprietorship belong ex clusively to the proprietor. There is no sharing of profits or losses. 5. Unlimited liability : The liability of the sole proprietor extends beyon d the capital invested in the business. His private property can be attached in case the firm fails to meet the claims of its creditors. 6. No government control : Sole proprietorship is completely free from lega l formalities and regulations. Merits of sole proprietorship : Sole proprietorship offers" the following advant ages : 1. Ease of formation : It is easy to form and dissolve a sole proprietary c oncern. No agreement is required and registration of the firm is not essential. There are no legal formalities and, therefore, minimum time and cost are involve d in the formation and dissolution of sole proprietorship. 2. Direct motivation : In sole proprietorship, ownership and control remain vested in the hands of the same person. The direct relationship between effort and reward serves as a powerful incentive to the proprietor to put forth his bes

t efforts in the management of the business. 3. Independent control : The sole proprietor enjoys complete freedom of act ion. He need not consult others. "The individual proprietor is the supreme judge of all matters pertaining to his business, subject only to the general laws of the land and to such special legislation as may affect his particular business." Centralised control and personal supervision facilitate coordination of operati ons and uniformity of action. There is none to oppose and no scope for friction. Management can be smooth. 4. Prompt decisions : Sole proprietor is his own boss and need not consult others in decision-making. Therefore, he can take decisions without any I B.O. Wheeler: Business-An Introductory Analysis, p.101. delay. Prompt decisions and quick action enable him to take full advantage of bu siness opportunities. 5. Business secrecy : The sole proprietor can retain vital business secrets . He has none to consult or approve and no reports have to be published. He can maintain complete secrecy and thereby safeguard his business against his competi tors. 6. Flexibility of operations : It is very convenient to expand or curtail t he activities of sole proprietary concern in accordance with changing market con ditions. 7. Personal touch : The sole proprietor can keep intimate personal contacts with his customers and employees. He knows the customers personally and is able to cater to their individual tastes. Personal care enables him to sport and rem ove all causes of inefficiency. 8. Freedom from government control : The proprietary concern is least regul ated by the Government. No legal formalities are to be complied with. 9. Economy : As the sole proprietor himself performs managerial activities, costs of operation and overhead expenses are minimum. Unlimited liability provi des a degree of caution and provides high credit standing to the firm. 10. Social utility : Sole proprietorship is useful to the society in the followi ng ways : {a) Independent living : Sole proprietorship provides business career to many pe rsons with small resources. It offers a way oflife for securing the means of liv elihood to those who do not want to serve under others. It makes people self-dep endent by providing self-employment to many. (b) Development of personality : Sole proprietorship facilitattes the develo pment of qualities like self-reliance, initiative and independent judgment. (c) Diffusion of economic power : Sole proprietorship provides equal opportu nity to every one to use his talents and resources to his maximum advantage. It promotes decentralisation of industry and helps to avoid concentration of wealth in a few hands. Limitations : Sole proprietorship suffers from the following drawbacks : 1. Limited finances : The capital which a sole proprietor can raise is limi ted to his personal savings and borrowing capacity. As a result the size of the firm remains small and the business cannot avail of the economics of large scale operations. 2. Limited managerial skill : The managerial ability of the proprietor is l imited. An individual cannot be equally expert in all areas of business. Therefo re, his decisions are likely to be unbalanced and hasty. Benefits of specialisat ion and professional training are not available. The proprietor cannot supervise all matters efficiently. 3. Unlimited liability : The sole proprietor has to bear the entire risk of business himself. He may lose everything including his personal property, if th e business fails due to errors of judgment or adverse conditions. Unlimited liab ility also discourages the expansion of business. 4. Instability : The sole proprietary concern comes to an end with the deat h or physical incapacity of the owner. There is little continuity of operations. The firm sinks and swims with its proprietor. Therefore, the mortality rate of proprietary concerns tends to be high. 5. Limited scope for growth : Due to the limitations of finance, managerial

ability and uncertain life, the expansion of business is restricted. The size o f business remains uneconomic or below the optimum level. Fear of unlimited liab ility also makes the proprietor conservative or unadventurous. Suitability : The foregoing description reveals that sole proprietorship or oneman control is the best in the world if that man is big enough to manage everyt hing. But such a person does not exist. Therefore, sole proprietorship is suitab le in the following cases : 1. Where small amount of capital is required, e.g., sweet shops, bakery, ne wsstand, etc. 2. Where quick decisions are very important, e.g., sharebrokers, bullion de alers, etc. 3. Where limited risk is involved, e.g., automobile repair shop, confection ery, small retail store, etc. 4. Where personal attention to individual tastes and fashions of customers is required, e.g., beauty parlour, tailoring shops, lawyers, painters, etc. 5. Where the demand is local, seasonal ortemporary, e.g., retail trade, lau ndry, fruit sellers, etc. 6. Where fashions change quickly, e.g., artistic furniture, etc. 7. Where the operation is simple and does not require skilled management. T hus, sole proprietorship is a common form of organisation in retail trade, profe ssional firms, household and personal services. This form of organisation is qui te popular in our country. It accounts for the largest number of business establ ishments in India, in spite of its limitations. Reasons for the Survival of Sole Proprietorship : Sole proprietorship has its ow n areas of activity and continues to exist in spite of the development of bigger organisations like partnership and joint stock company. The main reasons for th e survival of sole proprietary concerns are given below : 1. Human inertia : Sometimes, a business may continue to remain small even thoug h expansion is possible and profitable. This happens due to inertia (laziness or inaction) on the part of the proprietor. The proprietor may be satisfied with t he existingscale of business or he may have a fear that expansion will result in loss of freedom. 2. Personal motivation : In a proprietary concern, the owner has a direct m otivation to work hard and take personal interest in improving the efficiency of business. He can spot and avoid many losses and wastages which go unnoticed in large firms due to the indifference of paid employees. 3. Desire for independence : An entrepreneur may prefer sole proprietorship if he wants to enjoy complete freedom of action. Desire for exclusive control o f business and to avoid outside interference may avoid admission of partners. Th e owner may not be willing to serve under others and may prefer to be self-emplo yed. 4. Nature of market : Where demand for a product is limited or fashions cha nge quickly, small firms enjoy an advantage. Similarly, where the necessary raw materials and demand are both widely scattered, small firms are able to serve be tter than large firms. For instance, in building industry, brick kilns tend to o perate as proprietary concerns. Firms in women clothing tend to be small due to frequent changes'n fashions. 5. Need for personal attention : When attention to individual tastes or spe cial preferences is necessary, scale of operations tends to be small. Where qual ity, variety and attention to detail are important, the small firm often has an advantage over its large competitor. Tailoring, photography and painting are exa mples of such industries. 6. Nature of manufacturing process : Where the production process is simple and inexpensive the size tends to be small. For example, the process of making Khandsari is much simpler than that of making crystal sugar. Therefore, Khandsar i units are small whereas sugar factories are big. 7. Ancillary industry: Standardisation of components and interchangeability of parts has enabled the small firms to serve as feeders to large scale industr y. In India a large number of small units supply components to large assembling concerns. Development of new sources of power, e.g., electricity has also contri

buted to the survival of small firms. Previously a minimum size of boiler requir ed that a firm should be sufficiently large to make its full use for producing s team power. 8. Retainer system : Small firms can now retain (hire) expensive equipment and experts/specialists on fees which they can afford. It is not essential ,to b uy and employ them permanently. 9. State assistance and patronage : In a country like India, small firms en joy Government's-assistance as they contribute to employment, rural development, decentralisation of industry and export promotion. Moreover, "small firms are p rotected by their goodwill, the attachment of customers, the individual markets they possess and which the large firms can acquire only at a certain expense". 10. Cover for monopoly: Where an industry is dominated by a few large firms, sma ll firms may be tolerated as they provide a superficial evidence that monopoly d oes not exist and thereby discourage emergence of new competitors. 4.2 PARTNERSHIP FIRM As a business grows beyond the capacity of sole proprietorship and joint Hindu f amily firm, it becomes necessary to form a partnership. Partnership thus grew ou t of limitations of one-man business in terms of limited financial resources, li mited managerial ability and concentrated risk. In a way, it is extension of the sole proprietorship. Generally, when a proprietor finds it difficult to handle the problems of expansion, he takes a partner. Partnership represents the second stage in the evolution of ownership forms. A partnership is an association of t wo or more individuals who agree to carry on a business together for the purpose of sharing profits. According to Section 4 of the Partnership Act, 1932 partner ship is "the relation between persons who have agreed to share profits of a busi ness carried on by all or any one of them acting for all." In the words of Prof. Haney, "Partnership is the relation existing between persons, competent to make contracts, who have agreed to carry on a lawful business in common with a view to private gain." Persons who enter into partnership are known individually as "Partners' /and collectively as 'firm'. The name in which the partnership busine ss is carried on is called 'firm' name. The partners enter into an agreement to lay down the terms and conditions of par tnership. This agreement is known as the "Partnership Deed". The partners contri bute capital and they share managerial responsibility and profits/losses as per the agreement. Essential Characteristics or Tests of Partnership Following are the features of a partnership firm : 1. Two or more persons : At least two persons are required to constitute a partnership. The Partnership Act does not lay down maximum limit on the number o f partners. But the Companies Act, 1956 lays down that any partnership or associ ation of more than 10 persons in case of banking business and 20 persons in othe r types of business is illegal unless registered as a joint stock company. 2. Agreement : A partnership is a contractual relationship arising out of a n agreement among the partners. It does not arise out of status as happens in ca se of joint Hindu family firm. Since partnership is the outcome of a contract, p ersons who are incompetent to enter into a contract, e.g., minors, lunatics, ins olvents, etc., cannot become partners. The partnership agreement may be oral, wr itten or implied but it is always desirable to make an agreement in writing, The partnership agreement must satisfy all the requirements of a valid contract. 3. Lawful business : The agreement between partners must be to carry on some lawful business. Joint owners of a property do not form a partnership 1. L.H. Haney : Op. cil, p.5. without carrying on a lawful business. An agreement to carry on an illegal activ ity cannot be called partnership. 4. Sharing of profits : The agreement must provide for the sharing of profi ts and losses of the partnership business. A charitable or educational instituti on is not a partnership as no sharing of profits is involved. However, sharing o f profits is only prima facie and not a conclusive proof of partnership. Employe es and creditors who share profits of the firm cannot be called partners unless there is an agreement of partnership with them.

5. Mutual agency : Each and every partner is considered to be an agent of t he firm as well as that of other partners. Unless otherwise agreed, every partne r is entitled to take part in the management of the firm and to represent the fi rm and other partners in dealing with outsiders. The acts done by a partner in g ood faith and on behalf of the firm are binding on other partners and on the fir m. The business may be carried on by all the partners or by any one of them on b ehalf of all. It is not essential that every partner takes active part in the ma nagement of the firm. 6. No separate legal existence : The partnership is a voluntary association and it has no separate legal entity of its own. The firm and the partners are o ne and the same in the eyes of law. Management and control of the firm vests wit h the partners who are the owners also. The above mentioned features are the crucial tests for determining the existence of a partnership. In addition to these essential features, partnership has foll owing characteristics. 7. Unlimited liability : Every partner is liable jointly and severally for all debts and obligations of the firm. In case the assets of the firm are insuff icient to meet claims of firm's creditors the private property of the partners c an be attached to satisfy their claim. The creditors are entitled to realise the ir entire dues from any one partner. The partner from whose property the dues ar e recovered is legally entitled to receive rateable contributions from the other partners of the firm. 8. Restriction on transfer of interest : None of the partners can transfer his interest in the firm to any person (except to the existing partners) without the unanimous consent of all other partners. The restriction on transfer of int erest is based on the principle that a partner being an agent of the firm cannot delegate his authority unilaterally to outsiders. 9. Utmost good faith: A partnership is founded upon mutual trust and confid ence among the partners. Each and every partner is supposed to act with honesty and fairness to all partners in the conduct of the business of the firm. Distinction between Partnership and Proprietorship Point of Distinction Partnership Proprietorship Basis of formation Registration Ownership and control Division of profits Agreement is essential Optional Lies with the partners Among the partners in an agreed ratio. No agreement is essential. Question does not arise. Lies with the proprietor. No division. All profits go to the proprietor. 6. Risk bearing 7. Implied agency Partners bear the risks The sole proprietor alone jointly and individually. bear s all the risks. Generally every partner is Out of the question. The an implied agent of the prop rietor may appoint an firm and of other partners, agent. Merits of Partnership The partnership form of business ownership enjoys the following advantages : 1. Ease of formation : A partnership is easy to form as no cumbersome legal formalities are involved. An agreement is necessary and the procedure for regis tration is very simple. Similarly, a partnership can be dissolved easily at any time without undergoing legal formalities. Registration of the firm is not essen tial and the partnership agreement need not essentially be in writing.

2. Larger financial resources: As a number of persons or partners contribut e to the capital of the firm, it is possible to collect larger financial resourc es than is possible in sole proprietorship. Creditworthiness of the firm is also higher because every partner is personally and jointly liable for the debts of the business. There is greater scope for expansion or growth of business. 3. Specialisation and balanced approach: The partnership firm enables the p ooling of abilities and judgment of several persons. Combined abilities and judg ment result in more efficient management of the business. Partners with compleme ntary skills may be chosen to avail of the benefits of specialisation. Judicious choice of partners with diversified skills ensures balanced decisions. Partners meet and discuss the problems of business frequently so that decisions can be t aken quickly. 4. Flexibility of operations: Though not as versatile as sole proprietorshi p, a partnership firm enjoys sufficient flexibility in its day-to-day operations . The nature and place of business can be changed whenever the partners desire. The agreement can be altered and new partners can be admitted whenever necessary . Partnership is free from statutory control by the Government except the genera l law of the land. 5. Protection of minority interest: No basic change in the rights and oblig ations of partners can be made without the unanimous consent of all the partners . In case a partner feels dissatisfied, he can easily retire from or he may appl y for the dissolution of partnership. 6. Personal incentive and supervision: There is no divorce between ownership and management. Partners share in the profits and losses of the firm a nd there is motivation to improve the efficiency of the business. Personal contr ol by the partners increases the possibility of success. Unlimited liability enc ourages caution and care on the part of partners. Fear of unlimited liability di scourages reckless and hasty action and motivates the partners to put in their b est efforts. 7. Capacity for survival : The survival capacity of the partnership firm is higher than that of sole-proprietorship. The partnership firm can continue afte r the death or insolvency of a partner if the remaining partners so desire, fcis k of loss is diffused among two or more persons. In case one line of business is not successful, the firm may undertake another line of business to compensate i ts losses. 8. Better human and public relations : Due to a number of representatives ( partners) of the firm, it is possible to develop personal touch with employees, customers, government and the general public. Healthy relations with the public help to enhance the goodwill of the firm and pave the way for steady progress of the business. 9. Business secrecy : It is not compulsory for a partnership firm to publis h and file its accounts and reports. Important secrets of business remain confin ed to the partners and are unknown to the outside world. Demerits of Partnership 1. Unlimited liability: Every partner is jointly and severally liable for t he entire debts of the firm. He has to suffer not only for his own mistakes but also for the lapses and dishonesty of other partners. This may curb entrepreneur ial spirit as partners may hesitate to venture into new lines of business for fe ar of losses. Private property of partners is not safe against the risks of busi ness. 2. Limited resources : The amount of financial resources in partnership is limited to the contributions made by the partners. The number of partners cannot exceed 10 in banking business and 20 in other types of business. Therefore, par tnership form of ownership is not suited to undertake business involving huge in vestment of capital. 3. Risk of implied agency: The acts of a partner are binding on the firm as well as on other partners. An incompetent or dishonest partner may bring disast er for ail due to his acts of mission or commission. That is why the saying is t hat choosing a business partner is as important as choosing a partner in life. 4. Lack of harmony: The success of partnership depends upon mutual understa

nding and co-operation among the partners. Continued disagreement and bickerings among the partners may paralyse the business or may result in its untimely deat h. Laqk of a central authority may affect the efficiency of the firm.'Decisions may get delayed. 5. Lack of continuity : A partnership comes to an end with the retirement, incapacity, insolvency and death of a partner. The firm may be carried on by the remaining partners by admitting new partner. But it is not always possible to r eplace a partner enjoying trust and confidence of all. Therefore, the life of a partnership firm is uncertain, though it has a longer life than sole-proprietors hip. 6. Non-transferability of interest: No partner can transfer his share in th e firm to an outsider without the unanimous consent of all the partners. This ma kes investment in a partnership firm non-liquid and fixed. An individual's capit al is blocked. 7. Public distrust: A partnership firm lacks the confidence of public becau se it is not subject to detailed rules and regulations. Lack of publicity of its affairs undermines public confidence in the firm. 4.3 JOINT STOCK COMPANY With the increase in size and complexity of business, collection of vast financi al and managerial resources became necessary. Proprietorship and partnership for ms of organisation proved incapable of meeting these needs. The company form of organisation was developed to overcome the limitations of small resources, unlim ited liability and instability. Joint stock company has become the dominant form of organisation for large scale operations as it facilitates the collection of vast financial and managerial resources with provision for limited liability and continuity of existence. Meaning of Joint Stock Company A joint stock company is an incorporated and voluntary association of individual s for the purpose of carrying on some lawful activity in common. It is an artifi cial person created by law having a separate entity with perpetual succession an d common seal. It has usually a capital divided into transferable shares of a fi xed denomination and the liability of members is generally limited. According to Lord Justice Lindlay, a company is "an association of many persons who contribu te money or money's worth to a common stock, and employ it for some common purpo se. The common stock so contributed is denoted in money and is called the capita l of the company. The persons who contribute it, or to whom it belongs, are its members. The proportion of capital to which each member is entitled is his share . Shares are always transferable although the right to transfer them is often mo re or less restricted." Under the Companies Act 1956, a joint stock company has been defined as "a compa ny limited by shares having permanent paid-up or nominal share capital of fixed amount divided into shares, also of fixed amount, held and transferable as stock and formed on the principle of having in its members only the holders of those shares or stock and no other persons". Chief Justice John Marshall of U.S.A. def ined a company in the famous Dartmouth College case as "an artificial being, inv isible, intangible and existing only in contemplation of law; being the mere cre ature of law, it possesses only those properties which the charter of its creati on confers upon it, either expressly or as incidental to its very existence; and the most important of which are immortality and individuality. Thus, a company is an artificial legal person having an independent legal entity. Salient Features of a Company The distinctive characteristics of a company are as follows : 1. Separate legal entity : A company has an existence entirely distinct fro m and independent of its members. It can own property and enter into contracts i n its own name. It can sue and be sued in its own name. There can be contracts a nd suits between a company and the individual members who compose it. The assets and liabilities of the company are not the assets and liabilities of the indivi dual members and vice versa. No member can directly claim any ownership right in the assets of the company. 2. Artificial legal person : A company is an artificial person created by l

aw and existing only in contemplation of law. It is intangible and invisible hav ing no body and no soul. It is an artificial person because it does not come int o existence through natural birth and it does not possess the physical attribute s of a natural person. Like a natural person, it has rights and obligations in t erms of law. But it cannot do those acts which only a natural person can do, e.g ., taking an oath in person, enjoying married life, going to jail, practising pr ofession, etc. A company is not a citizen and it enjoys no franchise or other fu ndamental rights. 3. Perpetual succession : A company enjoys continuous or uninterrupted exis tence and its life is not affected by the death, insolvency, lunacy, etc., of it s members or directors. Members may come and go but the company goes on for ever , so long as it is not wound up. Being a creature of law, a company can be disso lved only through the legal process of winding up. It is like a river which reta ins its identity though the parts composing it continuously change. Even if all the members of the company are dead, the company will still continue to exist. 4. Limited liability : Liability of the members of a limited company is lim ited to the value of the shares subscribed to or to the amount of guarantee give n by them. Unlimited companies are an exception rather than the general rule. In a limited company, members cannot be asked to pay anything more than what is du e or unpaid on the shares held by them even if the assets of the company are ins ufficient to satisfy in full the claims of its creditors. 5. Common seal : A company being an artificial person cannot sign for itsel f. Therefore, the law provides for the use of common seal as substitute for its signatures. The common seal with the name of the company engraved on it serves a s a token of the company's approval of documents. Any document bearing the commo n seal of the company and duly witnessed (signed) by at least two directors is legally binding on the company. 6. Transferability of shares : The shares of a public limited company are . freely transferable. They can be purchased and sold through the stock exchange. Every member is free to transfer his shares to anyone without the cons ent of other members. 7. Separation of ownership and management : The number of members in a publ ic company is generally very large so that all of them or most of them cannot ta ke active part in the day-to-day management of the company. Therefore, they elec t their representatives, known as directors, to manage the company on their beha lf. Representative control is thus an important feature of a company. 8. Incorporated association of persons : A company is an incorporated or re gistered association of persons. One person cannot constitute a company under th e law. In a public company, at least seven persons and in a private company at l east two persons are required. Distinction between Company and Partnership Both company and partnership are associations of persons but the two differ in t he following respects : 1. Formation and registration : A company is created by law while partnersh ip is the result of an agreement between the partners. In the formation of partn ership no legal formalities are involved and registration of the firm is not com pulsory. A company can be formed only after fulfilling legal formalities and its incorporation under the Act is essential. 2. Number of members : The minimum number of partners in a partnership firm is two and maximum is 10 in banking business and 20 in other business. In a pri vate company, the minimum number of members is 2 and the maximum is 50. In a pub lic company minimum number of members is 7 and there is no maximum limit prescri bed by law. 3. Legal status : A company has a separate legal entity independent of its members but a partnership firm has no separate legal entity different from its p artners. Partners and the firm are one and the same in the eyes of law. 4. Liabilities of members : In a joint stock company, the liability of ever y member is usually limited to the unpaid money on the shares held or the amount of guarantee given by him. But in partnership, partners are jointly and several ly liable to an unlimited extent.

5. Transferability of interest : Shares of a public company are freely tran sferable but in a private company there are restrictions on the transfer of shar es. A partner cannot transfer his interest in the firm to an outsider without th e unanimous consent of all the partners. Any person can become a member of a com pany by purchasing its shares but a new partner can be admitted only with the mu tual consent of all the partners. 6. Statutory control : A company has to comply with several legal requireme nts and it must submit reports to the Government. On the other hand there is no statutory regulation on day-to-day working of a partnership. A company cannot ch ange its objects and powers without complying with the statutory requirements. 7. Change of objects : The objects and powers of a company as laid down in its Memorandum of Association can be altered only by fulfilling legal formalitie s laid down in the Companies Act, 1956. On the contrary, the objects of a partne rship can be altered with the unanimous consent of all the partners without any legal formality. 8. Management: In a partnership, all the partners can take active part in t he management of the firm. But in a company, every member does not participate a ctively in the day-to-day management. The company is managed by a Board of Direc tors consisting of elected representatives/nominees of the members. There is div orce between ownership and management of a company but there is no such divorce in a partnership. 9. Stability : A company enjoys perpetual life or existence which is not af fected by the retirement, death, insolvency, etc., of its members. The life of a partnership is uncertain and comes to an end with the retirement, insanity and death of a partner. 10. Majority rule : In a company, all policy decisions are taken on the basi s of majority opinion in a meeting of the Board of Directors or of the general b ody of shareholders. But in partnership all policy matters are decided through t he unanimous consent of all the partners. 11. Accounts and audit : A company must maintain its accounts in the prescri bed form and must get them audited by a qualified auditor. Accounts and audit ar e not obligatory for a partnership unless the total turnover or gross receipts e xceed Rs. 10 lakhs in case of professionals and Rs. 40 lakhs in other cases. 12. Implied agency : In a partnership firm every partner has an implied auth ority to represent the firm. But no member of a company is an implied agent of t he company or of other members. 13. Common seal : In partnership, one or more partners can sign the document s on behalf of the firm. But in a company only directors can sign and that too o nly after the common seal has been affixed on the document. 14. Regulating Act : Companies are governed through the Companies Act, 1956 while partnerships are regulated under the Partnership Act, 1932. 15. Winding up : A partnership can be dissolved at will without any legal fo rmalities. But a company cannot be wound up at will or without following the leg al formalities prescribed in this regard under the Companies Act. Merits of Company Organisation The company form of business ownership has become very popular in modern busines s on account of its several advantages : 1. Limited liability : Shareholders of a company are liable only to the ext ent of the face value of shares held by them. Their private property cannot be a ttached to pay the debts of the company. Thus, the risk is limited and known. Th is encourages people to invest their money in corporate securities and, therefor e, contributes to the growth of the company form of ownership. 2. Large financial resources : Company form of ownership enables the collec tion of huge financial resources. The capital of a company is divided into share s of small denominations so that people with small means can also buy them. Bene fits of limited liability and transferability of shares attract investors. Diffe rent types of securities may be issued to attract various types of investors. Th ere is no limit on the number of members in a public company. Credit standing of a company also tends to be high. 3. Stability : A company enjoys uninterrupted business life. As a body corp

orate it continues to exist even if all its members die or desert it. On account of its stable nature, a company is best suited for such types of business which require long periods of time to mature and develop. 4. Transferability of shares : A member of a public limited company can fre ely transfer his shares without the consent of other members. Shares of public c ompanies are generally listed on a stock exchange so that people can easily buy and sell them. Facility of transfer of shares makes investment in companies liqu id and encourages investment of public savings into the corporate sector. 5. Efficient professional management: Due to its large financial resources and continuity a company can avail of the services of expert professional manage rs. Employment of professional managers having managerial skills and little fina ncial stake results in higher efficiency and more adventurous management. Benefi ts of specialisation and bold management can be secured. 6. Scope for growth and expansion : There is considerable scope for the exp ansion of business in a company. On account of its vast financial and managerial resources and limited liability, l f?rrn has immense potential for growth. With continuous expansion and growth, a company can reap various economies of la rge scale operations. 7. Public confidence : A public company enjoys the confidence of public bec ause its activities are regulated by the government under the Companies Act. Its affairs are known to public through publication of accounts and reports. It can alwaysHkeep itself in tune with the needs and aspirations of people through con tinuous research and development. 8. Diffused risk : The risk of loss in a company is spread over a large num ber of members. Therefore, the risk of an individual investor is reduced. 9. Social Utility : Company form of organisation provides avenues of investment for public financial institutions like insurance companies, Unit Trust of India, banks, etc. it contributes to the development of management profession by emplo ying professional managers. Joint stock company leads to widespread distribution or decentralised ownership of securities, it provides a means of canalising the small savings of individuals into industry. Demerits of a company A joint stock company suffers from the following limitations : 1. Difficulty of formation : It is very difficult and expensive to set up a company. Several documents have to be prepared and filed with the Registrar of Companies. Services of legal and other experts are needed for this purpose. It i s very time consuming and inconvenient to obtain approvals and sanctions from di fferent, authorities for the establishment of a company. Delay in formation may deprive the business of the momentum of an early start. The time and cost involv ed in fulfilling legal formalities discourage many people from adopting the comp any form of ownership. It is also difficult to wind up a company. 2. Excessive government control : A company is subject to elaborate statuto ry regulations in its day-to-day operations. It has to submit periodical reports . Audit and publication of accounts is obligatory. The objects and capital of th e company can be changed only after fulfilling the prescribed legal formalities. These rules and regulations reduce the efficiency and flexibility of operations . A lot of precious time, effort and money has to be spent in complying with the innumerable legal formalities and irksome statutory regulations. 3. Lack of motivation and personal touch : There is divorce between ownersh ip and management in a large public company. The affairs of the company are mana ged by the professional and salaried managers who do not have personal involveme nt and stake in the company. Absentee ownership and impersonal management result in lack of initiative and responsibility. Incentive for hard work and efficienc y is low. Personal contact with employees and customers is not possible. 4. Oligarchic management : In theory the management of a company is suppose d to be democratic but in actual practice company becomes an oligarchy (rule by a few). A company is managed by a small number of people who are able to perpetu ate their reign year after year. The interests of small and minority shareholder s are not well protected. 5. 'Delay in decisions : Too many levels of management in a company result

in red-tape and bureaucracy. A lot of time is wasted in calling and holding meet ings and in passing resolutions. It becomes difficult to take quick decisions an d prompt action with the consequence that business opportunities may be lost. 6. Conflict of interests : Company is the only form of business wherein per manent conflict of interests may exist. In proprietorship there is t scope for c onflict and in a partnership continuous conflict results dissolution of the firm . But in a company conflicts may continue betwa shareholders and board of direct ors or between shareholders and credit or between management and workers. 7. Frauds in promotion and management : There is a possibility t unscrupulo us promoters may float a company to dupe innocent a ignorant investors. They may collect huge sums of money and later misappropriate the money for their persona l benefit. The case of Sou Sea Bubble Company is the leading example of such mal practices promoters. Moreover, the directors of a company may manipulate t price s of the company's shares and debentures on the stock exchange o the basis of in side information and accounting manipulations. This ma result in reckless specul ation in shares and even a sound company may put into financial difficulties. 8. Lack of secrecy : Under the Companies Act, a company is required t discl ose and publish a variety of information on its working. Widesprea publicity of affairs makes it almost impossible for the company to retai its business secrets . The accounts of a public company are open for inspection to public. 9. Social evil : Formation of giant companies may result in monopoly and co ncentration of economic power. Companies may use their power to influence econom ic and political decision-making by government leading to political corruption. Suitability Despite its drawbacks, the company form of organisation has become very popular, particularly for large business concerns. This is because its merits far outwei gh the demerits. Many of the drawbacks of a company are mainly due to the weakne sses of the people who promote and manage companies and not because of the compa ny system as such. The company organisation has made it possible to accumulate l arge amounts of capital required for large scale operations. Due to its unique c haracteristics, the company form of ownership is ideally suited to the following types of business : (a) heavy or basic industries like-ship building, coach-making factory, engi neering firms, etc., requiring huge investment of capital. (b) large scale operations are very crucial because of economies of scale, e .g., departmental stores, chain stores and enterprises engaged in the constructi on of bridges, dams, multistoreyed buildings, etc. (c) the line of business involves great uncertainty or heavy risk, e.g., shi pping and airlines concerns. (id) the law makes the company organisation obligatory, e.g., banking business 6. Conflict of interests : Company is the only form of business wherein a p ermanent conflict of interests may exist. In proprietorship there is no scope fo r conflict and in a partnership continuous conflict results in dissolution of th e firm. But in a company conflicts may continue between shareholders and board o f directors or between shareholders and creditors or between management and work ers. 7. Frauds in promotion and management : There is a possibility that unscrup ulous promoters may float a company to dupe innocent and ignorant investors. The y may collect huge sums of money and later on misappropriate the money for their personal benefit. The case of South Sea Bubble Company is the leading example o f such malpractices by promoters. Moreover, the directors of a company may manip ulate the prices of the company's shares and debentures on the stock exchange on the basis of inside information and accounting manipulations. This may result i n reckless speculation in shares and even a sound company may be put into financ ial difficulties. 8. Lack of secrecy : Under the Companies Act, a company is required to disc lose and publish a variety of information on its working. Widespread publicity o f affairs makes it almost impossible for the company to retain its business secr ets. The accounts of a public company are open for inspection to public. 9. Social evil : Formation of giant companies may result in monopoly and co

ncentration of economic power. Companies may use their power to influence econom ic and political decision-making by government leading to political corruption. Suitability Despite its drawbacks, the company form of organisation has become very popular, particularly for large business concerns. This is because its merits far outwei gh the demerits. Many of the drawbacks of a company are mainly due to the weakne sses of the people who promote and manage companies and not because of the compa ny system as such. The company organisation has made it possible to accumulate l arge amounts of capital required for large scale operations. Due to its unique c haracteristics, the company form of ownership is ideally suited to the following types of business : (a) heavy or basic industries like-ship building, coach-making factory, engi neering firms, etc., requiring huge investment of capital. (b) large scale operations are very crucial because of economies of scale, e .g., departmental stores, chain stores and enterprises engaged in the constructi on of bridges, dams, multistoreyed buildings, etc. (c) the line of business involves great uncertainty or heavy risk, e.g., shi pping and airlines concerns. (.d) the law makes the company organisation obligatory, e.g., banking business can be run only in the form of a company. (e) the owners of the business want to enjoy limited liability. 4.4 CO-OPERATIVE ORGANISATION Co-operative organisation grew as a means of protecting the interests of the rel atively weaker sections of society against exploitation by big business operatin g for the maximisation of profits. Co-operation is not simply a form of ownershi p but a movement for the uplift of people with small means. It is said that the cooperative movement began with the setting up of a co-operative society called ' Rochdale Society of Equitable Pioneers' in 1884 in England. The basic feature wh ich differentiates the co-operative organisation from other forms of business ow nership is that its primary motive is service to the members rather than making profits. As a form of ownership, a co-operative society is a voluntary association of per sons who join together on the basis of equality for the fulfilment of their econ omic or business interest. According to the Co-operative Societies Act, 1912, co -operative organisation is "a society which has as its objectives the promotion of the interests of its members in accordance with the principles of co-operatio n". The International Labour Office (I.L.O.) has defined it as "an association o f persons, usually of limited means, who have voluntarily joined together to ach ieve a common economic end, through the formation of a democratically controlled business organisation, making equitable contributions to the capital required a nd accepting a fair share of risks and benefits of the undertaking". According t o H.C. Calvert, a co-operative society is "a form of organisation wherein person s voluntarily associate together as human beings on the basis of equality for th e promotion of economic interests of themselves" Characteristics (or Principles) of Co-operatives An analysis of above definitions will reveal the following features of co-operat ive organisation : Voluntary association : Co-operative organisation is a voluntary associa tion of persons, in the sense that people can become its members and they can le ave it at their own will and without any coercion or intimidation. No one is com pelled to become or continue its member. Persons having a common interest and de sirous of pursuing a common objective can form themselves into a co-operative. Open membership : The membership of the co-operative society is open to all irrespective of caste, creed, religion, race, sex, colour, etc. Everybody is given an equal opportunity to become a member. However, membership may be restr icted to a homogeneous group in some cases. For instance, a co-operative society of farmers may deny membership to those who are not farmers. Democratic control : The management of a co-operative society is entrust ed to a managing committee elected by members on the basis of 'one-member-one-vote' irrespective of the number of shares held by any member. T

he broad policy framework of the society is laid down by the general body member s and the managing committee has to function within this framework. Service Motive : The basic aim of co-operative organisation is to render service to its members in particular and to the society in general. Service abo ve self is the spirit of Co-operation. There is an emphasis on the material and moral uplift of members. However, a co-operative enterprise may make reasonable profits. Compulsory registration : No association of persons can use the word cooperative in its name without being registered under the Co-operative Societies Act,' 1912 or under the Co-operative Societies Act of a State Government. Separate legal entity : After registration a co-operative enterprise bec omes a body corporate independent of its members. It is entirely distinct from i ts members. It can own property and make contracts in its own name. It can sue a nd be sued in its own name. Finance : The capital of a co-operative enterprise is provided by its me mbers by purchasing shares. One member cannot subscribe to more than 10% of the total share capital or Rs. 1,000 whichever is higher. Shares are not transferabl e but they can be surrendered to the organisation. Share capital constitutes a s mall part of total funds, the major part of which is raised by way of loans from the government or from the apex co-operative institutions. It may also receive grants and assistance from the government. Equitable disposal of surplus : The trading surplus earned by a cooperati ve society is utilised for several purposes. A fixed rate of dividend not exceed ing 10 per cent can be paid on the capital. One-fourth of the profits is to be t ransferred to general reserves as per the law. A portion of the surplus, not exc eeding 10 per cent, may be utilised for the general welfare of the locality in w hich the society is functioning. The rest of the profits may be distributed amon g members in the form of bonus. Bonus is given on an agreed basis but not on the basis of the capital contributed by members. The bonus may be paid to the membe rs in promotion to the purchases made by the members in the case of a consumers co-operative store, or in proportion to the goods delivered for sale to the soci ety in the case of a producers' co-operative. Government control: The activities of a co-operative society are regulat ed by the State even though it is voluntary in character. Government conducts pe riodic inspections of the audited accounts and affairs of the society. A co-oper ative society has to submit annual reports and accounts to the Registrar of Soci eties. In brief, the basic principles of co-operative organisation are service in place of profit, co-operation in place of competition, equality in place of majority, self-help in place of dependence and morality in place of unethical bu siness practices. Distinction between Co-operative and Company Both a co-operative organisation and a company are incorporated associations of persons managed by an elected body of representatives. But they differ in the fo llowing respects : 1. Number of Members : The minimum number of persons is 7 in a public compa ny and 2 in a private company. A co-operative requires at least 10 members. The maximum number of members is 50 in a private company and 100 in a co-operative c redit society. There is no maximum limit in case of public companies and non-cre dit co-operative societies. 2. Members' Liability : The liability of members of a company is generally limited to the face value of shares held or the amount of guarantee given by the m though the Companies Act permits unlimited liability companies. The members of a co-operative society can opt for unlimited liability. But in practice their l iability is generally limited. 3. Membership : The membership of a co-operative society is open at all tim es and new members have to pay the same amount per share as old ones have paid. A company, on the other hand, closes the list of members as soon as its capital is fully subscribed. People who want to become members later on have to buy shar es at the stock exchange.

,51 4. Management and Control : The management of a co-operative society is dem ocratic as each member has one vote and there is no system of proxy. In a compan y, the number of votes depends upon the number of shares and proxies held by a m ember. There is little separation between ownership and management in a co-opera tive society due to limited and local membership. 5. Distribution of Surplus : The profits of a company are distributed as di vidends in proportion to the capital contributed by the members. In a cooperative society a minimum part of surplus must be set aside as a reserve and for the ge neral welfare of the public. The rest is distributed in accordance with the patr onage provided by different members after paying dividend up to 10 per cent on c apital. 6. Share Capital : In a company, one member can buy any number of shares bu t an individual cannot buy more than 10 per cent of the total number of shares o r shares worth Rs. 1,000 of a co-operative society. A public company must offer new shares to the existing members while a co-operative society issues new share s generally to increase its membership. The subscription list of a co-operative society is kept open for new members whereas the subscription list of a company is closed after subscriptions. A company is thus capitalistic in nature while a co-operative society is socialistic. 7. Transferability of Interest: The shares of a public limited company are freely transferable while the shares of co-operative society cannot be transferr ed but can be returned to the society in case a member wants to withdraw his mem bership. A member of a co-operative society can withdraw his capital by giving a notice to the society. A shareholder, on the other hand, cannot demand back his capital from the company until its winding up. 8. Basic Objectives : A co-operative society is set up to provide service t o its members and surplus is incidental to such service. A company, on the other hand, aims at profits and is mainly an economic institution. Service motive is secondary in a company. 9. Coverage : A co-operative society generally draws its membership from a limited local area. The members have common bond in the form of a common occupat ion or employer or locality. In a company members have no such relationship and are usually drawn from different parts of the country and even from abroad. 10, Exemptions and Privileges : A co-operative society enjoys several exempt ions and privileges regarding income tax, stamp duty, etc. This is because the G overnment seeks to encourage the growth of the co-operative movement. No such ex emptions, privileges and assistance is available to a public limited company. A private limited company, however, enjoys a number of exemptions and privileges u nder the Companies Act. 11. Governing Statute : A company is governed by the Companies Act, 1956 whi le a co-operative organisation is subject to the provisions of the Cooperative So cieties Act, 1912 or State Co-operative Societies Act. Merits of Co-operatives Different types of co-operatives offer distinct benefits to their members. Howev er, there are some advantages which are common to all co-operatives. These advan tages are given below : 1. Ease of formation : A co-operative society can be easily organised as it is a voluntary association. Any ten adult persons can voluntarily form themselv es into a co-operative and get it registered with the Registrar of Co-operatives . No complicated and costly legal formalities are involved. 2. Limited liability : The liability of every member is limited to the exte nt of his capital contribution. 3. Continuity or Stability : Being a separate legal entity, a co-operative organisation enjoys a perpetual existence which is not affected by the death, in solvency, conviction, retirement, etc., of members. 4. Democratic management: The office-bearers of a co-operative are elected by the members on the basis of'one-member one-vote'. As the membership of a co-o perative is generally drawn from a local area, there is continuous and effective interaction between the members and the office-bearers of

the society. Meetings are well attended and voting by proxy is not allowed. As s uch the management of the society is democratic. 5. Low operating costs : The administrative expenses of a co-operative soci ety are usually low. Many members provide honorary management services and there is no need for advertising or publicity. Sales, if any, are generally on cash b asis so that bad debt losses are eliminated. 6. Internal financing : Due to compulsory ploughing back of at least 25 per cent of profits and statutory limitation on the rate of dividend, the financial strength of a co-operative is improved. Internal financing can be utilised for the modernisation and growth of the organisation without raising loans at exorbi tant rates of interest. 7. Tax advantage : A co-operative society is exempt from income tax and sur charge on its earnings up to a certain limit. It is also exempt from stamp duty and registration fee. 8. State patronage : Government provides financial assistance to cooperative s in the form of loans and grants. State has adopted a helpful policy towards co -operatives as an instrument of socio-economic development of weaker sections of society. 9. Social utility : Co-operatives promote mutual co-operation among people and serve as a means of community development. They develop brotherhood and spir it of service among members. They provide education and training in democracy, s elf-government, self-help and mutual help. Co-operative societies impart moral a nd ethical values in daily life. By raisingthe economic status of weaker section s of society, co-operatives help to avoid antisocial monopolies and inequalities in the distribution of income and wealth Co-operation is not simply a form of bu siness organisation but a socioeconomic movement for the creation of an egalitari an economic order. Co-operatives help in improving community life by utilising a part of their surplus for welfare of local community. There is economic justice due to equitable distribution of surplus. Demerits of Co-operatives A co-operative society is subject to the following disadvantages : 1. Incompetent management: At the primary level, a co-operative society gen erally cannot afford to employ professional managers. It has to depend on honora ry managerial service by members who often lack specialised training and experie nce in management. Guaranteed market makes management lethargic. 2. Limited financial resources : As members are drawn from a particular loc ality and they usually have limited means, the capital which a co-operative can raise is very limited. Restrictions on dividend and the principle of 'one-member -one-vote' discourage large investment by members. Due to perennial shortage of funds, there is limited scope for expansion and growth. 3. Lack of motivation : Absence of profit motive and limitation and dividen d stifle incentive and responsibility on the part of managing committee. Paid of fice-bearers of a co-operative do not feel adequately motivated to make their be st efforts for the success of the organisation. In some cases, officials misappr opriate funds and commit other frauds for their personal gain and at the cost of the members. 4. Mutual rivalries : After an enthusiastic and dramatic start, a co-operat ive society often becomes lifeless and paralysed with the passage of time. The s pirit of mutual help and selfless service gives way and intrigues take place bet ween members over petty issues. Lack of unity and cohesion paves the way for the doom of society. 5. Lack of secrecy : As a corporate body, a co-operative society is require d to submit its reports and accounts with the Registrar of Co-operative Societie s. Full disclosure and publicity of affairs makes it very difficult to preserve the secrets of business. 6. Excessive State regulation : A co-operative society is under detailed co ntrol by the Government. Such over-administered interference reduces the flexibi lity of day-to-day operations. Sometimes, political and other vested interests a lso dominate the working of co-operatives. Time consuming procedures and formali ties result in delays in decision-making.

7. Lack of Public confidence : A co-operative society enjoys little public confidence due to political conduct of office-bearers and domination by a select group of individuals. Suitability The foregoing description reveals that the co-operative organisation is suitable for small and medium sized business operations. Limitations of capital and mana gerial talent, low credit standing, and State control make it inappropriate for large scale business. Co-operative enterprise is particularly suitable in small trading and service oraganisations with regular demand and without speculation. However, IFFCO (Indian Farmers Fertiliser Co-operative) is a large sized enterpr ise with an investment of more than Rs. 250 crores. SUMMARY demerits are: unlimited liability, limited funds, lack of harmony, risk of impli ed agency and nontransferability of interest. 4. A joint Stock Company is an incorporated association of two or more pers ons. Its merits are: Limited liability large funds, stability, transferability, growth. Its demerits are: difficult formation, government control, lack of motiv ation, delay in decisions, conflict of interst and lack of secrecy. 5. Cooperative organisation is an association of two or more persons with a service motive. Its merits are: easy formation, limited liability, stability, d emocratic management and social utility. Its demerits are .: incompetent managem ent, limited funds, lack of motivation, mutual rivalry, lack of secrecy, governm ent control. TEST QUESTIONS What are the main forms of business organisation ? 2. Name the four types of business for which sole proprietorship is suitabl e. 3. "Sole proprietorship is the simplest and the oldest form of organisation ". Do you agree ? 4. State the characteristics of sole proprietorship. 5. What do you understand by sole proprietor ? 6. "One-man control is the best in the world if that man is big enough to m anage everything". 7. Define sole proprietorship and discuss its merits and demerits. 8. "Sole Proprietorship has its own scope of activity and is not in danger of being wiped out by company form of organisation". Do you agree ? Give reasons . 9. "One man business is the best in the world provided the man is big enoug h to man age everything". Examine critically. 10. Define partnership and explain its main features. 11. Explain the merits and demerits of Partnership form of business organisa tion. 12. Define Joint Stock Company and explain its main features. 13. Discuss the merits and demerits of Joint Stock Company. 14. What is Cooperative Society ? Explain its characteristics. 15. ^Explain the merits and demerits of Cooperative Organisation. 16. Distinguish between : (a) Sole proprietorship and partnership (b) Partnership and Joint Stock Company. (c) Joint stock company and cooperative society

CHAPTER 5 Concept and Nature of Management CHAPTER OUTLINE

5.1 Meaning of Management 5.2 Definition of Management 5.3 Nature of Management 5.4 Mangement and Administration 5.5 Levels of Management 5.6 Skills of a Manager > Summary > Test Questions In order to satisfy his/her wants a person has to perform numerous activities. A n individual alone cannot perform all the necessary activities. Therefore, human beings join or co-operate together in the form of groups and organisations. Eve ry organisation (e.g., a family, a college, a business enterprise, an army, a go vernment, a church) is basically a group of people seeking to atain some common objectives. A centra! organ oragency is required to coordinate the activities an d efforts of various individuals working together in an organisation so that the y can work collectively as a team. Such an organ is called management. 5.I -MEANING OF MANAGEMENT The term 'management' conveys different meanings depending upon the context in w hich it is used. Some of the important concepts of management are given here. Management as an Economic Resource Like land, labour, capital and entrepreneurship, management is a vital factor of production. An entrepreneur establishes the organisation as its owner. But it i s management that transforms the various resources into a productive entity. The inpufs @f labour, capital and materials do not by themselves ensure growth. The \ require the catalyst of management to produce results. It is management that c oordinates various factors of production. Therefore, management occupies a [5.1] central place among all the factors of production. The other factors money, manpow er materials, machinery and methods are known as the five M's of management These are analysed below: 1. Money. Money is the most critical and all-purpose resource because it is used to acquire or hire other resources. In organisations, money is employed to generate more money in the form of profits or surplus. Monetary resources help to operate and sustain not only business but non-business organisations too. A b usiness enterprise needs money in the form of fixed capital and working capital. 2. Manpower. Manpower refers to the managerial and non-managerial personnel employed in an organisation. The survival and success of an organisation depends to a great extent upon the skills, efforts and contributions of its managers. T his is because other resources cannot act by themselves and have to be utilised by human beings. Therefore, human resources mobilise, allocate and utilise the p hysical and financial resources of an organisation. 3. Materials. Materials represent the physical raw materials and intermediat e products (semi-finished goods) which are converted and/or assembled into finish ed products with the help of certain processes and technology. The quality and c ost of finished products depend largely upon the quality and cost of raw materia ls used in them. Fig. 5.1: Five M's of Management 4. Machinery. Machines are the equipmentused to process the materials into finished or semi-finished products. Employment of modern machinery helps to reduc e costs and to improve the quality of output. Technology has, therefore, become an important ingredient in the efficient management of organisations. 5. Methods. Methods refer to the normal and prescribed ways of doing things . Various operations are performed according to certain systems and procedures. Managerial, technical and clerical tasks all can be carried out in various alternative ways. Use of right methods helps to increase efficiency o f operations and contributes to effective management. Each of the five M's has i ts own dynamics. It is the job of management to understand the basic nature and functioning of each M and the source of its availability. Managers must clearly

know the purposes for which the M's are employed and coordinate them in such a w ay as to optimise their combined productivity. All Ms cannot be treated in the s ame manner. For example, management cannot treat its manpower in the same way as it treats its materials or machines. There should be a balance in the employmen t of different resources. Management has to cope with the problem of obsolescenc e of some of the resources, e.g., manpower, machines and methods. Some resources are capable of being developed. These include manpower, methods and sources of materials. Due attention should be paid to gain command over these resources so as to ensure their steady availability. Management must establish input goals, p rocess goals and output goals with regard to the deployment of all the five M's. Management as a Team As a term or a group of persons, management consists of all personnel having man agerial responsibility (those individuals Who'lpBFaTrd' diffeCt' the "efforts of other individuals to achieve specified objectives). Managers occupy positions a t different levels of authority but perform the same basic functions. Top-level managers have greater authority than middle-level managers who in turn have grea ter authority than operating managers. In this way a system of authority (called chain of command) is created in every organisation. The management group consis ts of different types of managers, e.g., professional managers (formally trained in management and divorced from ownership), family managers (owner managers hav ing little formal training) and civil servant managers (IAS persons occupying ma nagerial positions in public sector undertakings). Top managers have become an e lite class or a leading group in modern society on account of the enormous power and prestige at their command. Management as an Academic Discipline As an academic discipline or field of study, management implies a branch of know ledge. It comprises management theory and principles for tackl ing managerial pr oblems. Management has become a very popular subject of study as is evident from the great rush for admissions into institutes and universities imparting educat ion and training in management. Management offers a very fruitful and rewarding career. The demand for students having degrees in management is growing rapidly in the job market. Management as a Process Perhaps the best way to describe management is in terms of what managers do. It involves organising, directing and controlling human efforts to accomplish pre-d etermined goals. As a process management refers to a series of interrelated elem ents or functions. These are : (a) defining the aims or objectives of the organisation; (b) formulating policies, procedures, programmes, etc., to attain these obje ctives efficiently and economically; (c) bringing together men, money, materials, machinery and other factors of production; (d) assigning work or duties to people and defining their authority and resp onsibility; (e) guiding and inspiring people to perform the assigned tasks as planned; a nd (/) exercising control over the performance of people. This concept of management is the simplest and the most pragmatic, [t also highl ights the universal nature of management. However, it does not take into account the social and human aspects of management. 5.2 DEFINITIONS OF MANAGEMENT One widely quoted definition of management is "MANAGEMENT IS THE ART OF GETTING THINGS DONE THROUGH OTHERS". This definition has become poptlfar because it is very brief and concise. This d efinition has the following implications: First, getting things done means to ge t tasks and activities carried out. It implies that management is a highly perfo rmance- oriented function rather than a mere abstract, ideological activity. Man agement gets things done through people who may be managers or non-managers. At every level in the organisation, a manager has to get things done through his su bordinates. At the top level, the subordinates are themselves managers. Therefor e, a top executive manages other managers. At middle level, a manager get things

done through supervisors or operating executives. At the supervisory level, sub ordinates are white collar or blue-collar workers. Therefore, a supervisor gets things done through clerks or workers. Management gets things done through peopl e both as individuals and as members of work groups. Secondly, getting things do ne through people is considered to be an art. In order to get things done a rang e of skills are required. These skills include conceptual, technical and human s kills which can be acquired and refined in the course of practice. For the purpo se of getting things done through people, management has to plan the things to b e done. This involves formulation of objectives and policies which need to be op erationalised into concrete action plans. The tasks to be carried out to achieve the goals are to be determined and assigned to individuals and work units. The roles of various job holders and inter-relationship between them have to be defi ned. Management must mobilise the necessary resources and allocate them into pro ductive uses in a judicious manner. Management has to get things done in an organised and in a disciplined manner. T he job of gettingthings done calls for assignment of duties, delegation of autho rity and creation of accountability for results. Thirdly, managers achieve resul ts through their subordinates instead of performing the tasks themselves. A mana ger is responsible for the efforts of others while a non-manager is responsible only for his own performance. Getting things done through others involves not on ly planning and organising but creation of appropriate work climate in which peo ple can perform the assigned tasks effectively. It should be a climate of goodwi ll, trust and challenge. Appropriate techniques and methods must be devised and used to get things done. Management has to understand the essential nature of ta sks and the various forces influencing them. It should be aware of and sensitive to the needs, aspirations, feelings, goals and values of people at work. Manage ment must provide reasonable opportunities to people to perform their tasks, to develop themselves and to make progress in their careers. Appropriate monetary a nd non-monetary incentives have to be used to enlist the co-operation and commit ment of employees. Effective leadership and a sound communication system are nec essary to foster team spirit and participation. All obstacles and problems in th e performance of tasks must be removed or minimised. There should be an effectiv e system to monitor the performance of subordinates, to detect deficiencies and deviations, to feedback information to people and to rectify the deviations. The foregoing description reveals that the statement 'management is the art of gett ing things done through others' is simple but it has several complex dimensions. The job of management is not as simple as it appears to be from this statement. The statement highlights the attainment of objectives and the practical nature of management. However, the definition given in this statement suffers from the following drawbacks: 1. Management is much more than the task of getting things done through oth ers. Managers are resnonsible not only for achieving organisational objectives b ut for discharging social obligations too. As the chief coordinating organ, manag ement must ensure that the organisation is able to cope with the dynamics of the external environment on a sustained basis. Otherwise, the organisation cannot s urvive and succeed. 2. An organisation consists of two sub-systems, namely, the technical subsys tem and the social sub-system. The statement does not put adequate emphasis on t he relationship between the two sub-systems and the need for their proper fusion . Management is not a mere art. It is also a science in the form of an organised body of knowledge. The art of management must increasingly be based on manageme nt theory. Students and researchers of management are engaged in systematic and scientific studies on how to effectively get things done through people. Due to Jtheir efforts, the job of management rises above the level of mere art. 3. The statement gives an impression that managers obtain results by treati ng people as mere tools. In reality, managers are increasingly using persuasion rath er than coercion to get things done. 4. It is not clear from the statement what functions and roles a manag shou ld perform in order to get things done.

5. This definition does not point out that a formal organisation structur i s required to get things done through others. Thus, this is a narrow and over-simplified definition of management. Harold Koon tz has modified the above definition. According to him, "Management is the art o f getting things done through and with people in formally organised groups." This definition is superior in so as it reveals that a manager can get things do ne with the cooperation of other people. It also points out that managers operat e through formal organisation structures. It clearly highlights the result-orien ted nature of management. But it also suffers from several limitations. First, i t overlooks the science side of management. Secondly, it fails to identify the f unctions of.management. Thirdly, it ignores the social obligations of managers. Fourthly. it over-stresses the contribution of people and undermines other facto rs of production. According to another definition, "Management is concerned with Ideas, Things and People. " Management involves judicious deployment of resources for the achievement of cer tain goals. Management is a creative process. In this process, ideas, things and people are vital inputs. Management is concerned with ideas,. things and people in the following ways : Management of ideas. Ideas refer to thoughts, intentions and opinions. Human int ellect is the source of all ideas. Ideas germinate in human minds. They take sha pe, grow, get an outlet, offering support and are connected with reality. Manage ment of ideas thus involves intellectual, creative and innovative processes. Man agement is inevitably concerned with ideas because human beings work with ideas. Management of ideas is very crucial for economic and social development. It is the job of management to generate, organise and articulate creative ideas and tr ansform them into operating results. These ideas relate to new products, new mar kets, and improvements in existing products and markets. Ideas provide the basic inputs and inspiration to management in planning, organising and directing func tions. Planning and decision-making involve conversion of ideas and information into actions. Ideas are imbedded in activities, roles and relationships which ar e the building blocks of organisations. Management of ideas is very important in the context of rapidly changing technologies, markets, social values and govern ment policies. Ideas help in making organisations perform and grow. For example, the idea of decentralisation enabled the Genera! Motors Corporation of USA to g row. One of the main sources of ideas for managers is the theory consisting of m anagerial concepts and principles. Thus, management of ideas has three main impl ications : (a) it requires a practical philosophy of management to regard manage ment as a distinct and scientific approach, (b) it involves the planning phase o f management, and (c) it requires innovation and creativity. Creativity implies generating of new ideas and innovation means transforming ideas into viable real ities and utilities. Management of things. Management of things refers to the mo bilisation, allocation and deployment of materials, machinery, technology and ot her facilities to convert ideas into results and performance. It is the conversi on of resources into outputs efficiently and effectively that determines the suc cess of management. Ideas will remain ideas unless they are converted into resul ts through the conversion process. The activities and resources required to conv ert ideas into results depend on the nature and magnitude of goals. The methods and equipment have to be decided in the context of the level of development and availability of resources. Facilities and resources must be acquired in the righ t quantity and proposition. The available resources are converted ir.to results through the management process. Efficiency, precision, timing and quality are th e key variables. Thus, management of things involves administrative, technical a nd integrative processes to ensure that ideas are translated into performance as efficiently and effectively as possible. Management of people. Management of people refers to the procurement, developmen t, maintenance and integration of human beings working in the organisation. It i s the most important task of a manager because without people no manager can man age ideas and things. In the early stages of the evolution of management people were treated as part of things. But after the Hawthorne Experiments it has been

realised that people are the most critical factor in management. Since then ther e has been growing concern for people inside the organisation as employees and o utside the organisation as customers, investors, suppliers and the genera; publi c. Management must understand and fulfil the needs, aspirations and values of pe ople. Management is the direction of men, not of things. Achievement of goals th rough conversion of ideas and things into results is not possible without effect ive management of people. Thus, management may be defined as the process of conv erting ideas into results by getting things done through and with people in an o rganised setting. "Management is the Effective Utilisation of Human and Material Resources to achi eve the Enterprise Objectives". A manager's job is to achieve the objectives of his enterprise. In order to achi eve these objectives, he guides and directs the efforts of a group of persons in the organisation . He defines the objectives of his group keeping in view the o verall objectives of the enterprise. Each member of his group is assigned a spec ific- task or duty so that the objectives of the group as a whole may be achieve d which is, in turn, necessary for achieving the object' 'es of the enterprise. Thus, according to this definition management is the effective coordination of h uman and physical resources to achieve desired results.'/The main elements of th is definition are as follows : (i) Enterprise Objectives. Management operates to attain certain objectives. Objectives represent the planned and desired end-results of an activi They are d esigned to attain specific levels of performance over a defm time period. Object ives serve as commitments to action and help to dir the efforts of an organisati on. Objectives also serve as criteria for manageri decision-making. Decisions co ncerning the acquisition, combinatio allocation and utilisation of resources can be made in the light of objective The objectives which management is expected t o achieve consist of th following: (a) Profitability, i.e., a reasonable and fair return on investment; (b) Reasonable safety and appreciation of the investment; (c) Survival and growth of the enterprise ; and (d) Fulfilment of the enterprise's responsibilities towards customers, emplo yees, suppliers, government, community, etc. Thus, the objectives of the enterprise are multiple. Sometimes, there may be con flict between the different objectives. Therefore, management has to create and maintain an equitable balance among the conflicting objectives. (ii) Resources. Resources are the economic and other facilities which have productive potential and value. Resources are of several types, e.g., physical resources, human resou rces, financial and informational resources, etc. These have to be acquired, all ocated and utilised for productive purposes so that the value of output is more than the cost of inputs. A manager gets thing done through other people. These p eople (human resources) use material resources, e.g., money, materials, machiner y, etc. It is the responsibility of managers to ensure that the employees utilis e these resources in the most efficient (optimum) manner. When resources are uti lised effectively the cost per unit is the minimum possible one. There is minimu m wastage of resources and maximum return is obtained on the investment made in the resources. Similarly, an enterprise spends considerable amount of money on t he acquisition, training, remuneration, motivation, etc., of its employees. Unle ss the employees work with devotion and care their performance will be poor. The y will not make effective utilisation of material resources. Therefore, the effe ctive utilisation of human resources is even more important. Management is said to be effective when the enterprise is utilising its human and material resource s effectively and is thereby achieving its objectives. Whatever managers do, they do it in order to achieve enterprise objectives throu gh the effective utilisation of human and material resources. Therefore, it appe ars true to say that management is the effective utilisation of human and materi al resources to achieve the enterprise objectives. But this does not mean that t he human resources should be utilised only as resources. Employees are human bei ngs with emotions and aspirations of their own. It is also the duty of managemen t to treat employees with human dignity and sense of belonging on a wider perspe

ctive. Management should keep in view the interests and welfare of other sections of society in which the ente rprise is functioning. (Hi) Coordination. Coordination is the process of bringing about unity and harmo ny of functioning between the diverse elements of an organisation. It involves p ulling together the different threads of organised activity and weaving them int o a unified whole to achieve predetermined results in the most efficient manner. (iv) Effectiveness. Effectiveness implies the amount of success achieved by an o rganisation in the achievement of organisational objectives. It is the extent to which goals are fulfilled. Effectiveness is different from efficiency which is the ratio of outputs to inputs. According to Drucker, efficiency means doing thi ngs right whereas effectiveness refers to doing the right things. NATURE OF MANAGEMENT

The salient features which highlight the nature of management are as follows: 1. Management is a universal process. The basic principles of management are univer sal in character. They apply more or less in every* situation. Henry Fayol pointed out that the fundamentals of management are equal ly applicable in different organisations, business, government, military and oth ers. The functions of management are performed by all managers. Management is ne eded in all types of organisations. Every manager performs the same basic functi ons irrespective of his rank or position. The managerial job is basically the sa me at all levels of organisation and in all types of institutions. Management is an essential ingredient of all organised endeavour. "Management is essential in all organised co-operation, as well as at all levels of organisation in an ente rprise. It is the function not only of the corporation president and the army ge neral but also of the shop foreman and the company commander." Management is pe rvasive. 2. Management is Purposeful. Management exists for the achievement of speci fic objectives. It is a means directed towards the accomplishment of predetermin ed goals which may be economic or non-economic. All activities of management are goal-oriented. The success of management is measured by the extent to which the desired objectives are attained. Management has no justification to exist in th e absence of objectives. Goals provide justification for the existence of an org anisation. 3. Management is creative. Management makes things happen which would not o therwise happen. The managers seek to secure the objectives with highest efficie ncy at minimum possible cost. The job of management is to make a productive enterprise out of human and material resources. It gives life to materials, machinery, money and manpower. The basic purpose of manageme nt is the optimum utilisation of resources. Effectiveness and efficiency are the yardsticks against which managerial performance is appraised. 4. Management is an unifying force. The essence of management lies in the c oordination of individual efforts into a team. Management reconciles the individ ual goals with organisational goals. As a unifying force, management creates a w hole that is more than the sum of individual parts. It integrates human and othe r resources. Management is an integrated process as its elements are intertwined . 5. Management is a group phenomenon. Management involves the use of group e ffort in the pursuit of common objectives. It is a distinct activity concerned w ith getting things done rather than 'doing' itself. Management exercises importa nt influence upon human behaviour in organised action. People join groups to ach ieve what they cannot achieve individually. Group activity is found in all areas of human activity, e.g., business, military, education, religion, etc. Manageme nt is an essential activity whenever people come together to achieve some common

goals. 6. Management is a social process. Management is done by people, througn pe ople and for people. It is a social process because it is concerned with interpe rsonal relations. Human factor is the most important element in management. Acco rding to Appley, "Management is the development of people not the direction of t hings." A good manager is a leader not a boss. It is the pervasiveness of the hu man element which gives management its special character as a social process. 7. Management is multidisciplinary. Management has to deal with human behav iour under dynamic conditions. Therefore, it depends upon wide knowledge derived from several disciplines, like engineering, sociology, psychology, economics, m athematics, anthropology, etc. The vast body of knowledge in management draws he avily upon other fields of study. 8. Management is a continuous process. Management is a dynamic and an on-go ing process. The"cycle""of management continues to operate so long as there is o rganised action for the achievement of group goals. 9. Management is intangible. Management is an unseen or invisible force. It cannot be seen but its presence can be felt everywhere in the form of results. However, the managers who perform the functions of management are very much tang ible and visible. 10. Management is situational. Efficient management is always situational or contingency management because there is no one best way of doing things. A succ essful manager must take into account situational differences. This is what manag ement is all about the application of knowledge to realities in order to attain de sired results. 11 Management is essentially an executive function. It deals with the active direction and control of the activities of people to attain predetermi ned objectives. Management is a technique by means of which the objectives of a human group are determined, clarified and accomplished. 12. Management is an art as well as a science. Management contains a systematic body of theoretical knowledge as well as the practical application of such knowl edge. 5.4 MANAGEMENT VS. ADMINISTRATION There has been a controversy on the use of the two terms management and administra tion. Various authorities have-expressed divergent views. Many experts make no d istinction between administration and management and use them as synonyms. Sever al American writers consider them as two distinct functions. A few experts treat administration as a part of management, These three points of view are explaine d below : 1. Administration is above management. According to this viewpoint, administrati on is a top-level function while management is a lower-level function. Administr ation is a determinative (thinking) function concerned with laying down basic ob jectives and broad policies of an organisation. On the other hand, management is an executive (doing) function involving the direction of human effort towards t he realisation of such objectives. Therefore, managers are often called executiv es. This view is held by eminent American experts on management. Oliver Sheldon was perhaps the first person to make a distinction between manage ment and administration. According to him, "Administration is the function in in dustry concerned with the determination of corporate policy, the co-ordination o f finance, production and distribution, the settlement of the compass (structure of the organisation), and ultimate control of the executive. Management, on the other hand, is the function in industry concerned with the execution of policy within the limits set up by administration, and the employment of the organisati on for the particular objectives set before it.... Administration defines the go al, * * management strives toward it." Other American experts such as Florence, Lansburg, Theo Haimann, G.E. Milward, D .E. McFarland. W.R. Spriegel, Ordway Tead and Schulze also hold similar views. According to them administration involves policy formul ation whereas management is concerned with the execution of policies and supervi sion of day-to-day operations. Thus, this view considers administration as super ior to management. 2. Administration is a part of management. European School of thought holds that

management is a comprehensive term and administration is a part of it. Accordin g to E.F.L. Brech, "Management is the generic term for the total process of exec utive control involving responsibility for effective planning and guidance of th e operations of an enterprise. Administration is that part of management which i s concerned with the installation and carrying out of the procedures by which th e programme is laid down and communicated and the progress of activities is regu lated and checked against plans." Kimball and Kimball, Richman and Copen also hold similar views. In their opinion , management comprises both policy-making and execution. Administration is that part of management which involves doing routine things in a known setting. The o ther and more important part of management is risk-taking, dynamic and innovativ e function. Thus, the European viewpoint is exactly opposite to the American vie wpoint. Administration and management are one. Henri Fayol, William Newman, Chester Barn ard, George R. Terry, Louis A. Alien, Harold Koontz, Cyril O'Donnell and many ot her writers make no distinction between administration and management. According to William H. Newman, management or administration is "the guidance, leadership and control of the efforts of a group of individuals towards some common goals. " Fayol said, all undertakings require the same functions and all must observe the same principles. There is one common science which can be applied equally we ll to public and private affairs. The distinction between administration and man agement is superfluous and meaningless. In practice, the two terms are used inte rchangeably because both involve the same principles and functions. Somehow, the word management has become popular in business enterprises where economic perfo rmance is of primary importance. On the other hand, the term administration is p referred in government departments, hospitals, religious trusts, educational ins titutions and other nonbusiness organisations. In order to resolve the terminological conflict between administration and manag ement, management may be classified into : (i) Administrative management; and (ii) Operative management. Administrative management involves determination of objectives and policies whereas operative management is primarily concerned with the execution of plans for the achievement of the objectives. At every level of management, an individu al manager performs both types of functions. Every manager spends a part of his time on administrative management and the remaining time on operative management . This can be seen from Fig. 5.2 Board of Directors Managing Director Production Manager Plant Superintendent Supervisor It is clear from the above figure that higher-level managers spend a major porti on of their time on decision-making and policy formulation (administration) whil e lower-level managers spend comparatively greater time on execution of plans an d policies (management). But every manager, irrespective of his position or leve l in the organisation, must plan as well as execute the plans. This approach app ears to be more logical because of two reasons. First, two separate sets of peop le are not required to perform administrative and managerial functions. Secondly , planning and doing are two faces of the same coin and it is not desirable to s eparate them. Table 5.1. Distinction between Administration and Management Points of Administration Management Distinction It is an executive or doing function It is concerned with the implementation of policies. It is largely a middle and lower-level function. Managerial decisions are influenced mainly by objectives and policies of the org anisation Administration

Management Fig. 5.2: Administration and Management compared It is a determinative or thinking function. It is concerned with the determination of major objectives and policies. It is mainly a top-level function. 1. Nature 2. Scope 3. Level Administrative decisions are influenced mainly by public opinion and other outsi de forces. It is not directly concerned with direction of human efforts. 4. Influence 5. Direction of human efforts It is actively concerned with direction of human efforts in the execution of pla ns. 6. Main Planning and control are function the main functions involved in it. Directing and organising are the main functions involved in it. Conceptual and human skills. Technical and human skills. I. Usage Used largely in government Used mainly in business 7. Skills required and public sector. organisations. 9. Illustrations Minister, Commander, Commissioner, Registrar, Vice-Chancellor, Governor, etc. Managing Director, General Manager. Sales Manager, Branch Manager, etc. Sales Officers Foremen or Supervisors Accounts or finance offi cers Salesmen Workers Fig. 5.3: Levels of Management Finance Manager Intermediate Management Operating Management Rank and file Work force Branch Plant Manager Supervisors Middle Management Clerks

Chief Accountant

Top Management. Top management consists of the Board of Directors and the chief executives. Chief executive may be an individual, e.g.. managing director, gener al manager, etc., or a group consisting of chairman and functional/executive dir ectors. Board of Directors is accountable to the shareholders in the Annual Gene ral Meeting of the company. It is basically an organ of overall review and contr ol. Chief executive is concerned with the overall management of the company's op erations. He maintains coordination among different departments/ subsidiaries/un its of the company. He also keeps the organisation in harmony with its extent en vironment. Thus, the main functions of top management are : (i) lo analyse and interpret changes in the external environment of the company; to establish long-term corporate plans (goals, policies and strategies) of the c ompany; to formulate and approve the master budget and departmental budge:?: to design b road organisation structure; (v) to appoint departmental heads and key executives;

(vi) to coordinate and integrate the activities of different departments and divisions of the company; (vii) to provide overall direction and leadership to the company; (viii) to exercise overall review and control of the financial and operating re sults of the company ; fix) to represent the company to the outside world (public relations); and (x) t o decide the distribution of profits, etc. Intermediate Management. Intermediate or upper middle management comprises departmental or divisional heads, e.g., wo rks manager, marketing manager, personnel manager, finance manager, etc. It is a lso known as departmental or functional management. Every divisional or departme ntal head is the overall incharge of one particular division or department. He i s accountable for the performance of his division or department to the chief exe cutive. He performs the usual managerial functions of planning, organising, staf fing, directing and controlling in relation to one department. He coordinates an d controls the activities of all personnel working in different branches or sect ions of his particular department. Middle Management. Middle management or lower.middle, managementJ^ve' consists o f sectional heads, eg., plant manager, area sales manager, branch manager, offic e manager,-etc-.-These executives serve as a link between intermediafe"oT-tQ]3 m anagement and the operating management. The main functions of middle-level manag ers are : (i) to interpret and explain the plans and policies formulated by-top management ; (ii) to monitor and control the operating performance; (Hi) to co-operate among themselves so as to integrate the various activities of a department; (iv) to train, motivate and develop supervisory personnel; and (v) to lay down rules and regulations to be followed by supervisory personne l. Supervisory or Operating Management. This is the lowest or first level of manage ment in an organisation. It consists of supervisors, foremen, sales officers, ac counts officers, purchase officers, etc. The distinguishing feature of superviso ry management is that it deals with non-managers, i.e.. workers, whereas all oth er levels deal with executives. Supervisors and operating managers maintain clos e contacts with the rank and file workers and supervise day-to-day operations. T hey serve as the channel of communication between management and the workforce. They are concerned with the mechanics of jobs. The functions of supervisory mana gement are as follows : 1. To plan day-to-day production within the goals laid d own by higher authorities. 5.17 refer to the ability to visualise the entire picture or to consider a situation in its totality. Such skills help the manager to conceptualise the environment, t o analyse the forces working in a situation and to take a broad and farsighted v iew of the organisation. Conceptual skills also include the competence to unders tand a problem in all its aspects and to use original thinking in solving the pr oblem. Such competence is necessary for rational decision-making. Thus technical skills deal with jobs, human skills with persons and conceptual skills with idea s. These types of skills are interrelated. But the proportion or relative signif icance of these skills varies with the level of management as shown in Fig. 5.4. Top Management Middle Management Operating Management 4. Diagnostic skills. Diagnostic skills include the ability to determine, by ana lysis and examination, the nature and circumstances of a particular condition. I t is not only the ability to specify why something happened but also the ability to develop certain possible outcomes. It is the ability to cut through unimport ant aspects and quickly get to the heart of the problem, i.e., logical thinking, analytical reasoning and creativity. Diagnostic skills are probably the most di

fficult ones to develop because they require the proper blend of analytic abilit y with commonsense and intelligence to be effective. Fig. 5.4: Managerial skills at various levels. Technical skills are most important at the supervisory or operating level, where a close understanding of job techniques is necessary to guide workers. As one m oves up the management hierarchy, technical skills become less important. Higher -level managers deal with subordinate managers and specialised technical knowled ge is comparatively less important for them. Conceptual skills are very importan t for top management in formulating long-range plans, making broad policy decisi ons, and relating the business enterprise to its. industry and the economy. Thus , the relative importance of conceptual skills increases as we move to higher le vels of management. Human skills are equally important at all levels of manageme nt. This should be self-evident as management is the process of getting thing do ne through people. CONCEPT AND NATURE OF MANAGEMENT SUMMARY 1. Management can be interpreted as an economic resource, a team, a discipl ine and a process. 2. Management is universal, purposeful, creative, unifying force, group phen omenon, social process, multidisciplinary, continuous, intangible, situatioral, art as well as science. 3. Management and administration are inter-related. 4 There are there main levels of management - top, middle and supervisary. 5. A manager requires technical, human, conceptual and diagnostic skills. TEST QUESTIONS 1. Define management and explain its nature. 2. "Management is concerned with ideas, things and people". Comment. 3. "Management is the art of getting things done through others". Explain. 4. "Management is the effective utilization of human and material resources to achieve the enterprise objectives" Comment. 5. Distinguish between management and administration. 6. "Management is the art of muddling through the situations". Do you agree ? Give reasons. 7. What are the levels of management? Explain in brief the functions perfor med at different levels. 8. Describe the skills required by managers. 5.19 / H L CHAPTER 6 MANAGEMENT PROCESS- BASIC FUNCTIONS AND ROLES CHAPTER 6.1 6.2 6.3 6.4 6.5 > OUTLINE Nature of Management Process Basic Functions of Management Coordination - The Essence of Management Roles of a Manager Reconciliation of Management Functions and Roles Summary

Planning Directing Staffing Fig. 6.1: Elements of the Management Process [6.11

>

Test Questions

3. Composite. All the managerial functions must be considered in their tota lity because management process is an organic and integrated whole. Each functio n makes a distinct contribution to this process but cannot be considered in isol ation. All the functions contribute to the whole and derive strength from each o ther. The final outcome is greater than the aggregate of their individual contri butions. A manager performs the various functions simultaneously in a continuum. 4. Social. The Scientific Management School developed by F.W. Taylor laid e xclusive emphasis on machines and neglected the human factor in industry. The co ncept of management as a human process was evolved by the behavioural scientists to recognise the role of human factor in industry. The advocates of this concep t argue that in as much as a manager gets things done through and with the help of people, the study of management should be centered around the workers and the ir interpersonal relations. Therefore, they focus attention on the study of the individual, his psychological motives and needs, the informal groups and group d ynamics. Thus, the concept of management as a human process is based on the view point that management is the art of getting things done through and with people in formally organised groups. This concept is centered around the study of inter personal relations and group processes and their impact on human behaviour and p erformance. The concept of management as a human process has the following implications: (i) A manager achieves results through and with other people,/.e., both lead er and led are important. (ii) In order to get things done through other people, a manager must delegat e authority effectively. (Hi) It is necessary to make decisions at all levels and in all situations. (iv) Effective motivation and democratic managerial leadership are the keys t o sound management. (v) People cannot be motivated to yield best results through negative instru ments such as fear of punishment, threat of unemployment, fines and penalties. (vij All managerial functions are essential for getting things done through othe r people. (vii) Getting things done through others becomes easier when people do things because they themselves want to do and not because their boss wants them to do. (viii) Management by participation, management by objectives or results and man agement by delegation are helpful in getting things done through others. 5. Iterative. Management functions have the quality of being 'iterative' i. e., they are contained within each other. The performance of one function does not get finished before the next one is initiated. For example, planning, o rganising, directing and controlling all may occur within the planning process. Similarly in performing the organising function, planning, organising and other functions would be involved. All managerial functions can be conceived as sub fun ctions of each other. The iterative nature of managerial functions illustrates t he dynamic nature of the management process. For conceptual purposes, however, it is convenient to arrange the elements or functions in a sequential manner. Plan ning precedes organising and other functions. Staffing follows organising, and t here can be no control without directing. This means that the sequential framewo rk has some rationale. There is some sequence and order in the management proces s. 6. Universal. Managerial functions are essentially the same irrespective of t he nature and size of organisations. Every manager does essentially the same wor k regardless of his rank or position in the organisation. Thus, the management p rocess is universal i.e. it applies to every organisation. However, elements of the management process are not ends in themselves but means for achieving organi sational objectives. They are valuable or useful only to the extent that they co ntribute to the survival and success of organisations. 6.2 BASIC FUNCTIONS OF MANAGEMENT The elements of management process are known as functions of management. There i s, however, no; single list of functions acceptable to all. Various authors have

classified these functions differently. Henri Fayol has classified them into pl anning, organising, commanding, coordinating and controlling. R.C. Davis identif ied planning, organising and coordination as part of control. Luther Gullick has given keyword 'POSDCORB' which stands Is for Planning CP), Organising (O), Staf fing (S), Directing (D), Controlling (Co), Reporting (R) and Budgeting (B). Koon tz and O'Donneil have suggested planning, organising, staffing, directing and co ntrolling. The various functions of management are so intertwired that it is not possible t o separate them from one another. These interdependent functions collectively co nstitute the integrated process of management. These functions are required to b e carried out simultaneously and not in any predetermined order. PLANNING 1. Establish standards FUNCTIONS OF 2. Measure performance 3. Identify causes of deviations 4. Take corrective actions 1. Motivation 2. Leadership 3. Supervision 4. Communication MANAGEMENT 1. Classify activities 2. Assign tasks 3. Delegate 4. Fix responsibility 5. Coordinate relationship 1. Manpower Planning 2. Recruitment 3. Selection 4. Placement 5. Training 6. Appaisal 7. Promotion and Transfer 8. Remuneration ONIJiVlS Fig. 6.2: Management Functions 1. PLANNING Planning is the most basic function of management. It involves thinking 'before doing' orlooking ahead. It is concerned with anticipating problems and developin g their solutions. Planning is concerned with conscious determination of a future course of action to achieve the desired results. It involves selection of objectives, 'policies, procedures, etc. Decision-making and problem solving are essential elements of planning. Meaning.: A plan is a future course of action decided in advance. It specifies t he ^objectives to be achieved in future arid the steps required to achieve them. Som important definitions of planning are given below: 'Planning means to assess the future and make provision for it. Henri Fayol 'Plann ing involves the collection of the relevant information from the past and the pr esent and the assignment of the probable future development so that a course of action may be determined to enable the organisation to meet its objectives. Henry L. Sisk

Planning is the selecting and relating of facts and the making and using of assu mptions regarding the future in the visualisation and formulation of proposed ac tivities believed necessary to achieve desired results. George R. Terry Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. Planning bridges the gap from where we are to where we want to go. It makes it possible for things to occur which would not otherwise happen. / Koontz. and O 'Donnell Features: (i) Planning seeks to achieve certain objectives (ii) Planning is orie nted towards the future (iii) Planning is a mental exercise (iv) Planning involv es choice from among alternative courses of action (v) Planning is the basis of all other functions (vi) Planning is a continuous process (vii) Planning is ail pervading, HyS i.e., it takes place at all levels, (viii) Planning is directed towards efficiency! eps: The process of planning involves the following steps: (a) Collecting inform ation about past, present and future forecasts (b) Defining objectives (c) Devel oping planning premises (d) Discovering alternative courses of action (e) Evalua ting the alternatives (f) Choosing the best alternative (g) Defining subsidiary plans, (h) Periodic review and revision of plans. Thus, planning involves determination of the objectives, policies, strategies, p rocedures, rules, programmes, budgets, etc. Planning may be for long term as wel l as for short term. It may be for the total enterprise and also for each depart ment of the enterprise. Good planning must be realistic and flexible i.e. capabl e adjustment to the changing environment. Advantages: (i) Planning focuses attention on desired objectives (ij) Planning Ve lps to minimise uncertainty and risk (iii) Planning hejps to improve efficiency of operations (iv) Planning avoids confusion and chaos (v) Planning encourages i nnovation and creativity (vi) Planning facilitates cooperation and teamwork (vii ) Planning serves as the basis of control. Limitations: (i) Lack of accurate information (ii) Time consuming (iii) Expensiv e ''(iv) Rigidity due to strict compliance with plans (v) Psychological barrier or unwillingness of people to change (vi) External limitations changes in Govern ment policies, technology, labour unions, market conditions, competitors' action s, etc. and natural calamities. ( PLANNING)* / When it is , to be done Fig. 6.3: Planning Cycle Where it is to be done How it is to be done These limitations may be overcome by (a) Top management support (b) Better forec asting (c) Developing clear cut objectives (d) Participation of employees in pla nning (e) Sound communication system (i) Overcoming resistance to change (g) Mak ing planning more scientific (h) Keeping plans well balanced and flexible. Decis ion-Making is an important part of planning. Right decisions at the right time h elp in the smooth running of the enterprise. Managers have to take several decis ions from time to time. Planning at a Glance Features Merits Demerits 1. Goal-oriented 1. Focus on. Objectives 1. Costly 2. Forward-looking 2. Order 2. Time consuming 3. Intellectual 3. Less risk 3. Rigidity 4. Primary 4. Higher efficiency 4. Inaccuracy 5. Pervasive 5. Control 5. False sense of security 6. Continuous 6. Innovation 6. Psychological barrier

7.

Choice 7. 8.

EJetter decisions Coordination

7.

External constraints

2. ORGANISING Meaning: Once the plans are formulated a network of authority-responsibility rel ationships is developed through which managers can implement the plans. Such a f ramework is called organisation structure and the process of developing it is kn own as organising. The organising function involves creation of a harmonious str ucture of authority responsibility relationships between various positions and p eople for the achievement of organisational goals. To organise a business means to provide it with everything useful to its functio ning- raw materials, tools, capital and personnel. Henri Fayol Organising is the process of identifying and grouping the work to be performed, defining and delegating responsibility and authority, establishing relationships for the purpose of enabling people to work most effectively together in accompl ishing objectives'. Louis A. Alien Organising is that part of managing that involves establishing an intentional st ructure of roles for people in an enterprise to fill. Organisation provides the necessary framework within which people associate for the attainment of business objectives. Koontz. and O 'Donnell Organisation is the process of so combining the work that individuals or groups have to perform with facilities necessary for its execution, that die duties so performed provide the best channels for efficient, systematic, positive and coor dinated application of available effort. -Oliver Sheldon Steps: The process of organising involves the following steps. (i) (ii) (iii) Identifying the activities required for achieving the objectives. Classifying these activities into convenient groups, Assigning these groups of activities to appropriate persons.

Fig. 6.4: Organising Process (iv) Delegating authority and fixing responsibility for carrying out the assi gned duties. (v) Coordinating these authority responsibility relationships throughout the enterprise. The nature and type of organisation structure depend upon the size and nature of the enterprise. Line; functional, line and staff are the main types of organisa tion used in different enterprises. Importance: A sound organisation contributes to the success of business in the f ollowing ways. (i) Organisation is the mechanism through which management directs, controls and coordinates me activities of the enterprise. (ii) Sound organisation facilitates growth and diversification by proper dele gation of authority. (iii) Organisation permits optimum use of human resources by matching work wit h talent. (iv) Organisation structure in group activity is the equivalent of social str ucture. It helps in communication and teamwork. (v) A harmonious organisation structure enables the enterprise to adopt new technology. (vi) Sound organisation encourages initiative and creative thinking leading t o development of managerial talent. Thus, organisation is the foundation of effective management. No groop activity can be successful without an effective organisation. Organisation structure is just like the human body through which the purpose of life is served. A sound or

ganisation must enable people to perform their duties efficiently. It should con tribute to the attainment of organisational objectives as well as to the interes ts of employees. It must be adaptable to changing conditions. 3. STAFFING Staffing involves manning the positions created in the organisation structure. I t is concerned with the human resources of the enterprise. It is concerned with acquiring, developing, utilising and maintaining human resources. It is a proces s of matching jobs with individuals to ensure right man for the right job. Meaning: Staffing may be defined as under: The managerial function of staffing involves manning the organisational structur e through proper and effective selection, appraisal and development of personnel to fill the roles designed into the structure. Koontz and O'Donnell With rapid advancement in technology, increasing size and complexity of organisa tions and growing competition, staffing has become an important specialised func tion. It is called 'personal management'. It is concerned with finding and devel oping the right man for the right jobs at all levels in the organisation. Staffing is the function of every manager though a manager can obtain the expert advice of the personnel department. Staffing is a difficult function because ac tions and behaviour of people can not be predicted. Steps: Staffing function consists of the following steps: (i) Manpower planning i.e. assessing the manpower requirements in terms of n umber and quality. (ii) Recruitment, selection, placement and orientation.

Manpower planning r Manning Positions Recruitment and Selection ( STAFFING) In the Organisation Trainingand Development Employee Remuneration Appaisal, Promotion and Transfer

Fig. 6.5 Staffing Process (iii) Training and development (iv) Appraisal, promotion and transfer. (v) Employee remuneration. Nature: The main features of staffing are: (i) It is a function of management (ii) It is an integral part of the process of management (iii) It is concerned with human resources (iv) It is a pervasive function (v) It aims at optimum utilisation of human resources. Importance: Efficient staffing provides the following benefits: 1. It helps in discovering and obtaining competent employees for various Jo bs. 2. It helps to improve the quantity and quality of output by putting the ri ght man on the right job. 3. It improves the job satisfaction of employees. 4. It reduces costs of personnel by avoiding wastage of human resources. 5. It facilitates the growth and diversification of organisation by develop

ing talent of employees. 4. DIRECTING Directing is concerned with the execution of plans through organised action. It is also known as 'Commanding',or 'actuating.' Meaning: Directing is that pan of management process which actuates the members of the organisation to work efficiency and effectively for the attainment of the desired objectives. Some important definitions of directing are given below: Di rection consists of the process and techniques utilised in using instructions an d making certain that operations are carried out as planned. Theo Haimann Directin g concerns the total manner in which a manager influences the actions of subordi nates. It is the final action of a manager in getting others to act after all pr eparations have been completed Joseph L Massie Direction is a complex function that includes all those activities which are des igned to encourage subordinates to work efficiently and effectively. Koontz and O'Donnell Direction is known as 'management in action' because it initiates organised acti on towards the accomplishment of desired objectives. Planning, organising and st affing are preparatory functions. Execution of work actually begins under the di rection function of management. Features: (i) Drecting is an executing function as it initiates action (ii) Dire cting is an ongoing function (iii) Directing converts plans into performance and is, therefore, creative (iv) Directing is the function of all managers (v) Dire cting is the interpersonal aspect of management as it is concerned with human be haviour (vi) Dir&eting is the link between planning and control. Importance: Directing initiates organised action and breathes life into the orga nisation. Therefore, it is called management in action. Effective direction prov ides several benefits (a) initiates actions (b) improves efficiency (c) facilita tes change(d) ensures coordination (e) assists growth and expansion of the enter prise. Elements: Directing is the process of guiding, supervising, leading and m otivating people at work so as to achieve the desired objectives. Supervision, c ommunication, motivation and leadership are the main elements of directing. Supe rvision: Supervision means overseeing suhnrHinatps at work It refers to the dire ct and immediate observation and watching of subordinates in the performance of their tasks. Supervision is required at all levels of management. .However, the major responsibility for supervision lies with the first line manager called sup ervisor. A supervisor serves as the link between workers and management. Supervision is an important part of directing. Good supervision provides greater and better work and cooperation and loyalty of workers. Supervision involves th e following main activities. (a) planning and allocation of work, (b) issuing orders and instructions to subordinates, (c) providing necessary guidance to employees, (d) maintaining discipline Supervision can be made more effective through sound organisational set up, effe ctive delegation of authority, sound communication human approach and control by exception. 2. Communication: Communication jsJjigjirxtcess-flLBassjng information and under standing from one person to another. It involves exchange ofinfbrmatfbn "and ide as between two or more persons. Communication is a two-way process and it is com plete when the response, or feedback to the message becomes known to the sender of the message. Communication takes place through writing, speaking and body ges tures. It may flow downwards, upwards or horizontally. According to Louis Alien, communication is the sum of things that one person does when he wants to create understanding in the mind of the other. It is a bridge of meaning. It involves a continuous process of telling, listening and understanding. Communication is essential at all levels of management. It is just like the circ ulation of blood in human body. Sound communication facilitates decision-making, promotes efficiency of operations, helps coordination, improves employee morale , promotes industrial harmony and boosts image of the organisation. Adequate com munication promotes mutual understanding and avoids mistrust and conflicts. Comm

unication keeps the management informed of various problems and grievances of em ployees and progress of work. It helps in securing participation Supervision Converting Plans (DIRECTING) Into Performance Leadership Motivation Communication Fig. 6.6 Elements of Directing MANAGEMENTPROCESS BASIC FUNCTIONS AND ROLES 6 11 of employees in planning and decision making. 3. Motivation: Motivation is the process of stimulating people to take the desired course of action. It involves inspiring subordinates to work hard toward s the accomplishment of desired objectives. Motivation is the task of every mana ger and it is required at all levels. In order to motivate his subordinates, a m anager must understand their needs and motives and provide appropriate financial and nonfmancial incentives to satisfy them. Motivation is the process of stimul ating people to action to accomplish desired goals. It refers to the ways in whi ch urges, desires, aspirations and needs explain the behaviour of people. Motiva tion is a vital element in the process of management. It keeps the people satisf ied so that they make the best utilisation of their talent and other resources. No organisation can be successful unless its members are induced, to contribute their best efforts for the attainment of the predetermined targets. Motivation i s, therefore, called 'the core of management'. It aims at increasing efficiency or productivity. 4. Leadership: Leadership is the process of influencing the behaviour of pe ople in the desired manner. It involves guiding, inducing and actuating subordin ates to woriTwith enthusiasm and zeal. A leader interprets the objective's of th e organisation, suggests the right course of action and stimulating and guiding people to achieve the objectives. To be a successful leader, a manager must poss ess several qualities e.g., foresight, initiative, self confidence, drive, coura ge, determination, integrity of character, etc. Leadership is situational as dif ferent types of leadership e.g., autocratic, democratic and free rein may be req uired in different situations. Directing at a Glance Elements Features Importance 1. Managerial function2. Continuous process 3. Creative function 4. Pervasive function 5. Linking function * 1. Initiates action 2. Improves efficiency 3. Ensures coordination 4. Facilitates change 5. Stability and growth 1. Supervision 2. Motivation 4. Communication 3. Leadership 6. Human Actor 5. CONTROLLING Meaning: Controlling is the process of measuring performance, comparing it with the standards and taking corrective actiorTwherever necessary, some popular

definitions of control are given below: Control consists in verifying whether everything occurs in conformity with the p lans adopted, the instructions issued and principles established. It has for its object to point out weaknesses and errors in order to rectify them and prevent recurrence. Henri Fayol Control is checking current performance against predetermined standards containe d in the plans, with a view to ensure adequate progress and satisfactory perform ance, and also recording the experience gained from the working of these plans a s guide to possible future needs. E.F.L. Brech Controlling can be defined as the process of determining what is to be accomplis hed, that is the standard, what is being accomplished, that is die performance; evaluating the performance; and if necessary, applying corrective measures so th at performance takes place accordingto plans, that is, in conformity with the st andard. G. R. Terry Controlling is the measuring and correcting of activities of subordinates to ens ure that events conform to plans. Koontz and O 'Donnell Controlling embodies the measuring of performance against predetermined objectiv es, including the gathering and the analysis of relevant facts and adjustments o f plans as required. Louis A. Alien Steps: The process of control consists of the following steps, Setting standards of performance, Measuring actual performance, Comparing actual results with the standards, Analysing causes of deviations, Taking corrective actions. Fig. 6.7: Controlling Process Control is required at all levels of management. Its main purpose is to ensure t hat the activity is achieving the desired results'. Control is inseparable from planning. Planning provides the basis for control and control compels events to conform to plans. Without plans control is blind just as uncontrolled activity w ill lead to failure of plans. Controlling is looking back. Importance: Control function is indispensable for ensuring satisfactory performa nce and progress of the organisation. An efficient control system improves effic iency of operations, ensures proper implementation of plans, facilitates delegat ion of authority and coordination. The control system must be easy to understand and apply. It must be economical and flexible. It must report deviation promptl y and assure corrective action. It must suit the nature and needs of the activit y and reflect the organisation pattern. It should focus attention on exceptional or critical areas. Controlling at a Glance Meaning : Pervasive, continuous, dynamic, forward looking and actionoriented function. Importance : Achievement of goals, better utilisation of resources, decentralisa tion, coordination, employee morale, easy supervision, better planning. Process : Fixing standards, measuring performance, comparison, analysing deviations, taking corrective actions. Features of a Appropriate, simp le, objective economical, flexible, quick, good control suggestive, control syst em forward-looking focus on system : strategic points. 6.3 COORDINATION Coordination is not a separate function of management. It is the very essence of management because it is inherent in all managerial functions. In planning, coo rdination is essential to ensure harmony between organisational goals and depart mental plans. In organising, coordination is required between authority and resp onsibility. In staffing, coordination is important for matching talent of employ ees with the jobs assigned to them. In directing, motivation and leadership ensu re functional harmony. In controlling, coordination is achieved by ensuring that actual results conform to the desired results. Thus, each function of managemen

t is an exercise in coordination. Meaning: Coordination means harmonising, synchronising and unif\ ing individual efforts towards the common objectives. According to Fayol to coordinate is to ha rmonise all the activities of an organisation so as to facilitate its working an d its success. Coordinating is the process of integrating and harmonising the activities of dif ferent individuals and departments for the accomplishment of organisational goal s. Coordination is the orderly arrangement of group efforts to provide unity of act ion in the pursuit of a common purpose. Mooney and Railey Coordination is the process whereby an executive develops an orderly pattern of group efforts among his subordinates and secures unity of action in the pursuit of common purpose. Dalton E. McFarland Coordination is the orderly synchronisation of .the efforts of the subordinates to provide the proper amount, timing and quality of execution so .that unified e fforts lead to the stated objective, namely, the common purpose of enterprise. Theo Harimann According to Fayol, a well-coordinated enterprise must satisfy the following con ditions: (a) Each department or division must be precisely informed of its share in t he common task. (b) Each department must work in harmony with other departments. (c) The working schedules of various departments should always be attuned to the circumstances. Coordination is a wider term than cooperation. Cooperation implies the willingne ss of members of the organisation to help one another and is the result of volun tary efforts. On the other hand, coordination requires deliberate action on the part of management to secure unity of purpose and unified action towards the ach ievement of common objectives. Elements: The essential elements of coordination are given below: (i) It is an orderly arrangement of group efforts, (ii) It is a continuous and dynamic process. (iii) Its purpose is to secure unity of action towards common objectives, MANAGEMENTPROCESS BASIC FUNCTIONS AND ROLES 6 15 (iv) It is the responsibility of every manager, (v) It does not arise spontaneously and has to be created through deliberate efforts. Importance: An organisation consists of several persons. There can be difference of opinion among them regarding the method of achieving the objectives. It beco mes essential to harmonise their opinions, motives and efforts through coordinat ion. Coordination eliminates conflict between different groups and departments o r the organisation. It provides a balance between persons having different abili ties and interests. It combines the different resources so as to secure better r esults. It also integrates the needs and interests of customers, employees, inve stors. Government and other external groups. Need for coordination has increased with the growing size and complexity of organisations, increasing specialisatio n, and rapidly changing environment. ^^JPf'incipIes: (i) Coordination should be started at an early stage (ii) It should be based on reciprocal relations (iii) It must be a continuous and dynamic process (iv) It can best be achieved through direct personal contact. Coordination the Essence of Managing Several authors regard coordination as one of the functions of management. In re ality, coordination is the very essence of management because the basic objectiv e of management is to integrate and harmonise human efforts. It is the epitome o f the management process as managerial functions are instruments to secure coord ination. The job of a manager can very well be compared - with that of an orches tra conductor who integrates the efforts of various' instrumentalists to produce rhythm. He interprets the composer's score so that every instrumentalist may ad just his voice and pitch to the score. Similarly, a manager blends the. efforts

of his subordinates to achieve unified action. Coordination permeates the entire process of management running like a silken th read through its elements. Every function of management is an exercise in coordi nation. Coordination makes planning more effective, organisation more well-knit, staffing more realistic, directing more efficient" and control more regulative. This point may further be elaborated as follows : 1. Planning is an exercise in coordination to the extent that it lays down the common objectives of the organisation. The various components of planning su ch as policies, strategies, procedures, schedules and programmes serve as means of integrating the activities of different groups and departments. 2. A sound organisation structure defines the interrelationships between di fferent positions and work units.- It involves grouping of activities into homoge neous departments. Authority relationships and roles will not be clear without t he integration of diverse activities. 3. The staffing function of management seeks to put right persons on differ ent jobs. The various functions of staffing, e.g., manpower planning, recruitment , selection, training, appraisal, etc., are performed to match job requirements and employee skills. This helps in achieving coordination in assigning tasks to various individuals. 4. Under the directing function a manager attempts to influence the behavio ur of individuals so as to secure goal-directed efforts. It is a conscious attem pt to relate and integrate the human side of the enterprise with the economic an d technical aspects of the enterprise so that both organisational and individual goals are accomplished. Fig. 6.8: Essential Nature of Coordination 5. Controlling contributes to coordination by making performance conform to plan s. Standards, measurement of performance and corrective action all converge to e nsure coordination. Thus, coordination is achieved through the management process. No function of ma nagement can be performed efficiently unless it contributes towards coordination . In the words of Koontz and O'Donnell, "The central task of the manager is to r econcile the differences in approach, efforts or interests and to harmonise the individual goals and actions, so thai they will bring group objectives". Fig. 6. 8 shows the essential nature of coordination. 6.4J0LES OF A MANAGER The job of a modern manager is very complex and multi-dimensional. Therefore, a manager has to play several roles to perform his job effectively and efficiently . Mintzberg has identified ten roles of a manager which are grouped into three categories. There is some arbitrariness in this classification but it is a usefu l framework for analysing and understanding the managerial job. These roles are inseparable and should, therefore, be viewed as an integrated whole. For example , status, as manifested in the interpersonal roles, brings information to the ma nager, and it is this information (together with the status) that enables him to perform the decision-making role effectively. Interpersonal roles involve inter actions with people. Informational roles are concerned with collection, dissemin ation and use of information for the purpose of communication. Decisional roles involve taking decisions about various issues in the organisation. A brief descr iption of the ten roles is given below : 1. Figurehead. In this role a manager performs symbolic duties required \ by the status of his office. Making speeches, bestowing honours, welcoming offici al visitors, distributing gifts to retiring employees are examples of such cerem onial and social duties. 2. Leader. This role defines the manager's relationship with his own subord inates. The manager sets an example, legitimises the power of subor- dinates and brings their needs in accord with those of his organisation. 3. Liaison. It describes a manager's relationships with the outsiders. A ma nager maintains mutually beneficial relations with other organisations, governme

nts, industry groups, etc. 4. Monitor. It implies seeking and receiving information about his organisa tion and external events. An example is picking up a rumour about his organisati on. 5. Disseminator. It involves transmitting information^ndjjji^niejits^lojfie ^ members of the organisation. The information relates to internal operations and the external environment. A manager calling a staff meeting after a business tr ip is an example of such a role. 6. Spokesman. In this role, a managerspeaks for his organisation. He lobbie s and defends his enterprise. A manager addressing the trade union is an example . 7. Entrepreneur. It involves initiating change or acting as a change agent. For example, a manager decides to launch a feasibility study for setting up a n ew plant. 8. Disturbance handler. Thjs refers to taking chaxggjvhen theorganisation f aces a problenior crisis, e.g.. a strike:_jud^between subordinates, -toss of an important customer.__A manager handles conflicts, complaints and competitive actions. 9. Resource allocator. In this role a manager approves budgets and schedules , sets priorities and distributes resources. 10. .Negotiator. As a negotiator, a manager bargains with suppliers, dealers , trade union, agents, etc. Table 6.1 : Ten Managerial Work Roles Role Description Typical Activiti es Seeks and receives information to obtain through understanding of organisation a nd environment Transmits information received from outsiders or insiders to othe r organisation members INTERPERSONAL ROLES Figurehead Symbolic head; performs routine duties of a legal or social nature Leader Responsible for motivati on of subordinates and for staffing and training Liaison Maintains network of f outside contacts to obtain favours and information INFORMATIONAL ROLES Monitor Disseminator Spokesman Transmits information to outsiders on organisation plans, policies, actions Ceremony, status requests Almost all managerial activities involving subordinates Handling mail, external Board work, telephone calls Reading periodicals, observational tours Forwarding mail, review sessions with subordinates Board meetings, handling mail DECISIONAL ROLES Initiates and supervises design of organisational improvement projects as opport unities arise Responsible for corrective Strategy and review sessions regarding change efforts Entrepreneur Disturbance Strategy and review action when organisation sessions regarding disturbance

faces unexpected crises efforts Responsible for allocation Scheduling, requests for of human, monetary, and authorization, budgeting material resources Responsible for representing Collective bargaining, handler Resource allocator Negotiator the organisation in bargaining purchasing and negotiations Generally, interpersonal roles are more prominent at the top level of management . At middle management levels, informational roles are more common. Decisional r oles are significant normally at top and lower levels of management. 6.5 RECONCILIATION OF MANAGERIAL FUNCTIONS AND MANAGERIAL ROLES Various functions and roles of a manager have been described above. Both functio ns and roles describe what managers do. Managerial functions provide the general framework for analysing the job of a manager. The analysis of managerial roles provides important insights into the problems and issues involved in management. However, the functions approach is easier than the role approach. Functions and roles of management can be reconciled (Fig. 6.9). In planning mana gers play informational and decisional roles. They receive, store, monitor and d isseminate information. They also make decisions concerning strategy, allocate r esources and initiate planned changes. In organising, managers play interpersona l and decisional roles. They establish relationships between activities and peop le, take decisions about placement and utilisation of resources and act as liais ons. In staffing, managers play decisional and interpersonal roles. They decide manpower to be procured, recruit, select and train people and negotiate with tra de unions. In directing, managers play interpersonal and decisional roles. They motivate and guide people through communication process. Controlling involves ma inly informational roles. Managers select information on results, compare it wit h the goals and take corrective actions. Roles Functions Interpersonal -Planning Organising Informational Staffing Directing Decisional Controlling Fig. 6.9: Reconciliation of roles and functions. Thus, role and functional approaches are two sides of the same coin. They are tw o different but related ways of examining the job of a manager. To some extent, the functional approach appears to be more universal than the role approach. Man agers -at all levels perform the same functions of planning, organising, staffin g, directing and controlling. On the other hand, roles like figurehead, spokesme n have no relevance to the job of a lower manager e.g., a supervisor. Mintzberg' s role approach is concerned mainly with the job of top manager. However, it is a new way of examining what managers do and how they spend their time. SUMMARY Functions of Management: Planning, Organising, Directing, Staffing, Controlling. Representation and Budgeting (PODSCORB). PJanning: Deciding goals and ways of a chieving them, looking ahead (i) Forecasting (ii) Planning premises (iii) Altern ative courses of action (iv) Choice of best alternative (v) Subsidiary plans. AdL^antages: (i) Attention on objectives (ii) Risk minimisation (iii) Efficiency (iv) Innovation and creativity (v) Coordination and control, ^imitations: (i) I naccuracy (ii) Time consuming (iii) Expulsive (iv) Rigidity (v) Unwillingness to change (vi) External limitations-Government policies technology changes, labour unions market conditions, natural calamities. Organising: Process of (i) identi

fying activities (ii) grouping activities (iii) 1 Assigning duties (iv) Delegati ng authority (v) coordinating authority responsibility relationships. Sound organisation structure facilitates coordination, growth, optimum use of re sources, initiative and adoption of new technology. ^Staffing: Process consistin g of man power planning, recruitment, selection, training, appraisal, promotion, transfer, etc. Directing: Putting plans into operation, called management in action. Consists o f'supervision, motivation, leadership and communication. Controlling: Process of setting standards, measuring performance, identifying ^e^iations, taking correc tive actions. A good system of control should be simple, flexible, economical, p rompt and suitable to the organisation. Coordination: Synchronising the efforts of subordinates of ensure unity of action towards the achievement of common obje ctives. It is the essence of management rather than a separate function of manag ement. Wider than cooperation. Roles: A manager plays inter personal, informatio nal and ^cisonal roles. TEST QUESTIONS 1. Explain the nature of the management process. 2. Describe in brief the nature, merits and limitations of planning. 3. Explain organising function of management. 4. Describe the nature and importance of staffing. 5. What is directing? Explain its main elements. 6. What is controlling? Describe its process and significance. 7. Define coordination and explain its elements. 8. "Coordination is the essence of management". Explain. 9. Explain the various roles of a manager as suggested by Henry Minlzbefg.

10.

How will you reconcile the functions and roles of a manager?

CHAPTER 7 PRINCIPLES OF MANAGEMENT CHAPTER 7.1 7.2 7.3 7.4 OUTLINE Meaning of Principles of Management Nature of Principles of Management Significance of Principles of Management Fayol's Principles of Managemnet Summary Exercises Management is a science consisting of well-tested principles. A principle means a fundamental statement of basic truth that provides a guide to thought and acti on. It establishes a cause and effect relationship between-two or-more variables . For example, the law of demand in Economics states that when prices fall deman d is likely to increase. Principles of management originated as a result of past experience and research. These principles enable a manager to tackle his proble ms in a scientific and systematic manner. However, principles of management are not hard and fast laws. They should be applied keeping in view me nature and nee ds of the particular situation. 7.1 MEANING OF PRINCIPLES OF MANAGEMENT Principles of management are fundamental truths that explain the relationship Be tween two or more variables under given situations. These principles establish r elationship between causes and their effects. Management principles provide guid elines for managerial decision-making and action. These are helpful in predictin g and understanding the results of managerial actions. However, management princ iples are not as exact as the principles of physical sciences because management is a social science. These principles are flexible and can be modified to suit

different situations. Principles of management originate and grow as a result of past experiences and study. Management principles are derived through the following methods: (i) Observation Method: Under this method, managers observe certain events i n actual practice. They analyse what is observed and gain experience which is us ed in future as a guide. (ii) Experiment Method: Under this method, researchers in the field of manage ment undertake empirical studies. On the basis of these studies they develop cer tain principles and test their validity. 7.^ NATURE (CHARACTERISTICS) OF PRINCIPLES OF MANAGEMENT The main characteristics of the principles of management are given below: 1. Universality: Principles of management are fundamental statements of tru th having universal validity. These principles can be applied in different types of organisations, e.g., business, Government, hospital, army, university, etc. The basic task of every manager is the same, i.e., to get the desired results th iough effective coordination of human and physical resources. Therefore, princip les of management may be used by managers in different organisations and at diff erent levels of authority. Management principles are universal in the sense that these principles can be applied in different managerial situations. 2. Relativity: Principles of management are not rigid but flexible and dyna mic in nature. These principles can be modified to suit different situations and all kinds of changes in the business environment. According to Henri Fayol, "pr inciples of management are not absolute and must be utilised in the light of cha nging and special conditions. Seldom does one have to apply the same principle t wice in identical conditions. Allowance must be made for different changing circ umstances." 3. Influencing Human Behaviour: Management is a social science and it deals with human behaviour. Human behaviour is complex and cannot be tested under con trolled laboratory conditions. Therefore, principles of management are not as ex act as the principles of physical sciences (e.g., physics, chemistry, etc.). The se principles are general statements. Management principles are directed towards influencing human behaviour for getting the best possible results. 4. Flexibility: The principles of management are relative and not absolute. They are dynamic not static. These principles should be applied carefully accor ding to organisational needs and prevalent situations. 5. Cause and Effect Relationship: Principles of management indicate cause, and effect relationship between two or more variables. These principles are used to solve different-managerial problems with the help of observations, analysis and experience. 6. Equal Importance: All the principles of management are equally important . These principles may be used with equal efficiency by the managers at differen t levels of authority. ^--^SIGNIFICANCE OF PRINCIPLES OF MANAGEMENT R Principles of management are required for the following reasons: 1. To hicrease efficiency: Principles of management have been developed fro m experiences of various experts. These principles provide necessary guidelines to managers as to how they should function in different situations to obtain the best results. Principles of management help to improve managerial efficiency. T hese principles enable managers to solve problems in a methodical way without was ting time and effort in trial and error. With the help of principles managers ca n avoid certain mistakes. Management principles help to improve the art of manag ement by suggesting how things should be done to get good results. 2. To crystallise the true_jiature of management: Knowledge and understandin g of the principles and concepts ofTnanagement makes it easier to describe and a nalyse the true nature of management. In the absence of principles, it would not have been possible to develop a scientific and organised body of knowledge in m anagement. Fundamental principles and basic concepts have helped to develop the s cience of management. 3. To_train managers: In the absence of principles, the training of manager s depends upon trial and error method. Formal methods of training managers in in

stitutes and universities are possible only when there are fundamental principle s and concepts. Principles of management provide a conceptual framework for scie ntific and systematic training and development of managers. 4. To improve research: Growing popularity and utility of management principles haveattracted experts towards their study and analysis. Principles of management have helped in expanding the horizon of knowledge in management. The se principles have served as the basis for further research and growth in manage ment. Management principles provide new ideas, vision and imagination for conduc ting research studies in management. 5. To attain social goals: Principles of management enable managers to rrta lce~u'pLiliiuiii uac of human and material resources. The supply of quality good s at reasonable prices improves social welfare. Managers coordinate the efforts of people so that individual objectives get translated into social attainments. Efficient use of resources helps to improve the quality of life and progress of the society. All type of waste is reduced. Management principles help in achievi ng cooperation among, people to achieve the desired results. Spirit of cooperati on increases harmony in society. 6. To clarify thinking: Principles of management make the thinking of manag ers clearer and systematic. A new manager can understand the nature of managemen t with the help of these principles. 7. To spread knowledge: Principles of management are useful in spreading managerial knowledge through teaching. These principles constitute an organised body of knowledge which is taught in management institutions and business school s. Management education and management protection have made rapid profession due to management principles. 8. To evaluate managerial behaviour: Principles of management prescribe what one should do to manage things in a given situations. These principles atte mpt to prescribe and evaluate the behaviour of managers. Principles of Management at a Glance Meaning : General statements of fundamental truth which establish cause and effe ct relationship and are derived through observations and experiments. Nature : U niversal, flexible, human behaviour, relative, cause and effect relationship, eq ually important. Significance : To increase efficiency, to highlight true nature of management, t o train managers, to improve research, to attain social goals, to spread knowled ge, to evaluate managerial behaviour. 7.4 FAYOL'S PRINCIPLES OF MANAGEMENT Henri Fayol (1841-1925) was a French industrialist. He joined a French Mining Co mpany (Commentry-Fourchambault-Decanzeville) in 1860 as an engineer and rose to the position of its Managing Director in 1888. Through his long practical experi ence, Fayol developed a general theory of management. He published a book. Admin istration Industrielle Generate, in French in 1916 which was translated into Eng lish in 1929 under the title. General and Industrial Management. Classification of Business, Activities: Fayol classified all business activities into six categ ories as given below: 1. Technical (production or manufacturing); 2. Commercial (buying, selling and exchange); 3. Financial (search for and optimum use of capital); 4. Security (protection of property and persons); 5. Accounting (including statistics); and 6. Managerial (forecasting and planning, organising, commanding, coordinati ng and controlling). Elements of management: Fayol divided management into the, following efeilnents or functions : (i) forecasting and planning, (ii) organising, (iii) commanding, (iv) coordinati ng, and (v) controlling. ManageriaLqualities and training. Fayol suggested that a successful manner must Health and vigour possess the following qualities'": (i) Physical (ii) Mental Ability to understand, analyse and adapt (iii) Moral Energy, firmness, initiative, loyalty, tact and dignity

(iv) Educational General acquaintance with common matters (v) Technical Knowledge of machines and work processes (vi) Experience Arising from work proper Fayol stressed upon the need for formal education and training in management. Principle^ of Management: Henri Fayol suggested the fourteen principles of management which are given below: 1. Division of work: Division of work means division of the total task in t o compact jobs and allocating these compact jobs to djffererry^ersons so that_an employee-ean GQiicentrate on only one type of work. It helps to improve efficienc y by avoiding wastage of time and efforTcaused by change from one type of work t o another. When an individual does the same job repeatedly he acquires speed and accuracy i n performance. In the words of Henri Fayol, '"the worker always on the same post , the manager always concerned with the same matters, acquire an ability, surene ss and accuracy which increases their output". Division of work is applicable to all kinds of work, technical as well as managerial. 2. Authority and responsibility: Authority is the right to get work done fr om others and responsibility-is-ihe_ obiigation_ to perform the assigned tasL_An yone who exercises authority must accept responsibility for his work. Similarly, one who is held responsible should be given the necessary authority. Authority and responsibility are coexistent and they must go hand in hand. Authority witho ut responsibility leads to irresponsible behaviour while responsibility without authority will make a person ineffective. Therefore, there should be parity betw een authority and responsibility. 3. Discipline: Discipline implies obedience, respect of authority and ob- s ervance_jafJJae-estaI^hed rules and Tegulations. Discipline is essential for the smooth running of every organisation. According to Fayol, good supervision at a ll levels, clear and fair rules and built-in system of penalties will help to ma intain discipline. 4. Unity of command: Accordmg to this principle an employee should receive orders from one superior only and be accountable to him. No person can serve sev eral masters at the same~timeT If a suborBinate has more than one boss, dual com mand will undermine authority, weaken discipline, divide loyalty and create conf usion, delays, etc. Principle of unity of command is very relevant in large and modem organisations as it helps in smooth working of people. 5. Unity of direction: There should be one head and one plan for a group of activitjes_having the samg_j)bject ye. In other jyordi^TeacF^roup of activiti es with the same objective must have one plan__of_aclk>ii_and must be under lhe~ T^ontroT7>FOTKr^ of direction unityof~action and coord lhatfofTof efforts are not possible. Unity of direction should be differentiated from unity of command. Unity of comm and relates to the functioning of people whereas unity of direction is concerned with the activities. Unity of direction does not automatically lead to unity of command though there cannot be unity of command without unity of direction. 6. Subordination of individual interest to general interest: An organisation jsbigger than an individual. Therefore.Jjie interests^ or goals" of the organisation must prevail upon the pe^ualintCTe-stS-omdividuals. In order to ^liieve^slipremacy of group or common interests, managers musrsetTTgoocTexample andllieyiriustT)eJ^m^ wTtlT~sulwrdin^e^Xohstant supervision is necessary to prevent promotion of person al interests at the cost of the organisation. 7. Remuneration: The remuneration payable to workers must be fair, reasonabl e and satisfactory both to the employees and the employer. It must reward effort so as to motivate higher productivity. The amount of remuneration and the metho d of wage payment should both be fair and rewarding. 8. Centralisation: According to Fayol, everything that increases the importa nce of subordinates role is decentralisation and everything that reduces it is c entralisation. Centralisation and decentralisation is a matter of proportion and the right proportion between them should be decided keeping in view the circums tances of the particular case. There should be a proper balance between centrali

sation and decentralisation. 9. Scalar chain: It refers to the chain of superiors ranging from the ultim ate authority (top) to the lowest rank (bottom). Normally, the prescribed Fig. 7.1: Scalar chain and Gang Plank through the established chain of command. However, to facilitate quick communica tion between two links in the chain, a gang plank (direct contact) may be create d. In this figure, the scalar chain is represented by the double ladder HAO. Any co mmunication from F to M will flow upwards A through E, D, C and B and then downw ards through I, J, K and L. A gang plank represented by the dotted line between F and M may be created to avoid delays and difficulties in communication. Gang p lank should not, however, be a normal practice because it undermines the establi shed lines of authority. Moreover, F and M should inform theirs respective super iors about the direct communication among them. 10. Order: Tjjere must be material and social order in an enterprise. Materi al order implies a proper place for everything and everything in its right piace .,Similarly, social order means "a place for everyone and everyone m his appoint ed place". The right man in the right job is very important for the successful f unctioning of an organisation. 11. Equity: Management should treat the employees with justice and kindness. There should be equity of treatment in dealing with subordinates'and no discrimi nation should be made between them. Nepotism and favouritism should not exist as these are injurious to the motivation and morale of employees. 12. Stability of tenure: It takes time to learn and get used to a job. There fore, a reasonable security of service should be provided to all employees. Stab ility of tenure helps to develop loyalty and attachment on the part of employees . Unnecessary labour turnover or change of personnel increases cost of selection and training and spoils the image of the firm. 13. Initiative: Employees at all levels should be encouraged to think out an d execute the assigned tasks in a better way. Initiative is a source of strength for an organisation. Therefore, subordinates should be inspired to suggest impr ovements in the formulation and implementation of plans. 14. Esprit de corps: There must be team spirit and cooperation among the mem bers of an organisation. 'Unity if strength' and the strength of an enterprise l ies in the cooperation and harmony in individual efforts. Group efforts are more than the aggregate of individual contributions on account of esprit de corps. Stability of Tenure <- Equity order <e- Scalar chair <r- Centralisation Fayol's Priciples of Management -> Division of Work Authority and Responsibility Discipline Unity and Command Unity of Direction Fig. 7.2: Fayol's Principles of Management SUMMARY Meaning. A fundamental statement of truth describing cause and effect relationsh ip Nature: (i) universality (ii) flexibility (iii) Human behaviour (iv) relativi ty (v) cause and effect relationship, (vi) equal importance. Significance: (i) to increase efficiency (ii) To crystallise the nature of manag ement (iii) To train managers (iv) To attain social goals (v) To improve research (v i) to clarify thinking (vi) to spread knowledge (viii) to evaluate managerial be haviour. Henry Fayol: (i) Business activities technical, commercial, financial, security, a ccounting and managerial (ii) Elements of management forecasting and planning, org

anising; commanding, coordinating and controlling (iii) Managerial qualities phys ical, mental, moral, educational, technical and work experience (iv) Principles: (a) Division of work, (b) Authority and responsibility, (c) Discipline, (d) Unity of command, (e) Unity of direction, (f) Subordination of i ndividual interest to common interest, (g) Remuneration, (h) Centralisation, (i) Scalar chain, (j) Order, (k) Equity, (1) Stability of tenure, (m) Initiative, a nd (n) Esprit de corps. TEST QUESTIONS 1. Describe any five principles of management. r 2. Discuss the need for the principles of management. 3. Define management principles. Briefly discuss any four features of manage ment principles. 4. Discuss the nature of the principles of management. 5. Describe the following principles of management: (0 Division of wack (ii) Unity of command (Hi) Esprit de corps (iv) Initiative ( v) Authority and Responsibility 6. Explain the nature of the principles of management. 7. Describe Fayol's principles of management. 8. Distinguish between unity of command and unity of direction. 9. Discuss the need for the principles of management. 10. (i) Explain the need for management principles. (ii) Discuss any six principles of management, as laid down by Henry Fayol. CHAPTER 8 SCIENTIFIC MANAGEMENT CHAPTER OUTLINE After studying this chapter you should understand : 8.1 Meaning of Scientific Management 8.2 Principles of Scientific Management 8.3 Techniques of Scientific Management 8.4 Importance of Scientific Management 8.5 Criticism of Scientific Management 8.6 Comparison between Taylor and Fayol > Summary > Exercises Though the practice of management is as old as human civilisation, the scientifi c and systematic study of management began mainly after the Industrial Revolutio n. Several pioneers and thinkers have contributed to the development of modern m anagement. Two outstanding names among such pioneers are Frederick Winslow Taylo r and Henri Fayol. F.W. Taylor (1856-1915) w^s an American and he began his career as a machinist i n Midvale Steel Works in Philadelphia, USA and rose to the position of its chief engineer. Later, he joined the Bethlehem Steel Works. Through out his career, T aylor was concerned with the problems of increasing labour productivity without putting undue strain on workers. He conducted several experiments and through hi s practical experiments he developed a theory of management which came to be kno wn as 'scientific management'. Therefore, Taylor is known as the 'father of scie ntific management'. Taylor's ideas are found in his two books, namely, Scientifi c Management and Shop Management. Taylor was assisted in the development of scie ntific management by many other pioneers like Henry L. Gantt, Harlow S. Person, Harrington Emerson, Frank B. Gilbreth, Lillian C^ilbreth and so on. 8.1 MEANING OF SCIENTIFIC MANAGEMENT j In a broad sense, scientific management implies the application of scientific me thods of study and analysis to the problems of management. It is a systematic an d thoughtful approach to the job of management as compared to the rule-of- thumb , or hit-and-miss, or trial-and~error approaches. It is concerned with the [8.1]

scientific bent of mind and is more than merely a set of techniques for improvin g efficiency. It implies substitution of exact scientific investigation and know ledge for individual judgement or opinion in all matters undertaken in the estab lishment. Taylor believed that management is a science resting on well recognise d and clearly defined principles. Definitions Some important definitions of scientific management are given below: Scientific management means knowing exactly what you want men to do and seeing t hat they do it in the best and the cheapest way. ' F. W. TaytOr The term "scientific management" characterises that form of organisation and pro cedure in purposive collective efforts which rests on principles and laws derive d by the process of scientific investigation and analysis, instead of any tradit ion or on policy determined empirically and casually by the process of trial and error. Harlow S. Person Its (scientific management) core is the organised study of work, the analysis of work into its simplest elements and the systematic improvement of the worker's performance of each element. Peter F. Drucker "it is the art and science of preparing, organising and directing human effort a pplied to control the forces and utilise the materials of nature for the benefit of man." Association of Mechanical Engineers, USA Thus, scientific management refers to the use of scientific methods in place of rule of thumb or trial and error in solving management problems. It involves obs ervations and analysis of each task, determination of the standards of work, sel ecting and training men to perforin their jobs and ensuring that work is done in the most efficient manner. The main objective of scientific management is to in crease the efficiency of production in industrial organisations. 8.2 PRINCIPLES OF SCIENTIFIC MANAGEMENT The philosophy of scientific management is based upon the following principles: Science not Rule of Thumb The first principle of scientific management requires scientific study and analy sis of each element of a job in order to replace the old rule-of-thumb approach. Development of a science for each element of a man's job requires that decision s should be made on the basis of facts rather than on opinions and beliefs. The work assigned to an employee should be observed and analysed with respect to eac h element or part and the time involved in it. The purpose of such observation a nd analysis is to decide the best way of performing the work and to determine th e standard output. Scientific Selection, Training and Development of Workmen This principle requires that workers should be selected and trained in accordanc e with the requirements of the jobs to be entrusted to them. The physical, menta l and other requirements -should be specified for each job, and workers should b e selected and trained to make them fit for the job. Instead of allowing workers to learn themselves, systematic training and development programmes should be d esigned to improve their skills and work performance. Efforts should be made to develop each employee to his greatest efficiency. Harmony not Discord The interests of the employer and employees should be fully harmonised so as to create a mutually beneficial relationship. In place of individualism, close coop eration between management and workers should be created so that work is done in accordance with the principles of scientific management. In the absence of cons tant and willing cooperation between the two sides, maximum prosperity for both cannot be achieved. Wage incentives like profit sharing may be used to create ha rmony of interests and employee satisfaction. Separation of Planning from Operational Work Management should assume the responsibility for which it is better suited. Manag ement should decide the methods of work, working conditions, time for completion of work, etc. instead of leaving them to the discretion of the workers. In othe r words management should take more responsibility for planning and supervision of the work, while workers should be concerned with the execution of plans. Thus , planning is to be separated from doing. The responsibility for planning and wo

rk should be equitably divided between management and workers so that each may p erform the task to the best of his abilities. In this way, efficiency of perform ance of both workers and managers can be secured. Maximum not Restricted Output The aim of management should be to secure maximum prosperity for each employee a long with maximum prosperity for the employer. This can be possible only when ef ficiency and output are maximised. Maximum output and optimum utilisation of res ources will bring higher profits to the employer and higher wages/ salaries for employees. Mental Revolution-Cooperation not Individualism It means a complete change in the outlook of both management and workers with re spect to their mutual relations and in relation to the work effort. Instead of f ighting on the division of surplus of industry, they should work together to inc rease the surplus so that each can get more. Mental revolution requires that man agement should create suitable working conditions and provide an opportunity to workers to participate in the management and surplus of industry. Similarly, wor kers should perform their jobs with utmost devotion and care. In the words of Ta ylor: "In its essence, scientific management involves a complete revolution on the part of the working men ... and it involves the equally complete mental r evolution on the part of those on the management side ... and without this compl ete mental revolution on both sides scientific management does not exist." Principles of Scientific Management at a Glance 1. Science not rule-of-thumb. 2. Development of each employee to his greatest efficiency. 3. Harmony not discord. 4. Equal division of work and responsibility. 5. Maximum prosperity of employer, coupled with maximum prosperity of each employee. 6. Corporation not individualism mental revolution. 8.3 TECHNIQUES OF SCIENTIFIC MANAGEMENT The principles described above constitute the philosophy or essence of scientifi c management. It must not be confused with the mechanism or techniques of scient ific management. In order to implement the principles of scientific management, Taylor and his associates developed the following techniques. 1. Time Study It refers to the technique used to measure thejime-that-fflay-be taken by a work man of reasonable skill and efficiency to perform various elements ofa job. According to Gilberth, "it is the art of recording, analysing and synthesising t he time elements of any operation." The aim of time study is to fix 'time standa rds' for each operation. In a time study programme, the job or operation is divi ded into its constituent elements. Each element is studied with the help of a st opwatch to find out the time taken in its performance. Then adjustments are made in actual timings for the rest period and other employee needs. Finally, the st andard time of each element of work and for the job as a whole is determined. Ti me study is helpful in deciding the time required normally to perform a given jo b. It also helps in determining a fair day's work for the workman. 2. Motion Study Motion study means close observation of the movements of_a^worker's body Tnvolve d in performing a job. The purpose ofliiotloffstudy is to avoid wasteful motions and^^Herrnlnelhebest way of doing a job. For example, suppose a worker is engag ed in a motor mechanics job. The motion study expert observes how the worker mov es various parts of his body, how many times he picks up and keeps the tools bac k. Such observations may reveal some unnecessary movements made by the worker. T hese wasteful movements may be eliminated and a better way of doing the job may be determined. According to Frank Gilbreth, "motion study is the science of eliminating wastefu lness resulting from using unnecessary, ill-directed and inefficient motions. Th

e aim of motion study is to find and perpetuate a scheme of best method of work. " Motion study helps to find the 'best method' of doing work. By developing the id eal sequence of motions, it helps to increase efficiency, reduce human fatigue a nd reduce cost of operations. Gilbreth identified 17 basic motions involved in e very human operation. These motions are as follows: 1. Search (Sh) 10. Inspect (I) 2. Select (St) 11. Assemble (A) 3. Grasp (G) 12. Disassemble (DA) 4. Transport empty (TE) 13. Use (U) 5. Transport loaded (TL) 14. Unavoidable delay (UD) 6. Hold (H) 15. Avoidable delay (AD) 7. Release load (RL) 16. Plan (Pn) 8. Position (P) 17. Rest for overcoming fatigue (R) 9. Proposition (PP) 3. Method Study The aim of method study is' to maximise efficiency in the use of materials, mach inery, manpower and capital by improving work methods. Method study involves the critical examination ot planrtayoul, pioducl destgnTmaterial handling and Work processes, to minimise time, distance and cost involved in the transportation an d storage of materials. 4. Fatigue Study Industrial fatigue arises when a person keeps on working without rest pauses for a long time. Physical "and mental fatigue affects the health and efficiency of workers. In order to minimise the incidence of fatigue, it is necessary to provi de rest period after regular time intervals. During the rest period, the worker can regain his energy. Fatigue study seeks to find out how long a person can per form the standard task without any adverse effect on his health and efficiency. Excessive specialisation and poor working conditions may also cause monotony and boredom among workers which may result in more accidents, spoilage, absenteeism and labour turnover. Physical exhaustion and mental tiredness can be reduced by improving working conditions, reducing noise and hours of work, etc. Thus, fati gue study helps to determine the amount and frequency of rest intervals in compl eting a job. Time study, motion study, method study and fatigue study together constitute wor k study. Work study refers to the systematic, objective and critical examination of all f actors influencing the efficiency of operations to effect improvement therein. I t involves the measurement and improvement of work in all aspects so as to maxim ise the efficiency of work. 5. Scientific Task Setting Scientific planning of a task is the technique of forecasting and viewing ahead every step in a long series of separate operaltoMTEactrsteplrasTpije^akea^ the r ight place, of the right degree, and at the right time, so that work can be done with maximum possible efficiency. Scientific task is the amount of work which a n average worker working under proper working conditions can perform during a wo rking day. Taylor called it 'a fair day's work'. Task planning is the responsibi lity of management which has to decide what work is to be done, how, when, where and by whom. The following steps are involved in scientific task planning: (a) Routing. Routing implies laying down the route or path to be followed by each piece of raw material before its conversion into the finished product. In this step, the manager lays down the sequence of operations. The route and its d etails are usually shown in a route sheet forthe guidance of workers. (b) Scheduling. At this stage, a time table of operations is prepared to'ens ure completion of each piece of work at the right time. Scheduling determines th e order or priority for each operation and the time to be taken for its completi on. A master schedule is prepared to ensure the full utilisation of available re sources. From the master schedule, each department or section can prepare its ow n detailed manufacturing or operation schedule. (c) Dispatching. Once the route and schedule are laid down, orders and instr

uctions are issued for the work to begin. Dispatching also involves assembling o f necessary resources, assignment of jobs, supervision of work, enforcing discip line and coordinating activities of different individuals. Instructions are issu ed for the work to begin. (d) Follow-up. The last step in scientific task planning is checking of work and taking corrective steps to ensure that each piece of work is completed at t he right time; in the right amount and at the right cost. The progress of materi als and parts is regulated to maximise efficiency of performance. 6. Standardisation Standardisation is the process of fixing well tjpught-out and tested standards o r norms-with a view4o-ffta*imise efficiency of work. Standards may be establishe d for products, materials, equipment, work methods and working conditions. Stand ardisation of products implies that the size, design, weight, shape, quality, et c. of the product should be such that it meets the requirements and tastes of cu stomers. Such standardisation eliminates needless variety and thereby simplifies the process of production. Standardisation of product can be achieved only if the type and quality of mater ials and the method of handling materials are standardised. Similarly, the tools , machinery, speed of work, method of work and working conditions should be stan dardised. Such Standardisation helps to reduce spoilage and wastage of resources , improves the quality of work, reduces cost of production and reduces human fat igue, etc. Thus, Standardisation seeks to ensure (a) the product is produced according to predetermined type, form design, si ze, weight, quality, etc. (b) manufacture of identical parts and components which are interchangeable with one another. (c) standards are established as regards quality of manufactured goods. (d) standards of performance are established for workers at all levels. 7. Differential Piece-rate Plan Taylor suggested the use of a differential piece-rate system in order to motivat e workers to produce the maximum quantity. Under this system of wage payment, wa ges are paid on the basis of the work done, TWO piece rates are used, one higher rate for those workers who produce the standard output or more, and the other l ower rate for those workers who produce less than the standard quantity. Standar d output is fixed through time and motion studies. Suppose, a fair day's work is fixed at 10 units and two workers A and B produce 12 units and 8 units respectively. If the two piece rates are Re 1 and Re 0.75, A will receive Rs 12 while B will be paid Rs 6 only. In this way B will be penal ised for producing below the standard. Thus, the inefficient workers will be und er pressure to improve their efficiency and to reach the standard output. 8. Functional Foremanship In order to apply specialisation at the supervisory level, Taylor developed the system of functional foremanship. Under this system, planning and execution are separated from each other and the job of planning is entrusted to a specialised planning department. A single supervisor cannot be expected to be all expert in all aspects of work and, therefore, Taylor suggested that every worker should be supervised by different experts in different phases of his job. He advocated th e appointment of eight foremen, four of them (in the office) being responsible f or planning the work and the other four (in the shop) concerned with the executi on of work. The eight foremen and their respective duties are as follows (Fig.8. 1) (a) Route Clerk. The route clerk lays down the sequence or path that each op eration is to follow, for the completion of a particular job. He decides the exa ct route through which every piece of work should travel from machine to machine . Workers are expected to do their work strictly according to the route specifie d by the route clerk. (b) Time and Cost Clerk. The time and cost clerk frames the time table for d oing various jobs and maintains the records of the cost of work.

Plant Superintendent Rout Time and Instruction Disciplinarian Gang Speed Repair Inspector Fig. 8.1: Functional Foremanphip (c) Instruction Card Clerk. The job of instructlpn card clerk is to prepare detailed instructions according to which workers have to perform their jobs. The se instructions relate to matters like the.' speed of work, tools and fixtures t o be used, technical specifications of work, etc. (d) Shop Disciplinarian. The main function of the shop disciplinarian is to enforce rules and regulations and maintain discipline among workers. He deals wi th cases of unauthorised absence from duty, insubordination, violation of establ ished rules and regulations, etc. (e) Gang Boss. The gang boss is concerned with all preliminary work before t he actual operation. He has to assemble tools and equipment and also arrange the facilities in the plant. He is also expected to explain to the workers how to s et the work in the machine in the most accurate and quickest manner. (f) Speed Boss. The speed boss is responsible for ensuring that the work is done well in time. In order to get the work completed in the specified time, he should see that the workers operate at the right speed and in accordance with th e specifications laid down in advance. (g) Repair Boss. His job is to ensure that each worker keeps his machine cle an and free from rust, and that he oils and treats the machine properly. In orde r to keep all machines and tools in perfect working order, it is necessary that all standards established for care and maintenance of machines and their accesso ries are rigidly maintained. Works Manager (h) Inspector. It is the responsibility of the inspector to see that the wor k done conforms to the standards of quality laid down by the planning department . 8.4 IMPORTANCE OF SCIENTIFIC MANAGEMENT Scientific management can be beneficial to all businessmen, workers and the societ y as a whole. Advantages to Businessmen Scientific management offers the following benefits to businessmen: 1. Higher Efficiency Scientific management helps to improve the efficiency of business through standa rdisation, simplification, scientific task-planning; specialisation and work stu dy. A higher output can be obtained from the available resources by putting the right man on the right job. 2. Lower Costs Scientific management enables businessmen to minimise the cost of production by eliminating all types of wastes. Increase in productivity and economy of scale, which is made possible by scientific management, also results in reduction of co st. 3. Wider Market Reduction in costs and prices help to widen the market and improve the growth of the firm. This enables the businessmen to earn ever-increasing profits. 4. Industrial Peace Scientific management involves a mental revolution on the part of employers and employees. Mutual understanding and cooperation between them helps to minimise i ndustrial disputes and maintain cordial industrial relations. Advantages to Workers Workers get the following benefits from scientific management: 1. Higher Remuneration Various techniques of scientific management enable workers to improve their perf ormance and wages. Through a differential piece-wage system, workers can increas e their wage rate by producing more than the standard output. 2. Better Working Conditions

Scientific management requires standardisation and improvement of working condit ions. As a result, workers can give higher productivity without undue fatigue. T hey derive job satisfaction due to matching of job requirements and human capabi lities. 3. Free Training Scientific training and development of workers is an essential part of scientifi c management. Facilities for free training enable workers to improve their skill s and opportunity for promotion. Advantages to Society Scientific management is beneficial to society in the following ways: 1. Improvement in Standard of Living Scientific management helps to improve the quality of products and reduce the co st of production. As a result consumers get more satisfaction. Workers and emplo yers can also improve their living standards due to higher earnings. 2. Economic Progress Progress and prosperity of the whole community becomes possible due to better ut ilisation of national resources. Increase in productivity and elimination of was te on account of scientific management helps tn improve the quality of life. Cos t reduction helps to boost exports and foreign exchange resources of the country . 8.5 CRITICISM OF SCIENTIFIC MANAGEMENT Despite all these benefits, scientific management has been opposed not only by w orkers but by employers and psychologists as well. Workers' Viewpoint Workers and trade unions have been the strongest opponents of scientific managem ent. They have criticised scientific management on the following grounds: 1. Unemployment Workers feel that scientific management reduces employment opportunities for the m through replacement of men by machines and by increasing human productivity. A lesser number of persons are required to do the work, leading to retrenchment o f some employees. 2. Exploitation Workers are not given their due share in the gains achieved due to increased pro ductivity of the enterprise. Beyond a standard output, there is no increase in t he wage rate under the differential piece-rate system. Comparatively less effici ent workers who fail to achieve the standard are penalised heavily. Wages do not rise in the same proportion in which productivity of labour increases. Wage pay ments on piece-rate system create uncertainty and insecurity among workers. 3. Monotony Scientific management reduces the scope for initiative on the part of workers du e to standardisation and specialisation. The status of workers is reduced to bei ng mere cogs in the wheel. Jobs become dull and monotonous causing mental fatigu e. Workers lose interest in jobs and derive little pleasure from work. 4. Weakening of Trade Unionism Scientific management reduces the role of trade unions as standards of output, w ages and working conditions are determined on scientific basis. There is little scope for bargaining on these matters. The differential piece-wage system divide s workers into efficient and inefficient. Scientific management may lead to indu strial autocracy as workers have to carry out the instructions of their function al bosses. It cuts at the roots of trade union movement. 5. Over-speeding Scientific management drives the workers very hard. Changes in work routine and techniques may result in overworking affecting physical and mental well- being o f workers. Excessive fatigue can spoil their health and efficiency. Emmployers' Viewpoint Employers oppose scientific management due to the following reasons: 1. Expensive Scientific management is a very costly system and a huge investment is required in the establishment of planning department, standardisation, work study, traini ng of workers, etc. It may be beyond the capacity of small firms. Heavy fixed in

vestment leads to a substantial increase in overhead costs. 2. Time Consuming and Dislocation Scientific management requires a mental revolution and complete reorganisation o f the enterprise. A lot of time is required for work study, standardisation and specialisation. During the transition period, the work of the organisation may b e disturbed. Psychologists Viewpoint Psychologists raise the following objectives against scientific management. 1. One-sided View Scientific management does not take an integrated view of human behaviour. It is based on the assumption that workers are economic beings and will work always f or economic rewards. A worker is also a social being with ego and social needs. But workers are treated as lazy, irresponsible and unambitious. 2. Separation of Planning from Doing Scientific management requires that planning should be separated from execution. Planning should be the exclusive responsibility of management. But planning and performance are interdependent and it is neither possible nor desirable to sepa rate the two. Planning cannot be completely separated from managerial performanc e because all managers plan, whether they are at the top, middle, or bottom of t he organisation structure. 3. Frustration Scientific management reduces work to a routine and workers have no say in decis ion-making. They fail to realise how the small task performed by one contributes to the total task. Wages are directly linked to the output which may cause a se nse of insecurity among workers. 4. No One Best Way Psychologists have questioned the assumption of 'one best way' implied in scient ific management. Workers differ from one another and there cannot be one best wa y for all. Moreover, no two experts of time and motion study are likely to reach the same time standards and work motions. Advantages and Limitations of Scientific Management Advantages Limitations 1. Higher efficiency 1. Unemployment 2. Lower costs 2. Exploitation 3. Wider market 3. Monotony 4. Industrial peace 4. Weakened trade unions 5. Higher wages 5. Over-speeding 6. Better working conditions 6. Expensive 7. Free training 7. Time consuming 8. Higher standards of living 8. One-sided view 9. Economic progress 9. Separation of planning from doing 10. Frustration 11. No one best way 8.6. COMPARISON BETWEEN TAYLOR AND FAYOL The works of Taylor and Fayol are essentially complementary. They both realised that problem of personnel and its management is the key to industrial progress. Both were practising executives in industry. Both of them wanted to improve the management practice. They sought to develop a rational and systematic basis of m anagement. Both of them developed their ideas through practical experience and t hey expressed their ideas through their books. Difference in their approach is m erely a reflection of their different careers. The two pioneers differ from each other in the following respects: 1. Perspective: Taylor looked at management from the supervisory viewpoint and tr ied to improve efficiency at the operating level. He moved upwards while formula ting his theory; On the other hand, Fayol analysed management from the angle of top management downward, with emphasis on, coordination. Fayol could afford, the refore, a broader , vision and a wider perspective than Taylor. Focus: Taylor focussed his attention on factory management and his princ iples are directly applicable at the shop floor. But Fayol concentrated on the f

unctions of managers and on the general principles of management which could be e qually applied to all spheres of human activity. Aim: The main aim of Taylor was to improve productivity of labour and to eliminate all types of waste through standardisation of work and tools. Fayol a ttempted to develop a universal theory of management. He also stressed upon the need for teaching the theory and practice of management. Expression: Taylor called his philosophy 'scientific management' while F ayol described his approach as "a general theory of administration." Comparison between Taylor and Fayol Points of Difference Taylor Fayol 1. Perspective Operative and shop floor Top management; level; 2. Personality Scientist; Practitioner; 3. Results Scientific observation and Personal experience measurement; translated into universal truths; 4. Focus Increasing productivity Improving overall administhrough work simplification, trastion by observing certain time and motion studies etc; principles; 5. Major Provided a basis for Produced a systematic contribution accomplishments on the theory of management. production line. A comparison between the contribution of Taylor and Fayol reveals that Fayol's t heory is more comprehensive and more widely applicable than that of Taylor. Tayl or's main contribution lies in the emphasis on the use of science in solving man agerial problems. His idea of mental revolution is very useful. Fayol has made a significant contribution to the development of management theory by giving 14 g eneral principles of management. He also identified the functions and qualities of a manager. His emphasis on formal training in management has been helpful in developing professional management. Both Taylor and Fayol emphasised mutual coop eration between employers and employees. Nevertheless both of them have been criticised for giving inadequate significanc e to the human factor in their principles. It is said that Fayol's theory is too formal and takes too broad a view of the management process. But Fayol's princi ples have stood the test of time and are still accepted as the core of managemen t theory. SUMMARY Meaning. Scientific management means the use of science in solving managerial pr oblems. Principles. Development of each individual, harmony, maximum output, equal divis ion of work, mental revolution, cooperation. Techniques: Work study, standardisation, differential piece rate system, functio nal foremanship. Importance: Gains for businessmen, workers and society. Criticism: By workers, e mployers and psychologists. Taylor vs. Fayol: Different perspectives but complementary. TEST QUESTIONS 1. Define scientific management? What are its basic principles? 2. What is scientific management? Explain its techniques. 3. "The principles underlying scientific management are advantageous both t o employers and employees." Do you agree? Give reasons for your answer. 4. "Scientific management is a device for exploitation of labour." Why are workers opposed to scientific management? 5. "The works of Taylor and Fayol are essentially complementary." Comment. 6. Explain briefly the techniques of scientific management. 7. The success of scientific management depends on mental revolution on the part of both management and workmen. Explain. 8. Name and explain the techniques of scientific management that calls for specialised supervision.

9. (a) (b) 10. (a) (b)

Distinguish between: Time Study and Motion Study Fatigue Study and Method study Write short notes on : Differential piece rate plan Functional Foremanship.

CHAPTER 9 ORGANISATIONAL BEHAVIOUR CHAPTER OUTLINE After studying this chapter you should understand : 9.1 Meaning of Organizational Behaviour 9.2 Need for Understanding Human Behaviour in Organizations 9.3 Contributing Disciplines to the Field of Organizational Behaviour 9.4 Conceptual Models of Organizational Behaviour 9.5 Challenges and Opportunities for Organizational Behaviour > Summary > Test Questions An organization is basically an association of human beings. One major problem o f modern organisations is to maximise the efforts and contributions of these hum an beings. These efforts and contributions depend upon human behaviour. Therefor e, managers must understand the way human beings behave and the reasons behind t heir behaviour. 9.1 MEANING OF ORGANIZATIONAL BEHAVIOUR Organisational behaviour is a specialised field of study concerned with describi ng and understanding human behaviour in organisations. It involves the study of individuals and groups in organisational settings. According to Keith Davis. "Or ganisational behaviour is an academic discipline concerned with understanding an d describing human behaviour in an organisational environment. It seeks to shed light on the whole complex human factor in organisatioins by identifying causes and effects of that behaviour." Human behaviour is caused and. therefore, it can be understood by analysing the causes behind it. DEFINITIONS OF ORGANISATIONAL BEHAVIOUR Organisational behaviour is a subset of management activities concerned with und erstanding, predicting and influencing individual behaviour in organisational se ttings. Robert E. Callahan ET. El. Organisational behaviour is a branch of the social sciences that seeks to build [9.11 theories that can be applied to predicting, understanding and controlling behavi our is work organisations. Raman J. Aldag Organisational behaviour is directly concerned with the understanding, predictio n and control of human behaviour in organisations. Fred Luthans It is a field of study that investigates the impact that individuals, groups and structure have on behaviour within organisations for the purpose of applying su ch knowledge towards improving an organisation's effectiveness. Stephen P. Robbins An analysis of the above definitions reveals the following features of organisat ional behaviour. (0 Organisational behaviour deals with human behaviour in the organisational set ting. It may, therefore, be considered as human behaviour at work. (n) Organisational behaviour can be the behaviour of the members of an organisat ion towards each other, towards the organisation, towards the clients and toward s the society at large. (iii) Organisational behaviour focuses primarily on peop le. Technical, economic, structural and other elements are considered only as th ey relate to people, (z'v) Organisational behaviour seeks to fulfil both employe e needs and organisational objectives. It attempts to balance human and technica

l values at work by combining productivity with employee satisfaction, (v) Organ isational behaviour may be individual behaviour or group behaviour. As human bei ngs constitute the vital resource of an organisation their behaviour as individu als is basic to its functioning. However, most activities are organised in units or sections. Effective working of a unit or section requires that members should work as a cl osely knit group or team. The dynamics of these groups (group dynamics) or group behaviour is, therefore, equally important. Individual behaviour and group beha viour interact with each other. (vi) Organisational behaviour has psychological foundations. Many of its core concepts are borrowed from behavioural science like psychology, sociology and a nthropology. Perception, learning, attitude, motivation, personality and so on a re the major concepts. Organisational behaviour is not a discipline in the usual sense but rather an electric field of study that integrates knowledge of behavi oural sciences. (vii) Organisational behaviour is both an art and a science. It contains knowl edge (science) about human behaviour in organisations. It also involves skill (a rt) in applying that knowledge. It is an inexact science and a young field of st udy. But it is empirical and interpretative based on rational thinking. (yiii) The basic purpose of organisational behaviour is to explain and predict h uman behaviour in organisations. It is goal-directed and action-oriented. (ix) Organisational behaviour is dynamic rather than a static concept. Every change in the social system is reflected in organisational behaviour through the behaviour of individuals. (x) Organisational behaviour is generally neither autonomous nor spontaneous . Rather it is caused by several internal and external factors. Internal factors include the needs, values and oth'er personality characteristics of the members of the organisation. The structure, philosophy and culture of the organisation are also internal variables. External variables refer to the environment outside the organisation. Organisational behaviour has a cause- effect relationship. Th is is shown below: S >0 3B In this model, S stands for the stimulus or situation (external environment). It incorporates all aspects of the environment physical, socio-cultural, etc. O is t he organism both as a physiological being and a psychological being (motivation) . The double headed arrows between S and O represent interaction between the sit uation and the organism. This interactioin causes behaviour (B). Ja NEED FOR UNDERSTANDING HUMAN BEHAVIOUR IN ORGANISATIONS The basic purpose of studying organisational behaviour is to acquire knowledge a bout how people behave in organisations and how this behaviour can be directed t owards the achievement of organisational objectives. Organisational behaviour he lps us in understanding human behaviour in work organisations. It enables us to know why and how an individual behaves in a particular way. It provides a means for understanding interpersonal relationships in an organisation. Organisational behaviour serves as a means to understand intergroup relationships also. Understanding human behaviour in organisations is necessary for the following pu rposes: 1. Use of power and sanction: [Every organisation prescribes power and sanc tion. These can be used to direct and control behaviour of individuals and group s in the organisation] Power and sanction can be used in different ways. Organis ational behaviour explains how different means of power" and sanction can be uti lised so that both organisational and individual objectives are achieved simulta neously. 2. Leadership: The quality of leadership of managers is a very effective me thod of shaping human behaviour in tune with organisational requirements. Organis ational behaviour provides new insights into the theory and practice of leadersh ip. It identifies different leadership styles available to a manager and analyses which style is more appropriate in a given situation. This helps managers is adjusting their leadership styles to different organisati onal settings.

3. Communication: Organisational behaviour evaluates the working of communi cation process in inter personal and group dynamics. Its study enables managers to make more effective use of communication for achieving organisational effecti veness. 4. Management of change: Organisations have to adapt themselves to environm ental changes form time to time. But changes in organisations are often resisted by employees. Managers must identify the need for change and implement the chan ge without any negative effect on the satisfaction of employees Study of organis ational behaviour helps managers in managing change and organisational adaptation . 5. Organisational climate: Organisational climate refers to the total organ isational setting affecting human behaviour. Organisational behaviour suggests a wholisitc approach to organisational climate. Cordial interpersonal relations at the workplace, a sense of accomplishment, effective supervision and opportunity for realisation of personal goals are much more important than good working con ditions, adequate compensation, and necessary equipments. In this way, organisat ional behaviour suggests a new approach to managing people in the organisation. The study of organisational behaviour is also useful in the following ways: (/) Organisational behaviour helps a manager to develop a more refined and reali stic set of assumptions, about people. It facilitates prediction of human behavi our in the organisation. (ii) It explains the causes of human behaviour. It indicates which causes of behaviour are controllable. With such knowledge managers can design policies and practices to obtain desired behaviour from employees. (iii) It helps to improve the people organisation relationship in such a way t hat people are inspired to develop team work to fulfil both personal and organis ational goals. (z'v) Organisational behaviour helps in forming an informed judgement that takes into account tenable assumptions, individual differences between people and rel evant variables in the total situation. According to Keith Davis, "the purpose o f studying organisational behaviour usually is to improve relationships of peopl e, structure, technology and the external social system for better human results '. Organisational behaviour seeks to help people and organisations relate more e ffectively to each other. It is a human tool for human benefit." 9.3 CONTRIBUTING DISCIPLINES TO THE FIELD OF ORGANISATIONAL BEHAVIOUR Organisational behaviour makes use of knowledge drawn from several disciplines. These disciplines are social sciences (economics, history, political science), h umanities, natural sciences and behavioural sciences. It draws concepts and prin ciples mainly from the behavioural sciences such as psychology, sociology and an thropolgy. 1. Psychology: The term 'psychology' is derived from the Greek word 'psyche " which means soul or 'spirit' psychology is the study of individual behaviour. I ts focus is on 'What determines the behaviour of an individual?. Psychology has greatly contributed to intra-individual dynamics of human behaviour. Intra-perso nal aspects of organisational behaviour such as motivation, personality percepti on, attitude and learning originated in psysiology. One branch of psychology, nam ely industrial psychology is concerned with the study of human behaviour in work organisations. 2. Sociology: Sociology is the study of group behaviour. It studies the beh aviour of people in relation to other human beings. Sociology has contributed to organisational behaviour in the study of interpersonal dynamics such as leadersh ip, group dynamics, communication, group formation, formal and informal organisa tion and so on. Social psychology borrows concepts from both psychology and sociology. It examin es the influence of people one another. Social psychology has made a significant contribution to management of change. It is also useful in understanding and ch anging attitudes, communication patterns, group decision making and the ways in which group activities can satisfy individual needs. PSYCHOLOGY

Personality Analysis Perception Attitude Analysis Learning Theory Scaling Techni ques Contribution of Behavioural Sciences to Organisational Behaviour ANTHROPOLOGY Cultural dynamics Status symbols Ethnic relations Management of Diversity Organi sation Theory Motivation Theory Projective Techniques SOCIOLOGY Interpersonal Relations Role a nd Status Morale Innovations and Change Group Decision Making Sociometry Group Dynamics 3 Anthropology: The term anthropology, is a constitution of the Greek word anthr opology which means 'man' and the noun ending 'logy' which means science. Thus, anthropology may be defined as the science of man. It is the study of civilisati ons, cultures and their impact on human beings, and the like. Anthropology contr ibutes in understanding the impact of cultural variables namely (value system, n orms, sentiments on individual and group behaviour in organisations. It addition to these three basic disciplines, some other disciplines have contri buted to organisational behaviour. Economics helps in understanding the decision process, allocation of science sources, and the impact of economic policies on o rganisations. Political science provides clues to conflict in organisations, pow er and authority structure and the overall administration process. 9.4 CONCEPTUAL MODELS OF ORGANISATIONAL BEHAVIOUR Every oragnisation develops a model in which the behaviour of its people takes p lace. This model is developed on the basis of management's assumptions about peo ple. These assumptions differ widely giving rise to different models of organisa tional behaviour. Keith Davis has described the following conceptual models of o rganisational behaviour. Table 9.1: Models of Organisational Behaviour Autocratic Custodial Supportive CollegiaI Basis of model Power Economic resources Leadership Partnership Managerial Authority Money Support Teamwork orientation Employee Obedience Security and Job Responsible orientation benefits performance behaviour Employee Dependence Dependence on Participation Self-discipline psychological on boss organisation result Employee Subsistence Security Status and Self-actualineeds met recognition sation Performance Minimum Passive Awakened Moderate result cooperation drives enthusiasm 1. Autocratic model: In this model, the managerial orientation is towards o fficial authority or power. Managers see authority as the only means to getting things done. Employees are expected to follow orders. There is high dependence o n the boss. Management decides what is the best action for the employees. Author ity is delegated by right of command over people to whom it applies. This model is based on the assumption that people inherently dislike work and try to avoid responsibility. Therefore, close supervision is exercised to obtain desirable wor k performance from employees. The focus is on physiological needs of employees. The autocratic model represents traditional thinking or economic concept of man. This model has been successful in some situations such as where workers are laz y and shirk work and where task accomplishment is of utmost importance. As the a spirations and values of people are changing the autocratic model is yielding pl ace to other models. Employees may feel insecure and frustrated under the autocr atic model. They may even show aggression towards their boss. 2. Custodial Model: In this model, the managerial orientation is towards th e use of money to pay for employee benefits. The focus is on security needs of e mployees. The custodial model leads to employee dependence on the organisation r ather than on the boss. The employees feel happy and satisfied but they are not

strongly motivated. They are not given the authority to decide their rewards and benefits. This approach is quite similar to partimonial approach. Custodial mod el is quite popular is family managed enterprises. The basic feature of the fami ly managing system is that management decides what is good and bad for their emp loyees. The custodial model overlooks the psycological needs of employees. 3. Supportive model: This model depends on managerial leadership rather tha n on the use of authority or money. Managers support employees in their job perf ormance by involving them in the decision making process. They assume that emplo yees will take responsibility and improve themselves if given a proper work clima te. The focus is on social and esteem needs of employees. The supportive model i s based on Likert's principles of supportive relationships. According to Likert "The leadership and other processes of the organisation must be such as to ensur e a maximum probability that in all interactions and all relationships with the organisation, each member will, in the light of his background, values and expect ations, view the experience as supportive and one which builds and maintains his , sense of personal worth and importance." Under the supportive model, workers feels a sense of participation and task involvement. This model has been found to be effective in developed countri es where workers seek gratification of their affiliation and esteem needs. This model has limited application in India because a vast majority of workers still work for the satisfaction of their physiological and security needs. The model c an be applied at the level of managers where lower order needs are already satis fied. According to Keith Davis, "the supportive model tends to be specially effec tive in nations with affluence and complex technology because it appeals to high er order needs and provides intrinsic motivational factors. It may not be the be st model to apply in less developed nations, because their employees need structu res are at lower levels and their social conditions are different. 4. Collegial Model: The term collegial refers to a body of people having common purpose. Coll egial model is based on the team concept in which each employee develops high de gree of understanding towards others and shares common goals. Employees exercise self discipline and managers are seen as joint contributes rather than as bosse s. The collegial model tends to be more useful with unstructured work, an intell ectual environment and considerable freedom on the job. Under the collegial model , the managerial orientation is teamwork. The employees are self motivated and s elf disciplined. This model helps to develop among employees a sense of fulfilme nt, worth while contribution and self actualisation. The various models of organisational behaviour given above evolved over time to meet the requirements of the situation prevailing during a particular period. No one model is the best applicable in all situations. All models have their relev ance. The model to be used depends upon the need level of employees in the organ isation. There is, however, a tendency towards the supportive model as physiolog ical and security needs are reasonably satisfied. 9.5 CHALLENGES AND OPPORTUNITIES FOR ORGANISATIONAL BEHAVIOUR The twentyfirst century poses new challenges and offers immense opportunities fo r management of organisational behaviour. Some of these challenges and opportuni ties are given below: 1. WORK FORCE DIVERSITY: Work organisations are becoming increasingly cosmopolita n. A typical global organisation now is an amalgam of diverse people in terms of gender, race, ethnic origin, nationality and language. People belonging to diff erent nations and religions work together but they maintain their distinct ident ities and life styles. Experts in human behaviour and managers must learn to wor k effectively with this heterogeneous mass of people. They can improve decision making and increase creativity through proper management of diversity. Poor mana gement of diversity can result in high labour turnover, greater interpersonal co nflict and other problems. 2. Changing demographics: The percentage of women and young in the total wo rk force is increasing. Dual caree ;ouples, where both partners are actively pur suing their careers pose a new challenge for managers. Employees who want to mov e up the hierarchy require experience in variety of roles in different units of the organisation: But frequent physical relocation and jobs changes are difficul

t in case of dual career couples. As a result rigidity occurs in the acquisition and development of talent. Young employees need more challenging work environme nt and fast track promotions. The proportion of white collar employees and worki ng mothers in the workforce is also rising. 3. Growing employee aspirations: The attitudes and expectations of employee s are changing fast. Traditional incentives such as job security, and compensati on are not enough to attract, retain and motivate today's knowledge workers. Loy alty to the employer is becoming a thing of the past as employees frequently cha nge organisations. Now employees want involvement, status and work life balance. It has become necessary to redesign jobs and to lead by example. Home office, f lexitime, challenging jobs, career advancement, etc. are being preferred. Manage rs must develop new and better practices for attracting, retaining and motivatin g employees. 4. Globalisation: Growing internationalisation of business is another chall enge for organisational behaviour. Managers have to face new problems such as di fferent laws, unfamiliar languages, foreign management style, diverse work ethic s and the like. A global perspective is needed in hiring, training compensating and maintaining human resources. A more flexible and proactive approach is neede d to gain a global competitive advantage. 5. Corporate Restructuring: Mergers takeovers, joint ventures at the interna tional level are growing fast. Such acquisitions, diversification and takeovers pose a new challenge to managers. Employees feel anxiety and uncertainly about t heir careers. Internal restructuring through down sizing and flattening may redu ce promotional opportunities and increase work load for employees. They require new training and skills. In the absence of proper management corporate restructu ring may lead to corporate failure. 6. QUALITY AND PRODUCTIVITY: Growing competition is forcing organisations t o improve productivity and quality. Therefore, companies are resorting to busine ss process re-engineering, benchmarking, and total quality management. Increment al improvements are no longer adequate. Radically rethinking and redesigning of business processes and practices are required. Employee involvement and customer focus are essential to improve quality and productivity. A new corporate cultur e has to be developed. 7. Innovation and change: In future only learning organisations will surviv e and prosper. Managers must foster innovation and manage change effectively. Em ployees are the key to innovation and change. Management must increasingly develo p and utilise knowledge. 8. Ethics and corporate social responsibility: Ethical behaviour on the par t of management and employees is becoming increasingly important in view of corp orate frauds, and credibility before stakeholders. Sustainable development is po ssible only when corporate heads adopt a more ethical and responsible approach t o their jobs. They need to improve corporate governance, stakeholders relations and corporate image. SUMMARY 1. Organisational behaviour is4he study of human behaviour in organisations . 2. Organisational behaviour is inter disciplinary, goal oriental, whoiistic , art and science. 3. Study of organisational behaviour is useful in power, leadership, communi cations, change management and organisational climate. 4. Psychology, sociology and anthropology are the behavioural sciences that have contributed significantly towards the development of organisational behavi our. 5. There are four conceptual models of organisational behaviour autrocratic, custodial, supporting and collegial. 6. Work force diversity, changing demographics, increasing employee expectat ions, globalisation, corporate restructuring, quality and productivity, innovati on and change, ethics and corporate social responsibility ar6 the key challenges and opportunities before organisational behaviour. TEST QUESTIONS

Define organisational behaviour and explain its nature. What is organisational behaviour ? Describe its characteristics. "Organisational behaviour represents interactions among individuals, gro ups and the organisation". Explain. What is the need for studying human behaviour in organisations? Explain. "Since organisational behaviour is common sense, there is no need to stu dy it formally". Do you agree? Give reasons for your answer? How is the study of organisational behaviour helpful to managers? Explain the contribution of behavioural sciences to organisational behav iour. Explain the four conceptual models of organisational behaviour, pointing out the conditioins under which they are relevant. Discuss the emerging challengers and opportunities for organisational be haviour. Write short notes on: (,a) "Organisational behaviour is caused". (b) Work force diversity. (c) Corporate restructuring. CHAPTER 10 MANAGING PERSONNEL CHAPTER OUTLINE After studying this chapter you should understand : 10.1 Meaning of Human Resource Management (HRM) 10.2 Nature of HRM 10.3 Functions of HRM 10.4 Manpower Planning 10.5 Job Analysis and Design 10.6 Training 10.7 Career Planning and Development 10.8 Motivation 10.9 Compensation Management Summary Test Questions 10.1 MEANING OF HUMAN RESOURCE MANAGEMENT Human Resource Management (HRM) may be defined as a set of policies, practices a nd programmes designed to maximise both personal and organisational goals. It is -the process of binding people and organisations together so that the objectives of each are achieved. According to Flippo, human resource management is "the pl anning, organising, directing and controlling of the procurement, development, c ompensation, integration, maintenance and reproduction of human resources to the end that individual, organisational and societal objectives are accomplished.'" According to National Institute of Personnel Management of India, "human resourc e management is that part of management concerned with people at work and with t heir relationships within the organisation. It seeks to bring together men and w omen who make up an enterprise, enabling each to make his own best contribution to its success both as an individual and as a member of a working group." Scott and others have defined as follows: "Human resource management is that bra nch of management which is responsible on a staff basis for concentrating on tho se aspects of relationship of management to employees and employees to^ Edwin B Flippo. Personnel Management. 1980, p. 5. [10.1] employees and with the development of the individual and the group. The objectiv e is to attain maximum individual development, desirable working relationship be tween employers and employees and employees and employees, and effective mouldin g of human resources as contrasted with physical resources." In the words of Jucius, "human resource management may be defined as that field of management which has to do with planning, organising and controlling the func tions of procuring, developing, maintaining and utilising a labour force, such t

hat the (a) objectives for which the company is established are attained economi cally and effectively; (b) objectives of all levels of human resources are serve d to the highest possible degree; and (c) objectives of society are duly coincid ed and served"" Human resource management is known by different names, e.g., personnel managemen t, manpower management, personnel administration, staff management, etc. 10.2 NATURE OF HUMAN RESOURCE MANAGEMENT On the basis of the definitions given above, the following features of human res ource management can be identified: 1. Comprehensive Function. Human resource management is concerned with mana ging people at work. It covers all types of people at all levels in the organisa tton. It applies to workers, supervisors, officers, managers and other types of personnel. \2; People-oriented. Human resource management is concerned with employees as indi viduals as well as groups. It is the task of dealing with human relationships wi thin an organisation. It is the process of achieving the best fit between indivi duals, jobs, organisations and the environment. It is the process of bringing pe ople and organisations together so that the goals of each are met. 3. Ation-oriented. Human resource management focuses on action rather than o n record-keeping or procedures. It stresses the solution of human resource probl ems to achieve both organisational objectives and employees' personal goals. 4. Individual-oriented. Under human resource management, every' employee is considered as an individual so as to provide services and programmes to facilita te employee satisfaction and growth. 5. Development-oriented. Human resource management is concerned with develo ping potential of employees so that they get maximum satisfaction from their wor k and give their best efforts to the organisation. It takes into account the per sonality, interests, opportunities and capacities of employees for this purpose. It seeks to help 'the employees to realise their full potential. 6. Pervasive Function. Human resource management is inherent in a organisations and at all levels. It is not confined to industry alone. It is equally useful an d necessary in government, armed forces, sports organisations and the like. It p ermeates all the functional areas, e.g., production, marketing, finance, researc h, etc. Recruitment, selection, development and utilisation of people is an inte gral part of any organised effort. Each and every manager is involved with human resource function. In big organisations, there is generally a human resource/pe rsonnel department. But this department only provides expert staff, advice and a ssistance concerning personnel matters. The authority to take decisions about th ese matters lies with the operating executives. Human resource management is not something which can be turned over to a human resource department. 'It is the r esponsibility of each and every manager, When a human resource department is cre ated, other managers are not relieved of this responsibility. This department on ly advises and assists line managers. According to Scott et al. "human resource management is a responsibility of all those who manage people as well as being a description of the work of those who are employed as specialists. It is that pa rt of management which is concerned with people at work and with their relations hips within an enterprise." Human resource management is not a staff function b ut a line responsibility. Jy Continuous Function. Management of human resources is an ongoing or never-end ing exercise rather than a 'one shot' function. In the words of Terry, "It canno t be turned on and off like water from a faucet; it cannot be practised only one hour each day or one day a week. Human resource management requires a constant alertness and awareness of human relations and their importance in everyday opera tions. 8. Future-oriented. Human resource management is concerned with helping an organisation achieve its objectives in the future by providing for competent and well-motivated employees. It attempts to obtain willing cooperation of people f or the attainment of the desired objectives. 9. Challenging Function. Managing of human resources is a challenging job d ue to the dynamic nature of people. People have sentiments and emotions so they

cannot be treated like machines. It is, therefore, necessary to handle them tactf ully. It is not simply managing people but administering a social system. 10. Science as well as Art. HRM is a science as it contains an organised bod y of knowledge consisting of principles and techniques. It is also an art becaus e it involves application of theoretical knowledge to the problems of human reso urces. In fact, handling people is one of the most creative arts. 11. Staff Function. The function of human resource management is advisory in nature. Human resource managers do not manufacture or sell goods but they do co ntribute to the success rind growth of an organisation by advising the operating departments on human resource matters. Like the director of a movie, their perf ormance can be judged from the success of the total organisation. 12. Young Discipline. Human resource management is of comparatively recent o rigin. It started in the last part of the 19th century. It is relatively a new s pecialised area as compared to manufacturing and marketing. 13. Interdisciplinary. Human resource management involves application of kno wledge drawn from several disciplines like sociology, anthropology, psychology, economics, etc. In order to deal with human problems effectively, a manager must depend upon such knowledge. In modern times, human resource management has becom e a highly specialised job. 14. Nervous System. Human resource management is similar to the nervous I sy stem in the human body. The nervous system is not an adjunct to the body but is inherent in the whole body and intimately associated with its every movement. Si milarly, human resource management; is not an 'extraneous element to the organis ation structure. Rather it lies embedded; in the structure, is inherent in its f unctioning and an integral part of the process of management itself. Human resou rce management cannot be separated from the basic management function. 10.3 FUNCTIONS OF HUMAN RESOURCE MANAGEMENT We have defined human resource management.above. The definition and nature indic ate that management of human resources consists of several inter-related functio ns. These functions are common to all organisations though every organisation ma y have its own human resource management programme.-These functions of human res ource management may broadly be classified into two categories, viz., (1) manage rial functions, and (2) operating functions. aging people is the essence of being a manager. Like other managers, a human res ource manager performs the functions of planning, organising, directing and cont rolling. ( 10.3.1 Managerial Functions 1. Planning. A plan is a predetermined course of action. Planning is the pr ocess of deciding the goals and formulating policies and programmes to achieve t he goals. Planning involves forecasting and research. Forecasting implies scienti fic anticipation of the future environment. Human resource management involves f orecasting needs for human resources, predicting trends in labour market, wages, union demands, etc. and their impact on the organisation. Planning helps, to fa ce successfully the changes that are likely to take place in future. It bridges the gap between where we are and where we want to go. Without planning events ar e left to chance. Planning is the means to manage change. Planning today avoids crisis tomorrow. In the area of human resource management, planning involves deciding human resou rce goals, formulating human resource policies and programmes, preparing the hum an resource budget, etc. 2. Organising. In order to implement the plans, a sound organisation struct ure is required. Organising is the process of allocating tasks among the members of the group establishing authority-responsibility relationships among them and integrating their activities towards the common objectives. In this way, a stru cture of relationships among jobs, personnel and physical factors is developed. The right organisation structure is the foundation of effective management becau se without it the best performance in all other areas will be ineffective. Organ

isation is the framework through which management directs, controls and coordina tes the efforts of people. 3. Directing. Directing is the process of motivating, activating, leading a nd supervising people. Directing includes all those activities by which a manage r influences the actions of subordinates. It involves getting others to act afte r all preparations have been made.. Directing is the heart of the management pro cess because it is concerned with initiating action. It helps to secure the will ing and effective cooperation of employees for attaining organisational goals. A manager can tap the maximum potential of employees through proper direction. Di recting also helps in building sound individual and human relations in the organ isation. 4. Controlling. It implies checking, verifying and regulating to ensure tha t everything occurs in conformity with the plans adopted and the instructions iss ued. Such monitoring helps to minimise the gap between desired results and actua l performance. Controlling the management of human resources involves auditing t raining programmes, analysing labour turnover records, directing morale surveys, conducting separation interviews and such other means. 10.3.2 Operative Functions The operative or service functions of human resource management are the tasks wh ich are entrusted to the human resource department. These functions are concerne d with specific activities of procuring, developing, compensating and maintainin g an efficient work force. 1. Procurement Function. It is concerned with securing and employing the ri ght kind and proper number of people required to accomplish the organisational o bjectives. It consists of the following activities: (a) Job Analysis. It is the process of studying in detail the operations and responsibilities involved in a job so as to identify the nature and level of hu man resources required to perform the job effectively. Job descriptions and job specifications are prepared with the help of information provided by job analysi s. (b) Human Resource Planning. It is the process of estimating the present and future manpower requirements of the organisation, preparing inventory of presen t manpower and formulating action programmes to bridge the gaps in manpower. (c) Recruitment. It is the process of searching for required human resource and stimulating them to apply for jobs in the organisation. A proper balance sho uld be maintained between the internal and external sources of recruitment. (d) Selection. It implies judging the suitability of different candidates fo r jobs in the organisation and choosing the most appropriate people. (e) Placement. It means assigning suitable jobs to the selected candidates s o as to match employee qualifications with job requirements. (f) Induction or Orientation. It involves familiarising the new employees wi th the company, the work environment and the existing employees so that the new people feel at home and can start work confidently. 2. Development Function. Human resource development is theprocess of improving the knowledge^ skills, aptitudes and values of employees "so that tney can~~perform the present and future jobs mgre^.flstively. "Hits" fu nction comprises the following activities: (a) Performance and Potential Appraisal. It implies systematic evaluation of employees with respect to their performance on the job and their potential for development. (b) Training. It is the process by which employees learn knowledge, skills a nd attitudes to further organisational and personal goals. (c) Executive Development. It is the process of developing managerial talent through appropriate programmes. (d) Career Planning and Development. It Involves planning the career of empl oyees and implementing career plans so as to fulfil the career aspirations of people. It involves mobility of human resource through promotions and transfers. 3. Compensation Function. It refers to providing-eniiit^bk and fair rer num eration to employees for their contribution to the attainment of organisationaLo

bjectives. It consists of the following activities: ('a) Job Evaluation. It is the process of determining the relative worth of a job. (b) Wage and Salary Administration. It implies developing and operating suit able wage and salary programme. Surveys are conducted to determine wage and sala ry structure for various jobs in the organisation. (c) Bonus. It involves payment of bonus under the payment of Bonus Act, 1965 as well as non-statutory bonus and other incentives, 4. Integration Function. It is the process of reconciling the goals^of the organisation with those"ot its members, Integration involves motivating employee s through various financial and non-financial incentives, providing job satisfact ion, handling employee grievances' through formal grievance procedures, collecti ve bargaining, workers' participation in management, conflict resolution, develo ping sound human relations, employee counselling, improving quality of work life , etc. r 5. Maintenance Function. It is concerned with protecting and promoting the physical and mental health of employees. For "this purpose, several types of fri nge benefits such as housing, medical aid. educational facilities, conveyance fac ilities, etc. are provided to employees. Social security measures like provident fund, pension, gratuity, maternity benefits, injury/ disablement allowance, gro up insurance, etc. are also arranged. Health, safety and welfare measures are de signed to preserve the human resources of the organisation. Human resource records and research are also important elements of the maintenan ce function. The managerial functions and operating functions of human resource management ar e performed in conjunction with each other. Table 1 shows the various functions of human resource management. 10.4 MANPOWER PLANNING Human resource planning has been defined as "the process by which ..1 .ri. mil i ii rnw .1 iniii 11 1111 n.. 111 j management determines how an organisation should move from its cujxept manpower position to its desired m;inpo\y.ar position. Through it management strives to h ave the right number and the right kind of people at the right place, a: the rig ht time, doing things which result in both the organisation, and the individual receiving, maximum long-range benefit. \ Functions of Human Resource Management Development Compensation - Performance Appraisal -Job Evolution -Human Resource Planning Recruitment Integration Motivation Job Satisfaction Managerial Functions Planning Procurement -Job Analysis Organising Grievance Redressal Maintenance -Health -Safety

I Operative Functions -Social Security Selection -Placement -Induction -Directing -Bonus and Incentives -Training Executive Development -Wageand Salary Administration Collective Bargaining Conflict Management Social Security Welfare Schemes -Human Resource Records -Transfer -Human Resource Research Participation of Employees -Promotion -Carrier Planning and Development -Controlling Lseparation -Payroll Discipline - Human Resource Adult An analysis of the above definition reveals the following characteristics of hum an resource planning: (i) Human resource planning like all planning is forward looking or future o riented. (/'/') Human resource planning is an on-going or continuous process because the demand for and the supply of human resources undergo frequent changes. (Hi) Human resource planning is an integral part of corporate planning. Without a corporate plan, there can be no manpower plan. (iv) The basic purpose of human resource planning is to make optimum utilisat ion of an organisation's current and future human resources, (v) Human resource planning has both quantitative and qualitative aspects, T he former implies the right number of employees while the later means the right talent required in the organisation. 10.4.1 Need and Importance of Manpower Planning Effective human resource planning offers the following benefits: (i) To carry on its work and to achieve its objectives, every organisation requi res employees with adequate knowledge, experience and aptitudes. Human resource planning is helpful in selection and training activities. It ensures that adequa te number of persons are selected and trained well in advance to fill future job vacancies in the organisation. Human resource planning provides the required nu mber and quality of human resources at all times. (ii) Human resource planning identifies gaps in existing manpower in terms of their quantity and talent. Suitable training and other steps can be taken in ti me to fill these gaps. Existing manpower can be developed to fill future vacanci es. (Hi) There is need to replace employees who retire, die, resign and become incap acitated due to injury. Provision for replacement of personnel can be made throu gh human resource planning. (iv) Human resource planning facilitates the expansion and diversification of an organisation. In the absence of human resource plans, the required human res ources will not be available to execute expansion a diversification plans at the right time.

(v) Human resource planning creates awareness about the effective utilisatio n of human resources throughout the organisation. It helps to reduce wastage of manpower. It also helps in judging the effectiveness of human resource policies and programmes of management. (vi) Human resource planning is helpful ineffective utilisation oftechnolog:; = ' progress. To meet the challenge of new technology existing employees need t o be retrained and new employees may be recruited. (vii) With the help of human resource planning, areas of surplus manpower can be anticipated and timely action can be taken (e.g., redeployment). (viii) Human resource planning is useful in anticipating the cost of human reso urces which facilitates the budgeting process. It also helps in controlling huma n resource costs through effective utilisation. Through proper manpower planning , management can avoid both shortage and surplus of manpower and thereby control labour costs. (ix) Human resource planning facilitates career succession planning in the or ganisation. It provides enough lead time for internal succession of employees to higher positions through promotions. Manpower planning also contributes to mana gement succession and development. (x) Human resource, planning helps in planning for physical facilities like canteen, staff quarters, dispensary and school for the staff and their children. 10.4.2 Process of Manpower Planning The major stages involved in human resource planning are given below: 1. Analysing Organisational Plans. First of all, the objectives_and strateg ic plans of the com^any^are analysed.. Plans concerning technology, production, marketing, finance, expansion and diversification give an idea about the volume of future work activity. It is necessary to study business plans because all man power plans stem from business plans relating to nature, level and organisation of activity. A company's plans are based on economic forecast, company's sales a nd expansion forecast, and the labour market forecast. 2. _ Forecasting Demand for Human Resources (Manpower Forecast ing). On the basis of corpo;. and functional plansJ..and_Jfutur.e_actiyity level s the future needs for human resources in JJh.e, anticipated. The number of people and the skill levels needed.jnJitture depend o n the production and sales budgets in a manufacturing en- terprise. But the huma n resource requirements for a given level of operations vary depending upon the production technology, process, make or buy decisions, job contents, behaviour p atterns and control systems. It is necessary to make projections for new positio ns to be created and the vacancies arising in current manpower. Job analysis and forecasts of future activity levels help in human resource forecasting. Quantitative Dimension Manpower planning has two aspects quantitative and qualitative. Quantitative aspec t is concerned with determining the number of employees required in a future per iod of time. Work load analysis and work force analysis are helpful in estimatin g the quantity of manpower. Workload Analysis. Under this analysis, the total workload of each department is estimated on the basis of sales forecasts, work schedules, growth rates, expans ion plans, etc. As far as possible, the workload of each department should be es timated in tangible units, so that it can be translated into manpower. On the ba sis of past experience and work measurement, the total workload is converted int o manpower required. Work study technique is used to estimate how long a time an operation would take and the manpower required per unit of output. Illustration Suppose a factory aims to produce 50,000 tonnes of cement during 2005-06. The st andard manhours required to produce one ton are estimated to be 10. On the basis of past experience, the factory estimates that on an average one worker can con tribute 2,500 hours per year. The total work load and the number of workers requ ired can be estimated as follows: (i) Production budget for 2005-06 50.000 tonnes

(ii) Standard manpowers required per unit 10 hours (iii) Planned manhours for 2005-06 (/) * (//) 5.00,000 hours (iv) Manhours available per worker 2,500 hours (v) Number of workers required ((iii) (iv)} 200 workers Thus. 200 workers will be needed in 2005-06 to achieve the production target of 50.000 tonnes. However, this is not a reliable estimate because several factors such as availability of raw materials and power, breakdown of machinery, strikes and lockouts, etc. influence the factory operations. Moreover, gaps in the exis ting work force have not been considered in the above calculations. Such gaps ca n be judged with the help of work-force analysis. Work Force Analysis. All the existing workers are not likely to be available for work throughout the year, due to absenteeism and turnover. It is, therefore, ne cessary to make a provision for loss of current manpower due to these factors. O n the basis of past experience, the factory may estimate that on an average 5 pe r cent of the staff will remain absent and another 5 per cent is likely to be lo st due to resignations, retirements, deaths, terminations, etc. Thus, the actual number of workers required will be 200 + 200/10 = 220 during the year. In order to estimate accurately the loss of current manpower, analysis of the present wo rk force is made. Such analysis will involve a detailed study of the past behavi our, performance and retirement date of each and every employee. This analysis i s called workforce analysis. Qualitative Dimension Skills Analysis. The quality of manpower required varies from job to job. Theref ore, the quality of employees required for a job can be determined only after de termining the job requirements. To know the requirements of a particular job, a job analysis is made. Job analysis is the process of analysing a job so as to collect all pertinent fa cts about the job in terms of duties and responsibilities involved in it and the qualifications needed for successful performance of the job. With the help of in formation obtained through job analysis, two statements, namely job description and job specification are prepared. Job description contains details about the c ontents of a job whereas job specification or man specification reveals the phys jpal, educational and other qualifications and experience required in an individ ual to perform the job satisfactorily. Inflows Outflows ? Promotions ? Transfers ? Retirements p. Terminations ? Resignations ? Deaths 3. Forecasting Supply of Human Resources. Every organisation has two sources of supply of human resources internal and external. Internally, human resources can b e obtained for certain posts through promotions and transfers. Human resources f low in and out of organisation due to several reasonTHS-showirTirFig."~T07L Poli cies relating to theseTSpects need to be reviewed regularly to judge their impac t on the intern^ supply of human resources. In order to judge the inside supply of human resources in future, human resources inventory or human resource audit is necessary. This contains data about the current or present human resources (F ig. 10.2). Its main components are as follows: (a) Head counts, i.e., total number of people employed, departmentwise, skil lwise, designationswise, payrollwise, sexwise, etc. (b) Job family inventory, i.e., number of employees in each job, e.g., clerk s, typists, cashiers, etc. (c) Age inventory, i.e., agewise classification of employees. (d) Skill inventory containing data about the education, skills, experience, past performance, work preference and potential/fitness for promotion. Fig. 10.1 Human Resource Flows in an Organisation. New Recruits

Promotions Transfers Manpower inventory helps in determining and evaluating the quantity and quality of the internal human resources. It reveals what exists in stock of manpower and what can be expected in future. It also indicates the possible shortfalls in co mparison with expansion requirements and the future organisation structure. Deta iled biodata of every employee provides the foundation for a programme of indivi dual development. Some organisations maintain a Manning Table which is a jobwise list of employees. Other organisations use Manpower Replacement charts which sho w the present performance of each employee together with the promotion potential of possible replacements. Expected Loss of Manpower. Once the present human resources are assessed, the ch anges likely to occur therein can be estimated. Potential losses of human resour ces can arise in the form of resignations, discharges/dismissals, deaths, retren chments/lay off, terminations, promotions, demotions, transfers, ill health, inj ury, absenteeism, deputations out, consultancy out. Similarly, additions to huma n resources may occur in the form of new recruits, promotions, demotions, transf ers, deputations in, consultancy in, acquisition of new skills through training, etc. The effect of potential loss and additions can be calculated, on the basis of experience, as follows: Future internal supply Present inventory of Potential Potential + of human resources human resources additions losses Thus, future manpower needs of an organisation depend on the number of employees required due to loss of current manpower and the additional staff needed due to anticipated expansion of the organisation. After estimating the future internal supply of human resources, (the external sources of supply .are analysed. Inter nal factors affecting manpower supply from outside include training facilities, salary levels, company image, growth prospects, interpersonal relations, job cha llenge, etc. External factors consist of working population, unemployment level, education and training institutions, housing and transport facilities, social s ecurity measures, technology, etc. Table 2.1: Calculating Manpower Requirements Years 1 2 14 5 1. Manpower Demand (a) Numbers required at the beginning of the year (b) Changes forecast during the year (c) Requirements at the end of the year [(a) + (b)} 2. Manpower Supply (a) "Numbers available at the beginning of the year (b) Additions due to transfers and promotions (c) Losses due to separation, etc. (d) Numbers available at the end of the year [(a) + (b) - (c)] 3. Requirements (a) Deficit or Surplus (1 - 2) (b) Loss out of those recruited during the year (c) Additional numbers required during the year {(a) + (b)] 4. Estimating Manpower Gaps. Net human resource requirements or_ manpower ga ps can be identified by comparing demand forecasts and supply forecasts. Such co mparison will r-eveal either deficit or surplus of human resources in future. De ficits suggest the number of persons to be recruited from outside whereas surplu s implies redundants to be redeployed or terminated. Similarly, gaps may occur i n terms of knowledge, skills and aptitudes. Employees estimated to be deficient can be trained whereas employees with higher skills may be given more enriched j obs. 5. Action Planning. Ori^e_tlre manpower gaps are identified, plans are prep ared to bridge these gaps. Plans to meet the surplus manpower may be redeployed

in other departments units and retrenchment in " consultation ~with the Trade unions. People may be persuaded to quit voluntari ly through golden handshake. Deficit can be met through recruitment, selection, t ransfer, promotion, and training plans. Realistic plans for the procurement and development of manpower should be made after considering the macro and micro env ironment which affect the manpower objectives of the organisation. 1 Fig. 10.2. Human Resource Planning Process. 6. Monitoring and Control. Once the action plans are implemented, the human reso urce structure and system need to be reviewed and regulated. Table 2.2: Monitoring Human Resource Levels Item Years 2005 2006 2007 2008 2009 Inventory on April 1, 2005 Increases in Human Resources: (a) Business activity (b) Capital investment (c) Takeover/Merger Decreases in Human Resources (a) Business activity (b) Capital disinvestment (c) Productivity improvement (d) Technology upgradation Monitoring and control phase involves allocation and utilisation of human resour ces overtime. Review of manpower plans and programmes helps to reveal deficienci es. Corrective actions should be taken at the right time to remove the deficienc ies. Manpower inventory should be updated periodically. Necessary modifications in manpower plans should be made in the light of changing environment and needs of the organisation. An appraisal of the existing manpower plans serves as a gui de in future manpower planning. 10.5 JOB ANALYSIS AND JOB DESIGN 10.5.1 Job Analysis Job analysis is a formal and detailed study of jobs. It refers to a scientific a nd systematic analysis of a Job in order to obtain all "pertinent facts about th e job. Job analysis has been defined as "the process of determining by observati on and study the tasks, whjchjqomprise the job, the methods and equipment used-, and the skills, and. attitudes required for successful performance of the job." Job analysis is essentially a process of collecting and analysing data relating to a job. It is a part of overall work planning called 'work design'. A job can be analysed only after it hast)een designed and someone is already performing i t. Job analysis is, therefore, performed upon ongoing jobs. As jobs are always s ubject to change, a job analysis may become obsolete within a short period of ti me. Job analysis provides the following information about a job: (0 Identity of the job in terms of its title and code number, (/;') The operations and tasks in volved in the job including their timing, significance, complexity and sequence. (iii) Location, physical setting, hazards and discomforts, supervision given a nd received and other significant characteristics of the job. (iv) Duties involved in the job along with the frequency of occurrence of eac h duty. (v) Materials, methods and equipment used in performing the job. (vi) How the job is performed, i.e., the nature of operations like clearing, lifting, handling, drilling, feeding, driving, guiding, assembling, etc. (vii) Relationship of the job with other jobs in the organisation. (viii) Human resource attributes required for performing the job, e.g., physica l strength, education, mental skills, attitudes, experience, training, etc. ^Fhtf specific uses of job analysis are given below: 1. Organisational Design. Job analysis is useful in classifying jobs and in terrelationship among them. Responsibility commensurate with authority and accou ntability for various jobs can be specified so as to minimise duplication or ove

rlapping. 2. Human Resource Planning. Job analysis provides useful information for fo recasting manpower requirements in terms of knowledge and skills. It also helps in planning for promotions and transfers by indicating lateral and vertical rela tionships between different jobs. 3. Recruitment and Selection. Information relating to the tasks, responsibi lities, knowledge and skills serves as a realistic basis for hiring people. Job vacancy is advertised on the basis of job description and job specification. Job analysis provides understanding of what an employee is expected to do on the jo b. Such understanding serves as the basis for meaningful forecast of job/ perfor mance. Selection methods are based upon such forecasts. 4. Placement and Orientation. A clear understanding of job requirements hel ps in matching these requirements with the abilities, interests and aptitudes of people. Each job can be assigned to the person who is best suited for it. Simil arly, the orientation programme can be geared towards helping the employee learn the activities, tasks and duties that are required to perform a given job more effectively. 5. Training and Development. Job analysis provides valuable information req uired to identify training needs, to design training programmes and to evaluate training effectiveness. 6. Performance Appraisal. Job analysis helps in determining performance sta ndards in critical parts of a job. Employee performance can then be evaluated ag ainst known standards and critical activities. The superior can compare actual performance with the standards set with the help of job analy sis. 7. Career Path Planning. Job analysis provides a clear idea of opportunitie s in terms of career paths and jobs available in the organisation. With the help of such understanding, employees and the organisation both can make efforts for career planning and career development. 8. Job Design. With the help of knowledge about job requirements, improveme nts in work design and work methods can be made to improve productivity and job satisfaction. This takes two forms, namely industrial engineering and human engi neering. The former is concerned with measurement, simplification and improvemen t of work so as to improve efficiency and reduce costs. The latter involves rede signing jobs to match the physical and psychological capabilities of employees. 9. Job Evaluation. Job analysis serves as the basis for determining the rel ative worth of different jobs. It, therefore, helps in developing appropriate wa ge and salary structures, with internal pay equity between jobs. 10. Labour Relations. Information obtained through job analysis is helpful t o both management and trade unions for collective bargaining. It can also be use d to resolve disputes and grievances relating to workload, work procedures, etc. 11. Employee Counselling. Job analysis provides information about career cho ices and personnel limitations. Such information is helpful in vocational guidan ce and rehabilitation counselling. Employees who are unable to cope with the haz ards and demands of given jobs may be advised to opt for subsidiary jobs or to s eek premature retirement. 12. Health and Safety. Job analysis reveals unhealthy and hazardous, environ mental and operational conditions in various jobs. Heat, noise, dust, fumes, etc . are examples of such conditions. On the basis of such information, management can develop measures to ensure the health and safety of employees. The main steps involved in job analysis are as follows: 1. Organisational Analysis. First of all an overall view of various jobs in the organisation is obtained. This is required to judge the linkages between jo bs and the organisational goals, interrelationships among jobs, and the contribu tion of various jobs to efficiency and effectiveness of the organisation. For th is purpose, background information is collected in the form of organisation char ts, class specifications, work flow charts, etc. 2. Organising Job Analysis Programme. It is necessary to plan and organise the programme of job analysis. The company must decide who will be in charge of the programme and must assign responsibilities. A budget and a time schedule sho

uld be developed. 3. Deciding the Uses of Job Analysis Information. It is desirable to focus on a few priority areas in which the job analysis information is to be used. The se areas can be decided on the basis of the need, priorities and constraints of the particular organisation. How the job information will be used and for what p urpose will determine the extent to which jobs are to be analysed. 4. Selecting Representative Jobs for Analysis. It would be highly time cons uming and costly to analyse all the jobs. It is, therefore, desirable to select a representative sample of jobs for the purpose of detailed analysis. Priorities of various jobs needing analysis can also be determined. 5. Understand Job Design. The job analyst should obtain information concern ing the current design of the representative job. for this purpose, current job description and job specification, procedure manual, systems flow chans, etc. ca n be studied. 6. Collection of Data. In this step, data on the characteristics of the job . and qualifications and behaviour required to do the job effectively is collect ed. Fig. 10.3. The Outcomes of Job.Analysis. 7. Developing a Job Description. The Information collected in the previous step is used in preparing a job description. This is a written statement that de scribes in brief the tasks, duties and responsibilities which need to be dischar ged for effective job performance. 8. Preparing a Job Specification. The last step in job analysis is to prepa re a job specification or employee specification. This is a written statement wh ich specifies the personal attributes in terms of education, training, experienc e and aptitude required to perform the job. 10.5.2 Job Description Job_descr i pti QIli^jM^jj^n record of the nature and contentSJxLa job. It descr ibes a job in terms of its title, location, duties, responsibilities, working co nditions and its relationship with other jobs. Job description is a useful (docu ment as it helps managers in the following decisions: (i) Job grading and classification. (ii) Placement of new employees on a job. (iii) Orientation or induction of new employees: (iv) Promotions and transfers. (v) Defining and outlining career paths. (vi) Redressal of grievances relating to duties and responsibilities, (vii) Investigating accidents. (viii) Locating faulty work procedures and duplication of papers. (ix) Work measurement and work improvement. (x) Defining the limits of authority. (xi) Health and fatigue studies. (xii) Developing performance standards. (xiii) Establishing a common understanding of ajob between management and worke rs. (xiv) Determining jobs for occupational therapy. (xv) Employee counselling and vocational guidance. (xvi) Organisational change and development. (xvii) Framing questions to be asked in the selection interview. A job description normally contains the following information (Table 2.3): Job Identification. Job title, code number of the job, department or div ision where the job is located. This part of job description helps to identify' and designate the job. It also reveals the relationship of the job with other jo bs. Job Summary. It describes the contents of a job in terms of the activiti es or tasks performed. Job Duties and Responsibilities. It is the heart of job description. It describes the duties performed alongwith frequency of each major duty. Responsib

ilities concerning custody of money, supervision and training of staff, etc. are also described in this part. Working Conditions. The physical environment of the job is described in terms of heat, light, noise level, dust and fumes, etc. Nature of risk (hazards) and their possibility of occurrence are also given. Social Environment. Size of work group and inter-personal interactions r equired to perform the job are given. Training and development facilities may al so be mentioned. Machines, Tools and Equipment. The names of major machines, equipments a nd materials used in the job are described. Supervision. The extent of supervision given or received is stated in te rms of number of persons to be supervised along with their job titles. Designati ons of immediate superiors and subordinates may also be given. Relation to Other Jobs. The jobs immediately below and above are mention ed. It provides an idea of vertical work flow and channels of promotion. It also indicates to whom the jobholder will report and who will report to him. Table 10.3 Specimen of Job Description Job Title Manager, wage and salary administration. Code Number HR/1705 Department Human Resources Division. Job Summary Responsible for company wages and salary programmes, job analysis, job evaluation, wage surveys and benefits administration. Job Duties (i) Supervises job analysis studies and approves final form of description. (ii) Develops, executes and monitors job evaluation procedures in cooperation with operating managers. (iii) Acts as chairman of the company-wide job evaluation community and industry. (v) Administers the company's fringe benefits programme. Recommends changes in and additions to existing benefits. (vi) Supervises members of the wage and salary department. Working Normal working conditions, Eight hours per day. Five conditions days a week. Supervision Reports to the Director, Human Resources and exercises supervision on officers in the wage and salary department in the Human Resource Division of the company. Relationships (a) With equivalent levels of management in other departments. (b) Maintains social and official contacts with local officials. 10.5.3 Job Specification Job specification or man specification or employee specification is a statement of tfieTfjTmmum acceptable human qualities required for the proper performance o f rjybnTlruTvrfTT^fTecoT^ of the physical, mental, social, psychological, and be havioural characteristics which a person should possess in order to perform \ the job effectively. Physical characteristics include height, weight, chest, vis ion hearing, health, age, voice, poise, hand and foot coordination, etc. Mental characteristics consist of general intelligence, memory, judgement, ability to c oncentrate, foresight, etc. Social and psychological characteristics comprise em otional stability, flexibility, personal appearance, pleasing manners, initiativ e drive, conversational ability, etc. Other personal characteristics include sex , education, family background, job experience, extra-curricular activities, hob bies, etc. All these traits may be classified into three categories: (a) Essential attributes which a person must possess.

(b) Desirable attributes which a person ought to possess. (c) Centra-indicators which will become a handicap to successful job perform ance. Job specification tells what kind of a person is required for a given job. It se rves as a guide in the recruitment and selection processes. It is also helpful i n training and appraisal of employees. Job specification is criticised on the gr ound that it involves a great deal of subjectivity. It is restrictive in nature as it restricts the development of an individual in the job. Organisations gener ally tend to specify relatively high requirements for formal education and train ing with the result that highly qualified personnel end up doing routine jobs. D espite these problems, it is necessary to specify for every job the minimum acce ptable human qualities. A specimen job specification is given below: Table 10.4: Job Specification of Compensation Manager Manager, wage and administration. Human Resource Division. (a) A good bachelor degree with at least 50 per cent marks. (b) MBA with specialisation in HRM/MA Social Work/ Diploma in HRM or other e quivalent qualification. (c) A degree or diploma in labour law will be an additional desirable qualif ication. At least five years' experience in a similar position in a large organisation of repute. Preferably above 30 years and below 45 years. (a) Good health (b) Pleasing manners (c) Fluency in speaking and writing (d) Analytical and decision-making skills (e) Ability to work long hours (f) Innovative approach Position Title Department Education and Training Experience Age Other Attributes (g) Good knowledge of computer applications Table 10.5: Distinction between Job Description and Job Specification Basis of Distinction Job Description Job Specification A written statement of the A written statement of contents of a job. ities required for performing a job 2. Contents Title, duties, working conditions, supervision, relationships involved in a job. Education, training experience, aptitude, etc. required for a particular job. 3. Purpose To identify, define and describe a job To facilitate recruitment, selection, training etc. oil pe'ople for the job 4. Sequence Prepared before job specification the qual

Prepared after job description. 10.5.4 Job Design In recent decades, human resource managers have realised that what an employee a ctually does on the job (design of a job) has considerable influence on his prod uctivity and job satisfaction. Job analysis helps in developing appropriate desi gn of job to improve efficiency and satisfaction. J.ob design is~tlie-pi:o.GSSJa" deciding on the contents of-a job in terms of its duties, and responsibilities, on the methods to be used in carrying-out the job^ in terms of techniques,, sys tems and procedures, and on the relationships that should exist between the jobh older and his superiorSv^ubordinates and colleagues. It is a deliberate and syst ematic attempt to structure the technical and social aspects of work so as to im prove technical efficiency and job satisfaction. Job design is an attempt to cre ate a match between job requirements and human attributes. It involves both orga nising the components of the job and the interaction patterns among the members of a work group. The main objective of job design is to integrate the needs of t he individual and the requirements of the organisation. Needs of employees inclu de job satisfaction in terms of interest, challenge and achievement. Organisatio nal requirements refer to high productivity, technical efficiency and quality of work. Today, educated and creative employees demand well-designed jobs. Therefo re, increasing attempts are being made to redesign jobs so as to improve the qua lity of working life. A systematic body of knowledge on the designing of jobs ha s been developed after the Industrial Revolution and the large scale enterprises . 1. Job Rotation. It implies the shifting of an employee from .one job to another without any change in tlie jobs. For example, a back clerk may be shifted from^ casTTcOirrTterTt) token counter to teller counter and so on. The main advantage of job rotation is that it relieves the employee from the boredom and monotony of doing a single task. The employee gets some variety of work, workplace and the peers. Job rotation also helps to broad en the knowledge, and skills of an employee. Management gets .employees who can perforin a variety of tasks to meet contingencies. This method also improves the self wage and personal worth of the employee. Job rotation, however, has a very limited potential. It does not change the basi c nature of jobs. Rather an employee is asked to perform several monotonous jobs in place of a single jobs. Therefore, the employees who want a challenging and satisfying job still feel frustrated. Moreover, frequent shifting of employees m ay course interruptions in the work routine of the organisation. Job Rotation Fig. 10.3 Methods of Job Design. 2. Job Enlargement. It is the processL of nicxeasing__the scope of a job by addi ng more tasks to it. The related tasks are combined. The~wi<3enetf' ancTTnorF co mplex job is expected to satisfy the higher order needs of employees. Due to var iety of tasks, an employee gets the opportunity to make greater use of his mind and skill. In the words of Strauss and Sayies, "it implies that, instead of assi gning one man to each job, a group of men can be assigned to a group of jobs and then allowed to decide for themselves how to organise the work. Such changes pe rmit more social contacts and greater control over the work process."1 For examp le, in a company there are three groups of sales persons for three different sal es functions namely booking orders, delivering the product and providing after s ale service. Under job enlargement, all the groups are merged tegether so that e very salesperson performs all the three functions. Job enlargement reduces monotony and boredom by providing the employee more comp lete or whole job to do. It helps to increase interest in work and efficiency, f t is also a method of training and developing more versatile employees. But it d oes not increase the depth of a job. Enlarged jobs require longer training perio d as there are more tasks to be learned.

3. Job Enrichment. It involves designing a job in such a way that it provides th e worker greater autonomy for planning and 'controttnTg his own performance. It is based on the assumption that in order to motivate employees, the job itself m ust provide opportunities for achievement, recognition, responsibility, advancem ent and growth. Through job enrichment, a job is made more interesting and chall enging thereby removing the functions of narrow specialisation. An employee whos e job is enriched will perform the management functions of planning and control so far as his own work is concerned. Job enrichment needs to be differentiated f rom job enlargement. Job enlargement involves a horizontal loading of the job by adding a variety of operations which the jobholder will perform. On the other h and, job enrichment consists of a vertical loading of the job so that the jobhol der himself controls the planning and execution of his job. In job enlargement, employees are given more work at the same level o responsibility whereas under j ob enrichment an employee is given greater autonomy and responsibility. Jobs are restructured so that they become more meaningful, interesting and challenging. Controls are reduced to provide greater freedom of action and to increase accoun tability. For instance, an employee may be assigned total responsibility for a c omplete job. Job enrichment involves grouping together jobs at different levels. Steps in Job Enrichment The process of job enrichment consists of the following steps: (i) Selecting jobs which are amenable to job enrichment. (ii) Identifying the changes that may enrich the selected jobs. (iii) Changing the contents of a job so as to provide self control, responsibi lity, achievement and advancement. This can be done by forming natural work grou ps, combining tasks and opening feedback channels, (iv) Training, guiding and encouraging employees whenever necessary. (v) Integrating the enriched jobs into the daily work routine of the organis ation. Techniques of Job Enrichment 1. increasing the scope of a job by adding variety of tasks. 2. Assigning a natural work unit to an employee. 3, Allowing the employee to set his own standards or targets. 4> Minimising controls to provide freedom to the employee. 5. Making an employee directly responsible for his performance. 6. Providing the employee control information, so that he may monitor his o wn performance. 7. Encouraging employees to participate in deciding organisational goals an d policies. 8. Introducing new. difficult and creative tasks to the employees. Job enrichment is an Outgrowth of Herzberg's two factor theory of motivation. He rzberg has outlined the details of a successful job enrichment programme. These details are summarised in Table 6.6. Changes Aimed at Enriching Jobs Table 10.6: Principles of Job Enrichment Motivation Generated by the Changes 1. Removing some controls while retaining accountability 2. Increasing the accountability of individuals for own work 3. Giving a person a complete natural unit of work (Division/area) 4. Granting additional authority to an employee in his activity, Give more job freedom 5. Making periodic reports directly available to the worker himself rather than to his superior 6. Introducing new and more difficult tasks not previously handled 7. Assigning individuals specific or specified tasks enabling them to become experts Responsibility and personal achievement Responsibility and recognition

Responsibility, achievement and recognition Responsibility, achievement and recognition Internal recognition Growth and learning Responsibility, growth and advancement -How Do You Motivate Employees", Harvard Source: Frederick Herzberg "One More Time- Business Review, Jan.-Feb., 1968, p. 59. Job enrichment is the most widely used method of job design. It provides a meani ngful work experience and learning to employees. A majority of today's executive s want jobs that are interesting and provide a sense of accomplishment. Extreme division of labour and technical considerations have resulted in routine and rep etitive jobs. It has, therefore, become necessary to redesign jobs to provide in trinstic motivation and satisfaction to employees. Job enrichment is thus a very BUSINESS ORGANISATION AND MANAGEMENT powerful motivational tool. An employee's need for self-actualisation can be met at least partially from his daily work itself. It is also required to develop t he! individual for higher positions. It has helped to improve productivity and r educe labour turnover and absenteeism in AT&T(USA). Oliveti and Flat (Italy), Re nault (France), Volvo (Sweden), Daimler-Benz and Volkswagen (Germany) and many] other companies. However, enriched jobs may fall to motivate employees who are a lienated and who prefer job security, shorter work, bonus and good pay to] auton omy and responsibility. For such employees, job enrichment may lead to feelings of inadequacy, failure and dependence. They may consider it an additional! burde n without appropriate compensation. Job enrichment, may make work] difficult and therefore, proper training should be provided to the employees tol handle the e nriched jobs. Once the employees are recruited and selected, it becomes necessary to train and l develop them so as to make them competent for performing the assigned jobs. I 10.6 MEANNING OF TRAINING Training is the process of improving the job^knowledge and skills of employee;! so as to enable them to perform well. It is an organised or systematic acTTvTtyj wherein people acquire knowledge and skills for doing a specific job. It is a t wo- way process because there must be someone to learn and someone to teach. Th el purpose of training is to mould the behaviour of people so that they can do t heir jobs in a better way. In order to achieve this purpose, a training programm e is used to improve the knowledge, skills and attitudes of employees. Training is the! process of imparting information and knowledge to the employees. As an o rganised! activity, training is designed to create a change in the thinking and behaviour o:1 people. Training is a continuous process because there is no end t o learning andl a person has to learn continuously new technology, new patterns of behaviour! and new lifestyles. Training is necessary for both new as well as ex isting employee;; so that they may perform their jobs properly. Training also he lps employees tol make progress in their careers. Several on the-job and off-the -job, methods are used for training employees. New employees need training to ad apt themselves to the new environment and to perform their jobs efficiently. Old workers requirel in-service training to update their knowledge and to learn new methods andl techniques of doing work. Thus, training is a continuous or neverending process! There is no end to learning. 10.6.1 Distinction Between Training Education and Development f) Training and Education 10.26

Training should be differentiated from education though both are elements of the l learning process. Education involves improving the general knowledge andl deve loping an overall understanding of the total environment. For example, a mechan ic who repairs a car better than an engineer is only trained. He is noil educate d because he does not know the principles of engineering. Therefore.! scope of education is wider than that of training. Secondly, the purpose of educ ation is general whereas training has a specific and immediate purpose of making a person proficient in a particular job. The aim of education is to develop the overall understanding and mental capabilities, whereas the purpose of training is to improve the knowledge and skill of an individual in doing a particular job more efficiently. Thirdly, education involves formal instruction in a school or college whereas training can be given on the job itself. Fourthly, education is generally theoretical whereas training is practical in nature. Lastly, the cost of education is generally paid by the Government and the student. On the other hand, the cost of training is generally borne by the employer. Distinction between Training and Education Points of Distinction Training 1. Nature 2. Contents 3. Participants 4. Duration Practical Job related Non-managers Short By the employer 5. Cost paid Education Theoretical General Both workers and managers Long . By Government and the individual Training and Development Training should also be differentiated from Development. Training is the act of improving the knowledge and skills for doing a specific job. On the other hand, development involves growth of a person in all respects. It is the process by wh ich managers and executives acquire not only skills and competence in their pres ent jobs but also capabilities for future tasks of increasing difficulty and sco pe. Secondly, training, aims at improving current job performance whereas develo pment seeks to improve future job performance. In other words, training is job c entered while development is career-bound. For instance, an employee may receive training to operate a computer. But he may attend a management course to develo p leadership skills. Training and development programmes may be beneficial to bo th managers and workers but the contents of the programmes are likely to differ. Managers receive instructions in developing leadership skills whereas workers a re trained in technical skills. Distinction between Training and Development Development Training Points of Distinction To make workers proficient in their present jobs Purpose Skills imparted Teaching mainly technical skills

To prepare employees for handling more responsible and challenging jobs in futur e. Teaching mainly human and conceptual skills 3. Participants 4. Focus 5. Methods used Meant primarily for non- managerial personnel On developing skills already possessed by workers On the job training methods such as apprenticeship, coaching, etc. Meant primarily for managerial personnel On developing hidden qualities and talent of personnel Off-the-job training methods such as job rotation, lectures role playing, brains torming, sensitivity, training, etc. 6. Duration Time bound Career bound 10.6.2 Need For Training Training is necessary for the following reasons: (a) Newly recruited employees without job experience require training to per form their jobs efficiently. Such training is called job training. It helps the new employees to gain confidence and to achieve the required level of performanc e quickly. (b) Existing employees need training in new and better ways of doing a job. This training is known refresher training. It exposes employees to latest techni ques and helps to avoid obsolescence of skills. Such training is necessary for c oping with changes in work methods and technology. (c) Employees chosen for promotion to more responsible positions need to be trained to broaden their outlook and to improve their job related attitudes. Tra ining also helps to improve their career prospects. (d) Both new and existing employees require training for safety. Such traini ng creates safety consciousness and familiarises the employees with the proper u se of safety devices. It helps in preventing industrial accidents. (e) Training is necessary to make employees versatile in performing differen t jobs. It facilitates employees in moving from one job to another. Training is also needed to bring about a qualitative change in the performance of the employ ees. The main purpose of training are as follows: (a) To prepare employees forthe right jobs by imparting the require knowledg e and skills. (b) To enable employees to work more effectively in their present job by exp osing them to the latest concepts and techniques in concerned discipline. (c) To build a second line of competent officers by preparing employees to o ccupy higher positions. 10.6.3 Importance of Training Training is beneficial to both, employers and employees. A well-trained employee is an asset to the enterprise because his efficiency and productivity is high. Training enables the employee to obtain job security, higher earnings and promot ion. In fact, management has no choice whether or not to train employees. The on ly choice left is whether training will be imparted through a formal and systema tic programme or not. In the absence of formal training, employees learn by, 'tr ial and error'. They pick wrong ways of doing things and the time involved in le arning is very long. Formal training helps to minimise time, cost and wastage in volved in training. The main advantages of training are as follows: Higher Productivity Training helps to improve the job knowledge, skills and job performance of emplo

yees. Well-trained employees are more efficient and as a result the quantity and quality of performance increases. Reduced Supervision Well-trained employees are self-reliant. Trained employees tend to be more profe ssional and disciplined. They take more interest in their jobs. They do not requ ire continuous and intensive supervision. Therefore, the supervisors can save th eir time and energy. Better Safety Human error or negligence is the major cause of accidents in industries. Employe es who lack knowledge and skill regarding their job often commit mistakes. Train ing makes employees proficient and reduces accidents. Training makes employees s afety conscious and enables them to make better use of safety devices. Economy Trained employees make better and economical use of the materials and machinery. Proper handling of facilities reduces wastage, spoilage and breakage. Loss due to damage is minimised and cost of production is reduced. Trained employees can solve operational problems. Higher Morale Effective training improves job attitudes and self-confidence of employees. They feel that management cares for them. Trained employees can work better and ther eby earn rewards. As a result their motivation and morale is boosted. Higher mor ale helps to reduce absenteeism and labour turnover. Relations between managemen t and labour can be improved. Training helps in the formation of right attitudes . Promotion and Career Growth Training enables employees to acquire knowledge and skills for more responsible jobs. It prepares employees for higher positions in the organisation. They can e arn promotions more quickly. Thus, training facilitates career growth of an empl oyee. 7. Stability and Growth Through training, an organisation can develop its future executives and thereby, ensure its stability. It becomes flexible, as well-trained employees can handle a great variety of jobs. Training makes employees more dynamic and adaptive to changes. With the help of well-trained staff, an organisation can smoothly expan d and diversify. It can face adverse conditions more effectively. 10.6.4 Methods of Training The various methods of training may be classified into two broad categories on-th e-job training and off-the-job training. 1. On-the-job Training Methods Under these methods, the employee is trained on the job and at his work place. T he training is provided by the superior or a senior employee. It is based on the principle of learning by doing. On-the-job training is-simple and economical. N o special place, equipment or instructor is required. The training is practice-o riented and promotes self-learning. There is no problem of adjustment to the act ual job after the training. But in the course of training the employees may caus e damage to machinery. Training is disturbed by the job routine. On-the-job trai ning is suitable where a few employees are to be trained in the real job environ ment and no expert instructor is required. Popular on-the-job training methods are given below: (a) Coaching. Under this method, the trainee receives personal guidance and instruction from his superior. This method is effective when the superior is wel l-trained and has sufficient time to provide coaching. (b) Understudy. Here the trainee works as an assistant to a senior manager. He learns through observation and experience. The trainee is expected eventually , to occupy the job of the senior manager. The objective is to develop a success or to the retiring manager. (c) Job rotation. It involves a systematic transfer of the trainee from one job another so as to broaden his knowledge and attitudes. Committee assignments and temporary promotions are other examples of on-the-job training methods. 2. Off-the-job Training Methods

Under these methods, training is given outside the actual work place Training is provided by experts. The employer or an external agency arranges the training p rogramme. The focus is more on learning than doing. Off-the-job training enables trainees to concentrate better because they are free from job pressure. But it is more expensive and less practical. It is suitable when a large number of empl oyees are to the trained over a long time period. (a) Lectures. An organisation may arrange special courses to be conducted by pro fessional experts. Instructions are provided by series of lectures to the traine es. These lectures are meant for imparting special skills and knowledge about pe rforming particular tasks. Some organisations like Life Insurance Corporation of India, State Bank of India, Reserve Bank of India, and Hindustan Lever Ltd., ha ve their own departments conducting special courses for the benefit of their emp loyees. Alternatively, employees may be deputed to attend special courses conduc ted by professional institutes. (b) Conferences. In a conference, people from different parts of the same or ganisation or different organisations come together to discuss various aspects o f a particular subject. In this method, lectures are delivered by experts follow ed by discussion among the participants and comments by them. Conference as a me thod of training enables employees to enlarge their outlook as problems are disc ussed from several angles. (c) Case study. A case is a written account seeking to describe an actual si tuation. The participants who are generally managers are invited to discuss the case in a classroom and the facts are presented by capable instructor. The parti cipants are expected to join the discussion actively and arrive at conclusions. The trainee's power of reasoning, analysis and presentation are thus challenged, contributing to the development of his mental faculties. (d) Seminar method. In this method, the participants learn through discussio n of a paper on a selected subject prepared by the trainee and circulated among the participants in advance. (e) Role playing. Under this method, the participants enact a number of role s to understand the problem. For example, a sales manager can appreciate the pro blems of the customer, if he himself enacts that role. (f) Sensitivity training. Under this method, a training group consisting of five to ten persons is formed. The members of the group freely express their ide as, beliefs and attitudes. Such an open discussion enables a trainee to apprecia te the problems of others and adjust accordingly.. Another off-the-job method is vestibule training. It involves classroom instruct ions by experts. In the classroom, machines, equipment and other facilities iden tical to those used in the job are used. Workshops. TV shows and films are other off the job methods of training. 10.7 CAREER PLANNING AND DEVELOPMENT Career Planning is the systematic process by which one selects career goals and the path tothese goals. From tne organisation s viewpoint, it means helping the errrpltiyeertoplan their career in terms of their capacities within the context of organisation's needs. It involves designing an organisational system of caree r movement and growth opportunities for employees from the employment stage to t he retirement stage. Individuals who can fill planned future positions are ident ified and prepared to take up these positions. It is a managerial technique for mapping out the entire career of young employees. It requires discovery, develop ment, planned employment and reemployment of talents. The main characteristics o f career planning are as follows: (i) Career planning is a process of developing human resources rather than an ev ent. (//) It is not an end in itself but a means of managing people to obtain optimum results. (Hi) Career planning is a continuous process due to an ever changing environment . (z'v) Basically career planning is an individual's responsibility. But it. is th e responsibility of an organisation to provide guidance and counselling to its e mployees in planning their careers and in developing and utilising their knowled

ge and skills. Goals of employees should be integrated with the organisational g oals. (v) The basic aim of career planning is integration of individual and organisati onal needs. Career planning is an integral part of manpower planning which, in t urn, is an important part of corporate planning. Manpower planning cannot be eff ective without proper career planning. Similarly, manpower planning provides val uable information to facilitate career planning. However, there are important di fferences between career planning and manpower planning. First, manpower planning provides an inventory of skills and potentials availabl e within an organisation. On the other hand, career planning determines who (on the basis of performance and potential) could be groomed for higher level assign ments, where, when and how (i.e., after what kind of training). Secondly, manpow er planning provides information on the human resources available within the org anisation for expansion, growth and technological innovations. But career planni ng only tells us who could succeed in case of retirement, death, resignation, et c. of existing personnel. 10.7,1 Career Planning Career planning seeks to achieve the following aims: (0 To attract and retain th e right type of persons in the organisation, (z'z) To map out careers of employe es suitable to their ability, and their willingness to be trained and developed for higher positions. (iii) To ensure better use of human resources through more satisfied and product ive employees. (z'v) To have a more stable workforce by reducing labour turnover and absenteeis m. (v) To increasingly utilise the managerial talent available at all levels within the organisation. (vi) To improve employee morale and motivation by matching skills to job requ irements and by providing opportunities for promotion. (vii) To ensure that promising persons get experiences that will equip them to reach responsibility for which they are able. (viii) To provide guidance and encourage employees to fulfil their potentials. (ix) To achieve higher productivity and organisational development. Process of Career Planning The career planning process generally involves the following steps: 1. Identifying Individual Needs and Aspirations. First of all, an objective analysis of the hopes and aspirations of different categories of employees is d one. It is necessary to identify and communicate the career goals, aspirations a nd career anchors of every employee because most individuals may not have a clear idea about these. For this purpose, a human resource inventory of the organisat ion and employee potential are ascertained. Human resource inventory will reveal the age, qualifications, experience and aptitude of present employees. Appraisa l of employees is then carried out to identify the employees having the necessar y potential for climbing up the ladder and are willing to be promoted and to tak e up higher responsibilities. Such appraisal may reveal three categories of empl oyees: (a) Employees who are already fit and willing to take up higher responsibili ties. These can be promoted to fill the higher level vacancies; (b) Employees who have the potential and willingness to take up higher respo nsibilities but require more training and experience; and (c) Employees who have the capacity to take higher responsibilities but lack the interest or desire. 2. Analysing Career Opportunities. The organisational set up, future plans and career system of the employees are analysed to identify the career opportuni ties available within it. Career paths can be determined for each position. It i s also necessary to analyse career demands in terms of knowledge, skills, experi ence, aptitude, etc. Long-term and short-term career goals can be defined after relating specific jobs to different career opportunities. At a particular level, there may be young direct recruits as well as older persons who have risen to t he level through promotions. The former aspire for quick career progress due to

their better education and training. The latter cannot be expected to move up ve ry high due to limited professional education. Therefore, promotions and direct recruitment at every level must be so planned as to ensure a fair share to each group. This is called age balance in career paths. 3. Identifying Match and Mismatch. A mechanism for identifying congruence be tween individual current aspirations and organisational career system is develop ed to identify and compare specific areas of match and mismatch for different ca tegories of employees. For this purpose, specific jobs are related to different career opportunities. Such matching helps to develop realistic career goals for both long-term and short- term. 4. Formulating and Implementing Strategies. Alternative strategies and acti on plans for dealing with mismatch are formulated and implemented. Some of the s trategies used are given below: (a) Changes in the career system by creating new career paths, by providing opportunities for lateral movements through jobs redesign, etc. (b) Changing employee needs and aspirations by helping them to scale down un realistic goals and aspirations or by creating new aspirations. (c) Seeking new basis of integration through problem-solving, negotiations a nd compromises, etc. (d) Training and development of suitable people, so as to meet the needs of both the individuals and the organisation. 5. Reviewing Career Plans. A periodic review of career plans is necessary t o know whether the plans are contributing to effective utilisation of human reso urces by matching employee objectives to job needs. Review will also indicate to employees in which direction the organisation is moving, what changes are likel y to take place and what skills are needed to adapt to the changing needs of the organisation. The following questions may be asked during the review process: (a) Was the classification of the existing employees correct? (b) Are the job descriptions proper? (c) Is there any employee unsuited to his job? (d) Are the future manpower projects still valid? (e) Is the team pulling on well as a whole? (f) Are the training and development programmes adequately designed to enabl e the employees to climb up the career ladder and fit into higher positions? Answers to these and other similar questions may be sought through brainstorming session. Surveys may also be conducted to judge the impact of career planning a ctivities on the working of the organisation. Fig. 11.1 illustrates the career p lanning process. Feedback i i Individual ?Development A Human Resource Counselling and- Assessment t Synthesizing T Placement on Career Path Complementing I 4 Individual Needs and Aspirations Organisational Needs and - Opportunities Fig. 10.4. Career Planning Process. Source: Adapted from Alpln. J.C. and O.K. Gester, Career Development: An Integrat ion of Individual and Organisational Needs. Personnel. March-April, 1978. p. 24. American Management Association: New York Career Development

Formal Training and Development- Programmes Human Resource Planning and Career Information Career development is essential for implementing career plans. It consists of ac tivities undertaken by the individual employees and the organisation to meet car eer aspirations and job requirements. The most important requirement of career d evelopment is that every employee must accept his/her responsibility for develop ment. Career development involves the following activities: (i) Career Need Assessment. Career needs of employees can be judged by Fig. 10.5 Career Development Model. Source: M.R. Cairell and Kuzmits. F.E., Personnel: Management of Human Resources , Merill: Columbus, Ohio, 1982. p. 408. evaluating their aptitudes, abilities and potential. Many employees may not be a ware of what they want to become. The organisation should assist employees in as sessing their career needs and in identifying their career goals. Life planning work-books can be used to help employees develop and clarify their career goals. Formal assessment workshops may be conducted by specialists. In these workshops , executives explore their strengths and weaknesses and develop plans for career growth. Psychological tests, depth interviews and simulation exercises may be u sed for exploring potential and developing future career goals for executives. (ii) Career Opportunities. Career opportunities that can be met should be ide ntified through job analysis. Job description, job specification and job redesig n reveal lines of advancement for employees. The available career opportunities are then published in a booklet form. Such a booklet will provide necessary info rmation. On the basis of such information employees can plan their own career mo vement and progression. (iii) Need-Opportunity Alignment. In the next stage of career development, emp loyee needs are aligned with available career opportunities. The organisation ca n design appropriate development programmes to help employees integrate their de velopment needs with organisational opportunities. Some of these programmes are as follows: (a) Individualised Techniques. Special assignment, understudy, supervisory c oaching, sabaticals, planned job rotation, and job enrichment can be used to dev elop potential of employees. (b) Performance Appraisal An effective appraisal system can provide an objec tive assessment of current .performance and future potential of employees. Perfo rmance feedback helps employees in understanding and developing their potential. (c) Management by Objectives. Under this system, employees are encouraged to set personal development goals and develop action plans for achieving them. Eff orts are made through continuous self- monitoring to integrate the individual go als with the organisational goals. Management by objectives is thus a strategy f or planned change. (d) Career Counselling. Supervisors or professional experts may provide care er guidance to assist employees understand their strengths and weaknesses and to appreciate the career opportunities available in the organisation. It can help employees remove unrealistic expectations, set realistic career goals and formul ate concrete action plans to achieve the goals. (iv) Monitoring Career Moves. It is necessary to maintain a record of career movements of employees and to monitor their progress towards the predetermined c areer goals. This will enable the human resource department to identify discrepa ncies and to adopt corrective measures at the right time. In case career opportunities are not available for some employees, they may be assisted in finding suitable openings outside the organisation. A career development programme can be made effective by: (a) Creating awareness about individual strengths and weaknesses. (b) Developing appreciation of organisational constraints. (c) Making employees believe that their superiors care for their development

. (d) Developing appropriate career plans. (e) Providing support systems to give a fair and equal opportunity for all t o move within and among different job families. be (Mtmect ^ LuApv T^TPQ, 10.8 MOTIVATION i i , , . j ' sli YllVyJUjUUK $ JM&M. UM4 HjOu^i The job of a manager is to get work done through others. In order to perform ; this job, a manager has to modify the behaviour of his subordinates so as to direct it towards enterprise goals. Human Behaviour is the outcome of motives. 5 ' * Every human being has certain needs. It is needs and desires that cause and brin g , about motivation which becomes apparent in observed behaviour. A motive is the active form of a desire. A person may have several needs and desires. It is only ptA V strongly felt needs which become motives. Thus, motives are a product of needs and desires. Motives are many and keep on changing with time. Motives are invisible and directed towards certain goals. In order to satisfy motives, a man ager offers certain incentives as impulses or stimulus. But no two persons respond to the same stimulus in the same way. Even the same person responds to the same stimulus differently at different points of time. In order to motivate his subor dinates, a manager has to find answers to several questions: e.g.. What makes people work? Why some persons perform better than others? Why does the same individual act differently at different times? Concept of Motivation The term motivation has been derived from the word motive. Motive is anything th at initiates or sustains activity. It is an inner state that energises, activate s or moves and that directs or channels behaviour towards goals. Motive is a psy chological force within an individual that sets him in motion. Behind every huma n action is a motive. According to E.F.L. Brech, "Motivation is a general inspir ational process which gets the members of the team to pull their weight effectiv ely, to give their loyalty to the group, to carry out properly the tasks that th ey accepted and generally to play an effective part in the job that the group ha s undertaken." Motivation is the process of steering a person's inner drives and actions toward s certain goals and committing his energies to achieve these goals. It involves a chain reaction starting with fell needs, resulting in motives which give rise to tension (unfulfilled desires) which causes action towards goals. It is the pr ocess of stimulating people to strive willingly towards the achievement of organisatio nal goals. Motivation may be defined as the work a manager performs in order to induce subordinates to act in the desired manner by satisfying their needs and d esires. Thus, motivation is concerned with how behaviour gets started, is energi sed, sustained and directed. An analysis of the above definitions will reveal the following characteristics o f motivation : (i) Motivation is a persotwfand internal feeling. Motivation is a psychologi cal pTienom^orfwhich generates within an individual. Motives are the energetic f orces within a person that drive him to action. (ii) Motivation produces goal-directed hp.hnvinur. Motivation is a behavioura l concept that "directs human behaviour towards certain goals. (iii) Motivation is a continuous process. Human needs are unlimited. Therefore , mtJtfvatfon is an ongoing process. (iv) Motivation is complex. Individuals differ in their motivation. Different people seek different things or they work for different reasons. Human needs an d motives are varied and they change from time to time. Human motivation is part ly logical and partly emotional. Part of it is in the subconscious state and not

measurable while the other part is visible in observed behaviour. People satisf y their needs in many different ways. Moreover, goal-directed behaviour.does not always lead to need satisfaction. (v) Motivation is system-oriented. Motivation is the result of interplay amo ng three groups of factors: (a) influences operating within an individual e.g., his goals, needs and values, (b) influences operating within the organisation e. g., organisation structure, technology, physical facilities and nature of the jo b, etc. and (c) forces operating in the external environment, e.g., culture, cus toms, norms, etc., of the society. (vi) A person cannot be partly motivated as he is a sell-contained and insepa rable unit. Motivation creates goal directed behaviour. (vii) Motivation can he, either positive or negative. Positive motivation impl ies use of pay. incentives, etc., to satisfy human needs while negative motivati on -emphasizes penalties, e.g., reprimands, threat of demotion, fear of loss of job , etc. (viii) Motivation is different from job satisfaction. Motivation is the process of inspiring people to work for the goals of the organisation by satisfying the ir personnel goals. Job satisfaction is, on the other hand, the feeling of satis faction arising from the job itself. The process of motivation is illustrated in Fig. 10.6. The process begins with a feeling of some need(s). Needs are several and the same need may lead to differ ent actions (behaviour) in different persons. Feeling of a need creates tension and a person takes some action to fulfil his need and thereby remove tension. If the action is successful the need is satisfied and the action is repeated in fu ture. On the other hand, if the action fails to satisfy the need the person either change s his action or has to abandon his need. Needs ? Tension ? Incentives (Actions) Change-* Fail Succed Repeat Motivation Fig. 10.6 Motivation Process Thus, needs and incentives are the key elements in the process of motivation. Significance of Motivation Motivation is important in management on account of the following reasons: 1. Higher efficiency: A good motivational system releases the immense laten t talent and abilities of employees. It converts ability to work into will to wo rk. Motivated employees make higher contributions towards the realisation of org anisational goals. On the other hand, poorly motivated people can nullify the so undest organisation. In fact, motivation is an effective instrument in the hands of management for maximising the efficiency and effectiveness of an organisatio n and for securing the optimum utilisation of resources. It determines the level of employee performance. 2. Low absenteeism and turnover : Motivation leads to job satisfaction and high morale due to which labour unrest, labour absenteeism and turnover are redu ced. Motivated employees have higher commitment and loyalty to the organisation. They stay longer and are more punctual. All these factors ensure stability in t he work force. Thus, a team of motivated employees is the most valuable asset of an organisation. Motivation also promotes self-discipline. 3. Facilitates change : Effective motivation helps to overcome resistance t o change and negative attitudes on the part of employees. Motivated employees ar e receptive to new developments. They learn better and they themselves suggest a ppropriate changes. Motivation sets the tone of an organisation. The problem of motivation is the key to management in action. 4. Human relations: A high level of motivation results in harmonious relati ons between employer and the employees. Sound industrial relations ensure indust rial harmony and peace. Employee morale and discipline are likely to be high. Mo tivation improves acceptance and compliance of orders and instructions.

5. Corporate image : A company that provides adequate opportunities to its emplo yees for the satisfaction of physical and psychological needs has a better image in the public. People prefer to join and work in such an enterprise. This helps in recruiting qualified personnel and simplifies the staffing function. Motivation helps to utilise and develop creative talent of employees. In the wor ds of Rensis Likert, "Motivation is the core of management". "Poorly motivated employees can nullify the soundest organisation", said Alien. Thus, motivation i s the key to management in action. Techniques of Motivation Two main approaches to motivation are as follows: 1. Carrot and Stick Approach to Motivation. This approach is based upon the old belief that the best way a person works is to put a reward (effortf) before him or to hold out the threat of punishment (stick). Carrot is the reward for workin g and stick is the punishment for not working. Under carrot and stick approach e mployees who perform the task well are given rewards in the form of bonus, pay r ise, promotion, etc. While the employees avoiding work (showing undesired behavi our) are given punishment in the form of demotion, termination from service, tra nsfer to an unpleasant job, etc. Employers who adopt this approach believe that a person seeks employment because he expects to earn money with the help of whic h he can satisfy the needs of himself and of his family. He knows that if he doe s not perform his job satisfactorily he will lose his job. Stick pushes people t o engage in positive behaviour or to avoid negative behaviour. Carrot and stick approach is, therefore, 'a reward and punishment system' for motivating employee s. F.W. Taylor and his associates stressed upon the importance of rewards in mot ivating workers. They evolved incentive plans of wage payment. Under these plans workers who produced more than the standard output were given rewards while tho se producing less than the standard were punished in the form of wage cut. This system became very popular in the United States and in the United Kingdom. Carrot and stick approach began to fail after some time. Workers became well org anised into powerful trade unions who resisted fines, suspension, dismissal and other forms of punishment. Governments in many democratic countries enacted laws to protect the interests of the working class. As a result threat of punishment lost much of its force. Carrot and stick approach helps to influence only the in ternal environment of an organisation. But motivation is affected by many other (external) forces. The following steps may be taken to make the carrot and stick approach more effective: 1. Reward (carrot) is a more effective motivator when it is directly linked with performance. Accurate and unbiased appraisal of performance, consistent (e quitable) reward structure and prompt payment of reward are also helpful in impr oving the effect of reward. 2. Punishment (stick) is more effective if applied at the time when the und esirable behaviour actually occurs. 3. Punishment should be administered with extreme care so that it does not become a reward for undesirable behaviour. 4. Punishment should be used to modify the behaviour and to force the perso n to adopt desirable behaviour which is rewarded. 5. The mixture of reward and punishment should be judiciously applied to re inforce desirable behaviour patterns. 2. Job Enrichment: Job enrichment is a non-financial technique of motivation. It is an outgrowth of Herzberg's two-factor theory of motivation. It is based on t he assumption that the factors surrounding the work are not effective motivators of behaviour. In order to motivate employees the job itself must provide opport unities for achievement, recognition, responsibility, advancement and growth. Th e nature of modern technology (division of labour, assembly line, job simplifica tion) has made the jobs dull and monotonous. Workers do not get job satisfaction and, therefore, they are not fully motivated despite fair wages and fringe bene fits. In order to overcome these problems, the IBM Corporation of USA made an ex periment in job enlargement. It was decided to enlarge the job and allow an oper

ator to sharpen his tool, to set up and reset his machine and to inspect the out put. As a result there was variety and challenge in the job. Workers got job sat isfaction and there was improvement in their performance. Job enrichment is an extension of job enlargement technique. The difference betw een job enlargement and job enrichment lies in the nature of addition to the job . Job enlargement involves a horizontal expansion of the job, i.e., addition of more tasks. On the other hand, job enrichment involves vertical loading of the j ob to make it more challenging and interesting. Job enrichment may be defined as an attempt to design jobs in such a way as to build in the opportunity for achi evement, recognition, responsibility and personal growth. It provides a worker g reater autonomy and responsibility in carrying out a complete task and with time ly feedback on his performance. Horizontal loading (job enlargement) does not en rich the task. But job enrichment involves designing jobs with variety of work c ontent that requires a high level of knowledge and skill. It provides a meaningf ul work experience and greater responsibility for planning and controlling his o wn performance. Job enrichment requires decentralisation of decision-making auth ority to the worker. The task is redefined, restructured and broadened in scope and responsibility. The worker gets the freedom and discretion in scheduling his work. Advantages: Job enrichment provides the following benefits : It makes the job interesting thereby reducing boredom and monotony If helps to reduce absenteeism and labour turnover It provides job satisfaction to employees b> making a job challenging It improves motivation through opportunities for advancement and growth in the career It ultimately helps to improve productivity and quality of work. Limitat ions: In spite of its benefits, job enrichment .- been criticised on the followi ng grounds: (i) Job enrichment is based on the assumption that v. ?rkers want more respo nsibility. In reality some workers (e.g.. ur.ec^cated persons) may prefer less r esponsible jobs with good socia! interaction. Such workers may show feelings of inadequacy and fear of failure :o job enrichment. (ii) Job enrichment may have little value for workers ho do not seek satisfactio n in the workplace. Some jobs canno: be er.riehed beyond a certain point. (iii) Job enrichment is basically limited to non-manager'a : bs. In managerial and professional jobs there is little scope for apr ; :ob enrichment. Such jobs can be enriched more by techniques like MBO, participative management and deleg ation of authority. (iv) When managers use their own scale of values of responsibility and challe nge, workers may resist job enrichment. Similarly the tendency to impose job enr ichment leads to resistance from employees. (v) Job enrichment may have negative effects in the short run. Workers take time to adjust to the challenging demands made by job enrichment. Job enrichment helps individuals grow slowly and steadily. Job enrichment is an individual the ory of work motivation. Its success depends ultimately on how work groups implem ent it. Trade unions may not accept it. (vi) Supervisors, may feel that their power and prestige is being undermined when greater authority is delegated to workers. Thus, job enrichment is not panacea for motivational problems and it is not a substitute for good management. Successful implementation of job enrichment requ ires a supportive climate for innovation and change. TABLE 10.7 Job Enrichment Vs. Job Enlargement Job Enrichment Point of Difference Job Enlargement Vertical expansion ofjob by increasing responsibility and authority

To make the job more challenging and satisfying Requires development and utilisation of higher skills, innovation and initiative on the part of employees. 1. Nature 2. Purose 3. Skills required 4. Control Permits self-direction and control Horizontal expansion of job by adding more tasks To reduce monotony arising from routine and repetitive task Does not require acquisition and utilisation of higher skills Requires direction and control from the superiors Theories of Motivation Some of the popular theories of motivation are given below: 1. -MaSlow's Need Priority Model 2. Herzberg's Two-Factor Theory 3. McGregor's Theory X and Theory Y 4. Ouchi's Theory Z Maslow's Need Priority Model Abraham H. Maslow, an eminent American psychologist, developed a general theory of motivation, known as the 'Need-hierarchy theory'. The salient features of this theory are as follows: (i) The urge to fulfil needs is a prime factor in motivation of people at wo rk. Human beings strive to fulfil a wide range of needs. Human needs are multipl e, complex and interrelated. (ii) Human needs form a particular structure or hierarchy. Physiological need s are at the base of the hierarchy while self-actualisation needs are at the ape x. Safety (security) needs, social needs and esteem (ego) needs are positioned i n between. As one proceeds from base towards apex, needs become less essential. (iii) Lower-level needs must at least partially be satisfied before higher lev el needs emerge. In other words, a higher-level need Joes not become an active moti vating force until the preceding lower-crcer needs are satisfied. Human beings s trive to gratify their needs in a -_er::a. manner starting from the base of the hierarchy. All needs are not iclt 31 the same time. (iv) As soon as one need is satisfied, another nee; emerge; This process of n eed satisfaction continues from birth to deem V;r .; : - anting animal. (v) A satisfied need is not a motivator, i.e.. it ceiit; :: r.fluence human behaviour. It is the unsatisfied needs which regr r. dual's behaviour. (vi) Various need levels are interdependent and o -1: irr ~.z Ezch higher lev el need emerges before the lower need is complex As shown in Fig. 10.7 there are five categories of hurnsr. nee-;.; 1. Physiological needs. These are biological ree:.; :c;_ied to preserve human li fe. 'Therefore, these needs are also ii sun 'ival needs. They include needs for food, drink, clothing. ; eer etc Tnese needs must be sati sfied first of all and therefore, the;, are ; :: erf_; motivating force when thw arted. 'Man lives by bread alone' ie_ there is no bread. Physiological needs mus t be satisfied repeated!) but they are essentially finite. For example, an indiv idual requires a limited amount of food but he requires it every day. 5 Self-actualization Needs 4 Esteem Needs 3 Social Needs 2 Safety Needs Physiological Needs

Fig. 10.7 Maslow's Need Hierarchy. 2. Safety Needs. Once physiological needs are reasonably satisfied, a person wan ts protection from physical dangers and economic security. Safety needs are thus concerned with protection from danger, deprivation and threat. These needs are finite but they may serve as motivators in case of arbitrary and unpredictable m anagement action. Such action creates uncertainty and people seek job security. Organisations can influence these needs through pension schemes, insurance plans , fear of dismissal, etc. 3. Social Needs. Man is a social animal as he seeks affiliation (associatio n) with others. Social needs refer to need for belonging, need for acceptance, n eed for love and affection, etc. Such needs are infinite as they are considered as secondary needs because they are not essential to preserve human life. They r epresent needs of the mind and spirit rather than of the physical body. Organisa tions can influence these needs through supervision, communication system, work groups, etc. 4. Esteem Needs. Esteem needs are of two types: self-esteem and esteem of o thers. Self-esteem needs include self-respect, self-confidence, competence, achi evement, knowledge and independence. Esteem of others includes reputation, statu s, recognition. These needs are infinite and thwarting them results in feeling o f inferiority, weakness and helplessness. 5. Self-actualization Needs. These are the needs for realising one's full p otential, for continued self-development, for being creative. It is the desire o f becoming what one is capable of becoming. It is an infinite and growth need. I t is psychological in nature and very few persons satisfy it. The conditions of modern industrial life provide limited opportunity for the satisfaction of seifactualisation. Need hierarchy represents a typical pattern that operates most of the time. It m ust not be viewed as a rigid structure to be applied in all situations. Critical Appraisal Maslow's need priority model of motivation has gained extensive popularity becau se it is simple and logical. It is compatible with the economic theory of demand . The theory helps to explain why a person behaves differently in two similar si tuations. It provides an insight into what is common to all. It extends to all a reas of human life and is not limited to work situation alone. But there is litt le empirical support for it because its propositions could not be vigorously tes ted through empirical research. The theory could not be validated but it is said to contain some fundamental truths which do not require any proof. However, the theory is widely criticised for the following reasons: (i) Needs are not the only determinant of behaviour. People seek objects and engage in behaviour that are in no way connected with the gratification of need s. There are other motivating factors like perceptions, expectations, experience s, etc. (ii) The theory gives an oversimplification of human needs and motivation. Need recognition and fulfilment do not always follow the specific sequence or hi erarchy suggested by Maslow. Need classification is somewhat artificial and arbi trary as human needs cannot be classifiec into neat watertight compartments. The refore, the theory may not have uni\ ersal validity. (iii) The hierarchy of needs is not always fixed. Different pecnle may have di fferent orders. For example, in case of creative re:r e like singers, painters, etc., self-actualisation need may become a dominant motivating force even before the lower order needs are satisfied 5 milar the need priorities ofthe same indi vidual may change overtime. As a result, a manager cannot keep up with a continu ously revolving set of need; Thus. Maslow's model presents a somewhat static pic ture of need ;t:_;:_re. The theory does not recognise individual differences. In dividual; differ in the relative intensity of their different needs. (iv) Maslow's theory is based on a relatively small sar.r e 1: Is a clinicall y derived theory and its unit of analysis is the individual Tru: ; : hy Maslow p resented his model with apologies to those who insisted :n conventional reliabil ity, validity, sampling, etc. (v) There is no definite evidence that once a need is satisfied it loses its

motivating force. It is also doubtful that satisfaction of one need automatical ly activates the next need in the hierarch) S :me rersons will not aspire after their lower-order needs have bee:" satisfied. Human behaviour is the outcome of several needs acting sim u itane: usl>. The same need may not lead to the same r esponse in all inc.-.:dual; S milarly, one particular behaviour may be the resul t of different needs There is lack of direct cause and effect relationship betwe en need ana behav lour. Despite these limitations, Maslow's theory has a comm:n;e_;e appeal for managers . It is still relevant because needs are important :":: understanding behaviour. The theory provides a convenient conceptual frame : r!< rorthe study of motivat ion. It helps to explain inter-personal and intra-rer;: nal \ ariations in human behaviour. Maslow's theory should be viewed and arrlied as a typical descriptio n of human needs. This theory recognises that an man. dual works to fulfil a var iety of needs and is not motivated simply by mone> Niaslow's theory helps manage rs in motivating employees by indicating the range ; f h unan needs and by sugge sting that attention should be focused or. unsatisfied needs which keep on chang ing over time. Herzberg's Two-Factor Theory In the late fifties, Frederick Herzberg and his associates conducted interviews of 200 engineers and accountants in the Pittsburgh area of the United States. Th ese persons were asked to relate elements of their jobs which made them happy or unhappy. An analysis of their answers revealed that feelings of unhappiness or dissatisfaction were related to the environment in which peonle were working. On the contrary, feelings of happiness or satisfaction were related to their jobs. According to Herzberg, maintenance or hygiene factors are necessary to maintain a reasonable level of satisfaction among employees. These factors do not provide satisfaction to th^emj^oyees-btrRiei^aSsin^ Therefore, Maintenance Factors these factors are called dissatisfiers. These are not intrinsic prts~o1~ajcF6 but " they_are related to "conaTTIons under wlijch. ajob is performed. They are 5rs (e xtrinsic tQrthlfjob) and are given in tKe tollowirigtarbter Tble-10.8 -Motivators and Demotivators Motivating Factors Company Policy and Administration Technical Supervision Inter-personal relations hip with peers Inter-personal relationship with supervisors Inter-personal relat ionship with subordinates Salary Job Security Personal life Working conditions Status Achievement Recognition Advancement Opportunity for growth Responsibility Work i tself On the-oerJiandjTiot[\^tiQnal factors are intrinsic parts of the job. Any increas e in.these-fk^iMSJiidlljatis^the emjjioyee^a^ performance. But a decrease in these factors will-not cause dissatisfaction. Herzberg noted that the two sets of factors are unidimensional, i.e., their effe ct can be seen in one direction only. He admitted that the potency of any of the job factors is not solely a function of the nature of the factor itself. It is also related to the personality of the individual who may be either a 'motivatio n seeker' or a 'maintenance seeker'. A motivation seeker is motivated primarily by the nature of. the task and has high tolerance for poor environmental factors . On the other hand, a maintenance seeker is motivated primarily by the nature o f his environment and tends to avoid motivation opportunities. He is satisfied w ith the maintenance factors surrounding the job. He shows little interest in the kind and quality of work. Critical appraisal Herzberg's motivation hygiene theory has received a great deal of attention and

it has become popular among managers. One striking conclusion of Herzberg's theo ry is that one cannot achieve higher performance simply by improving wages and w orking cbnditions. The conclusion should be an. eye opener to managers who go on improving wages and fringe benefits with the hope of improving efficiency. Herz berg stressed upon the job as an intrinsic motivating factor. The key to job sat isfaction and high performance lies in job enrichment. Herzberg's two-factor the ory has made a significant contribution towards improving manager's basic understanding of human behaviour. His theory is simple and based on empirical data. It offers specific actions for managers to improve motivatio n and performance. This theory has exercised tremendous impact in simulating tho ught, research and experimentation in the area of work motivation. Traditionally , job satisfaction and dissatisfaction were viewed as opposite ends of a single continuum. Herzberg's findings indicate that dissatisfaction is not simply the o pposite of satisfaction or motivation. Satisfaction and dissatisfaction are inde pendent rather than opposite ends of the same continuum. Hygiene Factors < ? Dissatisfaction No Satisfaction Motivating Factors < ? (No Satisfaction) Satisfaction (No Motivation) (Motivation) Herzberg's theory has been criticised on the following grounds: (i) The theory is based on a small sample of 200 accountants and engineers w hich is not representative of the work force in general. Other researchers have drawn different results from similar studies. The theory is most applicable to k nowledge workers. Studies of manuai workers are less supportive of the theory. T herefore, the theory is not un i \ ersaliy applicable. (ii) Herberg's model is method bound and is limited by the critical incident method used to obtain information. When satisfied, people attribute the causes o f their feelings to themselves. When they are dissatisfied they attribute their failures to outside forces. People tend to te" the interviewer what he would lik e to hear rather than what they rea'.h reel The interview method used by Hezberg suffers from bias. The methodology has the bias of being able to recall the mos t recent job conditions and feelings. The method is fraught with procedural defi ciencies also. The analysis of the responses derived from this approach is highl y subjective. Therefore, the empirical validity of the theory is doubtful. (iii) The theory focuses too much attention on satisfaction rather than on per formance level. There is no direct link between satisfaction, motivation and per formance. Therefore, Herzberg's two-factor theory is a grossly oversimplified po rtrayal of the process of motivation. (iv) The distinction between maintenance factors and motivating factors is no t fixed. What is maintenance factor (e.g., pay) for a worker in the United State s may very much be a motivator for an Indian worker. The theory ignores the domi nating influences of the situational variables. Motivational and maintenance fac tors are not wholly unidimensional. They operate primarily in one direction but also partly in other direction. Comparison Between Maslow and Herzberg Models Herzberg's theory is an extension of Maslow's need priority model. The two model s are basically compatible or complementary. There is a close similarity between survival needs (physiological, safety and social needs) and dissatisfiers on th e one hand and between growth needs (esteem and self-actualization needs) and sa tisfiers on the other. Fig. 10.8 Maslow and Herzberg Models MOTIVATIONS ACHIEVEMENT RESPONSIBILITY, JOB ITSELF, ADVANCEMENT HYGIENE FACTORS CO. POLICY &ADMN. SALARY, W. CONDITIONS, PERSONAL LIFE, INTER PE RSONAL RELATIONS

Both Maslow and Herzberg models tend to over-simplify the motivational process. Maslow's model is formulated in terms of human needs while Herzberg's model is i n terms of rewards or goals. Herzberg has attempted to refine and reinforce on t he need priority model and has thrown a new light on the content of work motivat ion. Herzberg has suggested the use of hygiene factors to avoid dissatisfaction and the use of motivators to improve motivation and job performance. Maslow has given a hierarchical or sequential arrangement suggesting that any unsatisfied n eed whether of lower older or higher order will motivate individuals. Despite th ese apparent differences, the two models show marked similarities. Both models f ail to take account of individual differences in motivation. Point of difference Table 10.9 Maslow Vs. Herzberg Models Maslow's theory Herzberg's model 1. Formulation 2. Order of needs 3. Nature of theory In terms of needs Hierarchical or sequential arrangement of needs Descriptive In terms of rewards or incentives No such arrangement Prescriptive

Unsatisfied needs motivate individuals Any need can be a motivator if it is rela tively unsatisfied nee of theory Gratified needs regulate behaviour and performance Only higher order needs serve as motivators 5. Motivator 6. Applicability problems of all workers Takes a general view Takes a microview and of ihe motivational deals with work-o riented motivational problems of professional workers McGregor's Theory X and Theory Y Prof. Douglas McGregor has developed a theory of motivation on the basis of hyph otheses relating to human behaviour. According to McGregor, the function of moti vating people involves certain assumptions about human nature. There are two alt ernative sets of assumptions which McGregor has described as Theory X and Theory Y. Theory X Theory X of motivation is based on the following assumptions: (1) The average individual is by nature indolent and will avoid work if he c an. (2) The average person lacks ambition, dislikes responsibility, and prefers to be led. (3) An average human being is inherently self-centred, and indifferent to or ganisational goals. (4) Most people are by nature resistant to change and want security above al l. (5) The average individual is gullible, not very bright, the ready victim of the schemer. On the basis of these assumptions, the conventional view of management puts forw ard the following propositions:

(1) Management is responsible for organising the elements of productive ente rprise money, materials, equipment, people in the interest of economic gain. (2) With respect to people, management involves directing their efforts, mot ivating them, controlling their actions and modifying their behaviour to fit the needs of the organisation. (3) Without active intervention by management, people would be passive even r esistant to organisational needs. They must, therefore, be persuaded, rewarded, punished and controlled. The above assumptions are negative in nature. Therefore, Theory X is a conventio nal or traditional approach to motivation. External control is considered approp riate for dealing with unreliable, irresponsible and immature people. According to McGregor, an organisation built upon Theory notions will be one in which there is close supervision and control of subordinates and high centralisa tion of authority. Leadership in such an organisation will tend to be autocratic , and workers will have very little (if any) say in decisions affecting them. Th e climate in a Theory X organisation tends to be impersonal and the theory sugge sts carrot and stick approach to motivation. TheoryY Theory X is based on faulty conception of human nature. McGregor recognised cert ain needs that Theory X fails to take into account. These relate to self-fulfilm ent, ego satisfaction and the social needs of individual workers. To meet these human needs in business, McGregor suggested a counter approach to management whi ch he called Theory Y. The theory proposes that: Management is responsible for organising the elements of productive ente rprise in the interest of economic and social ends. People are not by nature passive, or resistant to organisational needs. They become so as a result of experience. Motivation, potential for development, capacity for assuming responsibil ity and readiness to direct behaviour towards organisational goals are present i n people, management does not put them there. It is the responsibility of manage ment to make it possible for people to recognise and develop these characteristi cs for themselves. The essential task of management is to arrange organisational conditions and methods of operations so that people can achieve their owr poajs best by d irecting their own efforts towards organisational goals. Theory Y is based upon the following assumptions: (1) The expenditure of physical and mental effort is as natural as play and rest. The average human being has no inherent dislike for work. Work, if meaning ful, should be a source of satisfaction and it can be voluntarily performed. (2) Man will exercise self-control and self-direction in the service of obje ctives to which he is committed. External control or threat of punishment is not the only means of motivating people to work and achieve organisational goals. (3) Commitment to objectives is a result of the rewards associated with thei r achievement. The most significant of such rewards, e.g., the satisfaction of e go and self-development needs, can be the direct result of effort directed towar ds the organisational objectives. Once the people have selected their goal, they will pursue it even without close supervision and control. (4) The average human being, under proper conditions, does not shun responsi bility. He is ready not only to accept responsibility but to seek it. Avoidance of responsibility, lack of ambition, etc., are consequences of experience rather than being inherent in human nature. (5) The capacity to exercise a relatively high degree of imagination, ingenu ity and creativity in the solution'of organisational problems is widely, not nar rowly, distributed in population. (6) Under conditions of modern industrial life, the intellectual potentialit ies of people are only partially utilised. In reality, people have unlimited pot ential. Theory Y represents a modern and dynamic nature of human beings. It is based on assumptions which are nearer to reality. An organisation designed on the basis o

f theory Y is characterised by decentralisation of authority, job enrichment, pa rticipative leadership and two-way communication system. 10.9 COMPENSATION MANAGEMENT The term 'compensation' refers to the wages, salaries, allowances andjjthgr bene fits which an employer pays to his emglovees^ither in cash or inJdndLor both in consideration for their services. Employees devote their time, energy, knowledge and skills while performing jobs in the organisation. In return the employer co mpensates them by making monetary and non-monetary payments to the employees. Co mpensation is a comprehensive term as it includes all types of financial and oth er rewards paid to employees for their services. Employee compensation is a vita l part of human resource management. Wages, salaries and other forms- of employe e compensation constitute a very large component of operating costs. "One of the biggest factors affecting industrial relations is the salary or wage the compensa tion an employee receives for a fair day's work." Majority of union management d isputes relate to remuneration. No organisation can expect to attract and retain qualified and motivated employees unless it pays them fair compensation. Employ ee compensation, therefore, influences vitally the growth and profitability of t he company. For employees, pay is more than a means of satisfying their physical needs. It provides them a sense of recognition and determines their social stat us. Remuneration is directly or indirectly one of the mainsprings of motivation in our society. Wages and salaries have significant influence on distribution of income, consumption, savings, employment and prices. This is all the more signi ficant in a developing country like India suffering from problems of concentrati on of income, inflation and unemployment. Thus, employee compensation is a very significant issue from the view-point of employers, employees and the nation as a whole. Employee compensation may be classified into two categories: (i) Base or primary compensation, and (ii) Supplementary compensation. Base or primary compensation refers to basic pay in the form of wages and salari es. It is fixed and non-incentive payment, on the basis of time expended on thej ob. Supplementary compensation consists of incentive and variable payments, base d on either individual output or output of the group as a whole. Administration of employee compensation is called compensation management or wage and salary administration. It involves formulation and implementation of policies and programmes relating to wages, salaries and other forms of employee compensation. It includes job evaluation, wage/salary survey, development and m aintenance of wage structure rules for administration of wages, profit sharing a nd other incentives and control of payroll costs. The basic purpose of wage and salary administration is to establish and maintain an equitable wage and salary structure and an equitable labour cost structure. As stated earlier, compensation paid to employees may be divided into two broad categories as under: 1. Basic Pay 2. Dearness Allowance 3. House Rent Allowance 4. City Compensatory AHowance 5. Fringe Benefits or Perquisites Fig. 10.9. Components f Compensation Basic or primary compensation means the v ^ge/salary allowances and perquisites paid to employees irrespective of their performance. It is a fixed amount paid e very month/week to employees. It cons of the following components. 1. Basic Pay : Basic pay of an employee depends upon the pay scale or salar y scale for thejob. For example, a new graduate wlio^ToTns as a clerk in an orga nization in the scale of 3,000-200-5000-250-7,500 will get a basic pay of Rs. 3, 000 per month. His basic pay will increase by Rs. 200 every year. Once the basic pay reaches Rs. 5,000 the increase per year (called increment) will be'Rs. 250. Basic pay for a job is decided through the process of job evaluation. Job evalu ation is a systematic process of determining the relative worth of a job. Severa

l other factors such as demand for and supply of labour, ability of the employer to pay, bargaining power of trade unions, Government regulations also affect bas ic pay. Wage is basically the price paid for the services of labour. On the other hand, salary is the compensation paid to office staff. 1. Bonus 2. Profit Sharing . 3. Co-partnership 4. Employee Stock Option Plan (ESOP) 2. Dearness Allowance (DA) : Dearness allowance is the allowance which is p aid to employees to compensate them against inflation. Its purpose islcTmaintain to some extent the real pay of employees. Dearness allowance is decided as per an agreed formula which takes into account increase in the cost of living. 3. House Rent Allowance (HRA) : This allowance is paid to partly meet the e xpenditure incurred hv an emplowe_rmTiis housing accommodation According to the central government rules house renTaUowance TTpayable at the rate of thirty perc ent of basic pay in Delhi. 4. City Compensatory Allowance (CCA) : This_allaaance is paid to compensate employees jjartly for hjghei^costof li\ ingjncities. The amount of city compensa tory allowance may differ from one level of job to another and from one type of city to another 5. Other Allowances : Some employers pay conveyance allowance, tiffin allow ance^jdeputatien- allowance, uniform allowance, etc. to their employees. 6. Fringe Benefits or Perquisites : Fringe benefits refer to benefits and f acilities paid in addition to basic pay and allowances. Medical facilities, leav e travel concession (LTC), transport allowance, tree or subsidized meals, provid ent fund, pension, gratuity, group insurance, legal aid, children's education, i nterest free loans etc. are some examples of fringe benefits. The purpose of fri nge benefits is to rrovide a measure of comfort and welfare to employees. Some o f these benefits are payable under government rules and regulations. Others are paid voluntarily by employers. Senior executives get several perquisites such as company house, chauffer driven car, corporate aircraft, company credit card, cl ub membership, etc. Salon Table 10.10 Distinction Between Wage and Salary Basis of Distinction Wage Salary is the remuneration paid periodically to office employees or white collar staff Wage is usually paid on hourly Salary is usually paid rate or daily rate basis. on weekly or monthly Recipients Wage is the remuneration paid periodically to factory workers or blue collar-sta ff 2. Basis of Payment basis 7. Supplementary or Incentive Compensation : It refers to the compensation paid t o motivate employees to work more efficiently. Such compensation is linked to pe rformance on the job. The amount of supplementary compensation is not fixed. It v aries with variations in job performance of an employee. Supplementary compensat ion or incentive compensation is also a method of sharing gains in productivity with workers by rewarding them financially for their increased efficiency. Performanc e based bonus, profit sharing, cash rewards for outstanding performance are exam ples of such compensation. This component of compensation is performance linked

compensation. Table 10.11. Distinction between Base and Supplementary Compensation Basis of Distinction Base Compensation Supplementary Compensation 1. Form It is paid in the form of wages, salaries, allowances and fringe benefits. 4. Determination 2. Mode of payment It is usually paid in cash. 3. Purpose It is paid to compensate employees for their services. It is determined on the basis of job evaluation, demand and supply of labour, em ployer's capacity to pay, union's bargaining power, productivity of labour, governm ent regulations, etc. It is paid in the form of bonus, profit'sharing. etc. It is paid both In cash and kind. It is paid to inspire employees to increase efficiency. It is determined on the basis of individual or group performance. 10.9.1 Fringe Benefits These days, employees are paid several benefits in addition to wages, salaries, allowances and bonus. These benefits and services are called 'fringe benefits' b ecause these are offered by the employer as a fringe. The International Labour O rganisation (I.L.O.) has described fringe benefits as follows: "Wages are often augmented by special cash benefits, by the provision of medical and other servic es or by payments in kind. Workers commonly receive such benefits as holidays wi th pay, low cost meals, low rent housing, etc. Such additions to the wage or sal ary are called 'fringe benefits' or 'perquisites'. Benefits that have no relatio n to employment should not be regarded fringe benefits even though they may cons titute a significant part of the employee's total income. The main features of f ringe benefits are as follows: (i) Fringe benefits are a supplement to regular wage or salary. (ii) These benefits are paid to employees irrespective of their job performan ce. (iii) Fringe benefits involve a labour cost for the employer and are not meant directly to improve efficiency. For example, money spent on lighting in the fac tory is not a fringe benefit as it does not supplement the wages of employees. (iv) Fringe benefits refer to items for which a direct monetary value to the employee can be ascertained; e.g., paid holidays, pension, etc. On the other han d, services refer to the items such as athletics, legal aid, dispensary, etc. (v) Fringe benefits add to the workers' standard of living or welfare. (vi) These benefits may be statutory or voluntary. Provident Fund is a statut ory benefit whereas housing for workers is a voluntary benefit. Objectives of Fringe Benefits Fringe benefits are given for the following reasons: (i) to recruit and retain the best employees; (ii) to protect employees against certain hazards, e.g. life insurance, old a ge pension, etc.; (iii) to improve motivation and morale of workers by satisfying some unsatisfi ed needs; (iv) to improve work environment and industrial relations: (v) to ensure health, safety and welfare of employees: (vi) to develop a sense of belonging and loyalty among workers; (vii) to meet statutory requirements; (viii) to satisfy the demand of trade unions; (ix) to improve the public image of the enterprise. Criteria, (i) It should be computable in terms of money, (ii) The amount of bene fit is not generally predetermined, (iii) There is no control as to when are ben

efits available. Need and Importance, (a) Incentives motivation, (b) Improve employee's standard of living, (c) Attract better talent, (d) Reduce labour turnover, (e) Reduce ove rtime costs, (f) Discourage labour cost, (g) Help labour in rising cost of livin g, (h) Labour legislation had made some of them compulsory , e.g., PF/Pension, ( i) Power of unions, (j) Part of social responsibility and human relations, (k) S ense of security and welfare health, safety, etc. Types, (a) Payment for time not worked sick leave with pay, vacation pay, earned l eave; (b) Extra pay for time worked Diwali bonus, food subsidy, staff premises, pr ofit sharing, unemployment compensation; (c) Health accident insurance, disability insurance, hospitalisation, life insurance, sick benefits, medical care; (d) Fo r security unemployment, insurance, leave travel pay, maternity leave, holidays, l ay-off pay, employment to children; (f) old age PF, pension, gratuity; (g) Recogni tion anniversary rewards, attendance bonus, canteen, cooperative credit society, e ducation, housing, recreational, counselling; (h) Welfare legal aid, holiday leave s, education, transport, (i) stock options. Factors Influencing, (a) Cost of ben efits, (b) Ability of employer to pay, (c) Industry practics, (d) Bargaining str ength of trade unions, (e) Employee's significance to the- Co., (f) tax benefits to the Co. and employee, (g) Need for building Co. image; (h) organisation's po licy towards social responsibility. Fig. 10.10. Administration of Fringe Benefits. Principles of Benefits: 1. Consider them investment in HRM. 2. Consider future needs and flexibility. 3. Separate employee benefit from community welfare. 4. Communicate benefit information. 5. Involve workers in designing level of fringe benefits. Types of Fringe Benefits (i) Payments without work sick leave, maternity leave, paid vacations, leave t ravel concession (LTC) etc. (ii) Retirement benefits provident fund, pension, gratuity, group life insuranc e, earned leave. (iii) Subsidised housing, lunch, transport, dress. (iv) Medical benefits. (v) Child care, counselling, educational and recreation facilities. (vi) Health and safety benefits, (vii) Interest free loans, holiday homes, consumer cooperative stores. Concept of Compensation Management Compensation management involves development, implementation, maintenance, commu nication and evaluation of compensation policies, practices and processes. These processes deal with the assessment of relative job values, the design and manag ement of pay structures, payment for performance, the provision of employee bene fits and services, etc. Compensation management is also known as wage and salary administration. It may be called rewards management. According to Decenzo Robbi ns, "Compensation management aims at designing a cost effective pay structure th at will attract, motivate and retain competent employees." Compensation management includes areas such as the following: job evaluation wage/salary surveys developing pay structure deciding allowances and fringe benefits controlling costs of compensation. Performance Linked Compensation Performance based compensation is the compensation the amount of which is direct ly linked to the performance of an employee or a group of employees. It is also known as 'payment by results' and 'incentivecompensation'. Its basic purpose is to motivate employees to work hard and increase efficiency ol performance. Incen tive plans are of two types:

1. Individual Incentive Plans : Under individual incentive plans, earnings are related directly to the performance of the individual worker. In case of gro up incentive schemes, earnings of a group are related to the performance of the group as a whole. In plantwide schemes, performance of the factory as whole is us ed as the basis for calculating earnings of workers. Individual incentives may be based on time or output. Under time based plans, a standard time is determined and bonus is given if a worker completes the job in less than standard time. Under output based plans,, a standard of output is dete rmined and workers producing more than the standard output are given bonus. 2. Group Incentive Plans : In some cases, e.g., assembly line industries it is not possible to determine the performance of an individual worker. This is s o because several workers are required to jointly perform a single operation. In such cases it is desirable to introduce a group incentive scheme. Under such a scheme, the bonus is calculated for a group of workers and the total amount is d istributed among the group members in preparation to the wages earned by each. Group incentive plans offer the following advantages: (i) Individual members of the group who occupy jobs requiring special care a nd attention have not to bear the whole loss of slow speed. (ii) Charges of favouritism in ihe assignment of 'tough' and 'easy' jobs are not likely to occur. (iii) The skilled and experienced workers are motivated to help and train .ine xperienced and new members. (iv) All these factors create teamwork and cooperative spirit in the group. 10.9.2 Profit-sharing Profit-sharing is an important supplement to wages and a good financial incentiv e. Profit sharing is an arrangement by which employees receive in addition to wa ges, a share fixed in advance in the profits of the enterprise. It is an agreeme nt between an employer and his employees under which the employer pays besides w ages, a predetermined share in the company's profits. Profit-sharing refers to t he system wherein an employer pays in addition to regular wages, special sums ba sed upon the net profits of the enterprise as a whole. According to the Internat ional Labour Organisation (I.L.O.), "profit-sharing is a method of industrial re muneration under which an employer undertakes to pay to his employees, a share i n the net profits of the enterprise in addition to their regular wages." The mai n objective of profit- sharing is to create unity of interests and the spirit of cooperation. Features of Profit-sharing (i) The profit-sharing agreement is voluntary and is based on joint consulta tion between the employer and the employees. (ii) The agreement is made at the unit level or the industry level. (iii) The proportion of profits to be distributed among the participants is co mputed on the basis of some agreed formula. (iv) The employees participating in the scheme must have some minimum years o f service or other qualifications. (v) The payment is in addition to normal wages and allowances. (vii) The payment may be in the form of cash, company's shares or deposit in the employee's provident fund account. (vii) Workers share the profits only and do not contribute to the company's lo ss. (viii) The payment is not based on individual merit or performance. Rather it i s a reward for collective effort. Advantages of Profit-sharing (i) Profit-sharing helps to improve productivity and to reduce costs because workers have a stake in the profitability of the enterprise. (ii) As a group incentive scheme, profit-sharing creates a sense of responsib ility among employees. Workers have a sense of belonging and cooperate voluntarily in productivity improvement programmes. (iii) Profit-sharing helps in building-up a stable and contented work force. T he chance of sharing profits attracts and retains qualified workers. Labour turn

over and absenteeism can be reduced. (iv) Industrial climate is improved due to mutual cooperation between employe r and employees for increasing the net profits. Profit-sharing promotes industri al peace and reduces industrial disputes. (v) Profit-sharing helps to increase the earnings and standard of living of workers, (vi) Profit-sharing contributes to social justice through a more equitable di stribution of profits among the employer and the employees. (vii) Profit-sharing is a step towards industrial democracy because workers ar e treated as partners in industry rather than as mere wage earners. Limitations of Profit-sharing (i) Profit-sharing does not ensure a regular income to employees. The share in profits is payable only when the profits exceed a specified limit. There may be low profits or even a loss due to market fluctuations. (ii) All workers are given the same amount and no distinction is made between efficient and inefficient workers. In the absence of a direct link between effo rt and reward, there is hardly any incentive for hard work and efficiency. (iii) A share in profits is payable at long intervals after the final accounts of the company are prepared. The reward is so remote that Its motivational effe ct is host. (iv) The determination of profits and its distribution may become a bone of c ontention between employer and employees. This will defeat the very purpose of p rofit-sharing. (v) During periods of prosperity, workers may start considering the share in profits as a permanent gain. In years of depression, they may receive no such s hare and thereby get frustrated. (vi) Unscrupulous employers may manipulate the accounts to avoid sharing- pro fits with workers. As a result workers are deprived of their legitimate right. (vii) It is time consuming and difficult to install and operate a successful p rofit- sharing plan. Profit-sharing in India Government of India had appointed in 1948 a committee to study the problem of profit-sharing in industry. The committee suggested the introduction of profitsharing as an incentive to productivity as a method of ensuring industrial peace and as a step towards labour participation in management. The committee suggeste d that 50% of the profits be shared among workers. Both employers and trade unions rejected the scheme. Trade unions prefer minimum bonus to profit-sharing. The P ayment of Bonus Act, 1965 provides for payment of minimum bonus despite loss in an undertaking. This system of compulsory bonus is unscientific. However, in som e industries productivity linked bonus has been introduced. 10.9.3 Labour Co-partnership Co-partnership is an extension of profit-sharing. It is a system wherein employe es are made partners of the enterprise and are allowed to participate in the man agement and control of the undertaking. Workers' share in the company's profits is paid in the form of shares by which they become entitled to participate in th e decisionmaking process. In this way, co-partnership involves both profit-sharin g and control sharing. Advantages of Co-partnership (i) Co-partnership helps to improve the status of employees. They become par tners or shareholders of the company. (ii) Employees get an opportunity to participate in the management of the ent erprise. ___ (iii) There is improvement in labour management relations because their intere sts are interlinked. (iv) The employees become more loyal and committed to the enterprise because their future is linked with the company's future. Limitations of Co-partnership Co-partnership has not been very successful due to the following reasons:

(i) Employees in general do not like the idea of co-partnership. They prefer to be wage earners rather than become co-owners. (ii) Trade unions oppose the attempt to make employees as shareholders. Table 10.12: Distinction between Front-sharing and Co-partnership Baste of Distinction Profit-sharing Co-partnership 1. Meaning Workers share the Workers share both profits company's profits In the and control of the company specified ratio Wide Narrow 2. Scope 3. Losses 4. Risk Workers do not share loss Workers share hoth profit and loss No risk or responsibility Risk and responsibility to workers Workers remain wage earners. No change in status Workers get salary plus share in profits A type of incentive plan as share in profits is a supplement to normal wages 5. Status 6. Retrun 7. Incentive Applicability Applicable in all types of business firms Workers become co- owners and their status increases Workers get salary plus dividend on their shares A type of worker's participation in management, a step towards industrial democr acy Possible only in the case of companies having share capital (iii) Workers prefer bonus in cash rather than in the form of shares. (iv) It is very risky for a worker to invest his savings in one company. (v) The share of workers in the capital is too small and therefore, workers get very limited voting power. 10.9.4 Employee Stock Option Plans (ESOP) Employee stock option plans are becoming increasingly popular particularly in in formation technology firms. Under these schemes employees are offered the compan y's shares at a concessional price. When the market price of the share increases the employees earn considerable capital gains. Stock options are considered per formance based incentives. Table. 10.13 shows how a stock option scheme is imple mented. Company ESP 2003 No. of Shares Acquislions Cost Market Value HDFE Bank 11,42,600 1,512.27 3,519.20 HDFC 3,69,182 475.39 1,967.74 Digital Global 94,375 259.20 498.15 Hughes Software 77,240 11.68 305.52 ACC 64,124 70.48 127.83 Glenmark 21,000 15.12 15.84 Wipro 15,241 165.51 196.22 Infosys 2,883 84.14 131.41 CRISIL 9,200 9.71 39.00 Table 10.13: Taking Employees Together K.s. in Lakhs

Secure Approval from Board of Directors Fix Quantum of Shares to be Alloted Determine Form of Allotment 4 Unlisted Companies Shares in Companies Listed Companies V Perferential Dilution of Issue Promoters ? Holdings Determine Allotment Price perSEBl Guidelines, if Applicable[~ Determine Instrument (Stock, Warrants, Convertible Debentures, et. al.) ? Identify Recipient Employees -W Chosen Groups All > Hight-performers 1 Formulate Criteria for Allocation to Each (Performance, Length of Service, Grade Determine Length of Lock-in Period Disseminate Information about Mechanism of Stock Options Settle Due as Eash Option is Exercised Fig. 10.11. How to Implement a Stock Option Scheme? Source: Business Today. January 7-21, 1996. Fig. 10.11 shows how employees benefit from a stock option scheme. Merits. The merits of stock option scheme are: (i) This scheme links compensation package closely to performance. (ii) This scheme enables the companies to retain efficient employees with the company. (iii) it encourages the employees to work even better, (vi) It inculcates a se nse of ownership and responsibility. (v) This scheme establishes significance of team effort among employees. Limitations. The limitations of the scheme are: This scheme can be used by only the profit-making companies. Share prices do not always reflect fundamentals. Falling share prices result in loss to employees. Unsound stock market conditions cause inconvenience to employees in enca shing their investment. Lack of transparency can earn accusations of favouritism. Year 1 Year 2 Year 3 Year 4

Stock Option Option granted to buy 300 shares at Rs. 20 per share 100 shares distributed with right to sell 100 shares distributed with right to s ell 100 shares distributed with right to sell Price

Employee's Status < ILeaves ? < Leaves * \ Leaves 1 > IStavsl Employee's Gains None. Buying price (Rs. 6,000) refunded Rs. 13.000 (Rs. 130 x 100) Rs. 41.000 (Rs. 205 x 200) Rs. 84,000 (Rs. 280 x 300) Fig.10.12. How Your Employees Benefit From a Stock Option Scheme?

Fig. 10.13 : Linkages of Performance to Reward SUMMARY 1. Human Resource Management (HRM) is the management of people at work. 2. HRM is a comprehensive, people-oriented, action-oriented, individual-ori ented development-oriented, pervasive, continuous, future-oriented, challenging function, advisory young, interdisciplinary, and nervous system. It is an art as well as a science. 3. Human resource management involves both managerial and operative functio n. Managerial functions consist of planning organising, directing and controllin g. Operating functions include procurement, development, compensation, integrati on and maintenance of HR. 4. Human resource planning is the process of determining the number and kin d of human resources required in an organisation for a specific time period in f uture. 5. Human resource planning serves as a guide to the management of human res ources. In recent years, interest in human resource planning has increased due t o shortage of certain skills, technological changes, organisational changes, dem ographic changes, legislation, union pressures, systems concept and lead time. 6. The main steps in human resource planning include analysis of organisati onal plans, demand forecasting, supply forecasting, identifying manpower gaps, a nd action planning. 7. Job analysis is a formal and scientific study undertaken to find out the detailed contents of a job, and the human qualities required to perform it succ essfully. 8. Job analysis is useful in organisational design, human resource planning , recruitment and selection, placement and orientation, training and development , performance appraisal, job design, job evaluation, labour relations, health an d safety and counselling of employees. 9. Organisational analysis, deciding uses of job analysis data, selecting r epresentative jobs, data collection, job description and job specification are t he steps involved in job analysis. 10. Job performance, personal observation, interview, questionnaire, critica l incidents, and log records are the main techniques of job analysis. 11. Job description consists of the title, duties and responsibilities, work ing conditions, social environment, machines and tools used and supervision invo lved in a job. 12. Job specification is a list of qualities in terms of education, training , experience, personality and aptitudes required for a job. 13. Job design is an attempt to match the job requirements with the capabili ties of the jobholder. 14. Classical and behavioural are the two main approaches to job design. 15. Job rotation, job enlargement and job enrichment are the techniques of j ob redesign. 16. Training is the organised process of improving the skills and knowledge of employees for a particular job. It is different from development and educatio n. 17. Training is necessary for both new and existing employees. 18. Higher productivity, reduced, supervision, better safety, economy. Highe r morale promotion and career growth, stability and expansion are the main benef

its of training.' 19. On-the-job training methods include coaching, understudy, job rotation, committee assignments, and temporary promotions. 20. Off-the-job training methods consist of classroom lectures, conferences, case discussions, seminars, role playing, sensitivity training and vestibule tr aining. 21. Career planning is the process of deciding the career goals for an emplo yee and paths to achieve these goals. It is carried out jointly by the employee and the organisation. 22. Career planning differs both from manpower planning and succession plann ing. 23. Identifying needs, analysing career opportunities, identifying match/mis match, formulating and executing strategies and reviewing the plans are main ste ps in career planning. 24. Career planning is beneficial both for the employee and the employer. 25. There are several hurdles in career planning. 26. Top management support, expansion, clear goals, motivated staff, proper selection, right age balance, fair promotion policy, managing career stress, int ernal publicity and continuity are the essentials of successful career planning. 27. Career development process involves need assessment, opportunities ident ification, alignment and monitoring. 28. Career counselling helps to realise the career goals of employees. 29. Motivation is the prcoess of inspiring people to work hard for achieving common goods. 30. Carot & stock, and job enrichment are main approaches to motivation. 31. Theories of motivation, include Maslow, need hierarchy, Herzberg's two f actor theory and McGreger's theory X and theory Y. 32. Employee compensation is a vital issue in human resource management. Com pensation consists of base pay and supplementary remuneration. Wage and salary a dministration seeks to provide justice to both employer and employees. The princ irles of wage and salary administration are the basic guidelines. 33. Internal equity, external competitiveness, built-in incentive, link with pro ductivity, maintenance of real wages, and suitable increments are the essentials of a sound wage and salary structure. TEST QUESTIONS 1. Define human resource management and explain its functions. 2. Explain the concept and nature of human resource management. 3 What do you understand by human resource planning? Describe its characteristics . 4. Explain the objectives of human resource planning. 5. "Human resource planning is a pre-requisite for effective management of human resources." In the light of this statement, analyse the significance of hu man resource planning. 6. Account for the increasing interest in human resource planning in recent years. 7. Describe the process of human resource planning with suitable illustrati ons. 8. What do you understand by job analysis? Discuss its main uses. 9. How will you analyse a job? Explain with the help of job analysis form. 10. Describe the techniques used for analysing jobs. 11. What is a job description? Describe its contents and utility. 12. What precautions should be taken in preparing job descriptions? 13. Explain the term 'job specification' with the help of a specimen. 14. Critically examine the classical approach to job design. 15. Explain and evaluate the job characteristics model of job design. 16. What is job enrichment? When and how a job should be enriched? 17. What is training? Distinguish between training and development. 18. Why is training necessary? Explain various methods of training employees . 19. What do you understand by career planning? Describe its objectives.

20. Explain the career planning process with a suitable illustration. 21. Explain the advantages and limitations of career planning. 22. How can the career planning process be made effective? 23. What is career development? Explain the steps involved in it. 24. Distinguish between base compensation and supplementary compensation of labour. What are the objectives of wage and salary administration? 25. Explain the principles of wage and salary administration. 26. What do you understand by wage and salary administration? Discuss the es sentials of a sound wage and salary structure. 27. State the objectives of wage and salary administration. Explain the basi c principles that any wage plan must follow. 28. Distinguish between Time Wage System and Piece Wage System. Under what c ircumstances each system can be adopted usefully? 29. Explain two basic systems of wage payment, bringing out their merits and demerits. 30. Define motivation and explain its nature. 31. Explain the role of motivation in management. 32. "Motivation is the core of management". Explain. 33. Describe Maslow's Theory of motivation. 34. Explain McGregor's Theory X and Theory Y of motivation. 35. Discuss Hergberg's Theory of Motivation. CHAPTER 11 MANAGING FINANCE CHAPTER OUTLINE After studying this chapter you should understand : 11.1 Nature of Business Finance 11.2 Significance of Business Finance 11.3 Meaning of Financial Planning 11.4 Meaning of Fixed Capital 11.5 Factors Influencing Fixed Capital 11.6 Meaning of Working Capital 11.7 Importance of Working Capital 11.8 Factors Influencing Working Capital 11.9 Sources of Business Finance 11.9.1 Equity Shares 11.9.2 Preference Shares 11.9.3 Retained Earnings 11.9.4 Debentures 11.9.5 Financial Institutions 11.9.6 Public Deposits Summary Test Questions Business finance refers to the money and credit employed in business firms. It i s that aspect of business which is concerned with the arrangement of cash and cr edit so that business firms may, at all times, have the means to carry out their operations smoothly. According to B.O. Wheeler, "Business finance is concerned with the acquisition and utilisation of capital funds in meeting the financial n eeds and overall objectives of a business enterprise." Financing means making mo ney available when it is needed. Thus, business finance may be defined as planni ng, raising, managing and controlling all the money or capital funds of any kind used in connection with business. 11.1 NATURE OF BUSINESS FINANCE From the above definitions, the following characteristics of business finance ca n be derived: [Mi] 1. Business finance includes all types of capital or funds used in business . 2. Business finance is needed in all typesof business^large or small, manuf acturing or trading, and so on.

3. Business finance is a wide term. It involves not only the estimation of the amount of funds but also the sources of finance, investment of funds raised, management of cash, disposal of earnings and control of funds. 4. The amount of business finance required differs from one business firm t o another depending upon its nature and size. It also varies from one time perio d to another. 5. The availability of finance determines the,scale of operations of busine ss. 11.2 SIGNIFICANCE OF BUSINESS FINANCE Finance is the lifeblood of business. No business firm can carry on its operatio ns smoothly and successfully without the availability of right amount of funds a t the right cost and at the right time. In the absence of finance, the productio n and selling of goods and services are not possible. The success of a business enterprise depends, to a great extent, on the manner in which it raises, employs and disburses its funds. In business, finance is required (a) for establishing an enterprise; (b) for purchase of fixed assets and current assets, i.e. for car rying on present operations; and (c) for expansion, growth and modernisation of business. In modern business, the significance of business finance has increased due to increase in the scale of business, use of capital-intensive techniques, shortage of finance and increase in competition. Adequate finance provides the f ollowing benefits to a business concern: 1. The firm can meet its liabilities in time. Prompt payment of debts helps in raising its credit-standing. As a result, the firm can easily borrow funds a s and when necessary. 2. The firm can take advantage of business opportunities. For example, it c an buy materials in bulk at a low price. 3. The firm can carry on its business smoothly and without any interruption s. 4. The firm can replace its plant and machinery in time, thereby improving the efficiency of its operations. 5. The firm can face recession, trade cycles and other crises more easily a nd confidently. 11.3 MEANING OF FINANCIAL PLANNING Financial planning may be defined_as the process of determining thejjbjectives, policies, procedures, programmes and budgetsio manage-e5ecTiveTvThefinancial act ivities of an enterprise. It refers to formulation of plans for the procurement, investment and administration of funds. According to Gerstenberg financial planning consists of the following activities : (a) Determining the amount of capital required by an enterprise so as :c out its activities smoothly, i.e. fixed captial and working capital. (b) Determining the pattern of securities to be issued for obtaining the req u rec funds, i.e. capital structure. (c) Determining suitable policies for proper utilisation and administration of capital, i.e. management of assets. The main objectives of financial planning are as follows: (a) To ensure that adequate funds are available at the right time. (b) To minimise the cost of funds through proper mix of different sources o: finance. (c) To ensure most profitable utilisation of available funds (d) To ensure effective control over financial activities of business throug h sound polices and procedures. 11.4 MEANING OF FIXED CAPITAL The capital invested in fixed or permanent_assets like land and buildings, plan: and machinery, furniture and fixtures, etc., is known as fixed capital or blocI T gagitafTFixed assefsare thoselissets wlncTTare required for permanenTuse arid" ajgjiotm'eant tor resale. 1 hese assets are not fixed in value but they are nee ded for long-term. These are not convertible into cash within a year. Fixed capi tal is used again and again to generate revenue for the firm. Fixed capital is k nown as 'block capital' because it is blocked up in fixed assets for the life-ti

me of the company. Fixed capital provides the foundation of a business and acts as the cushion to absorb the shocks of business. In order to determine the amount of fixed capital, a list affixed assets should be prepared. Then a survey of the sources of supply of these assets should be ma de to find out the estimated cost of each of the fixed assets. If some of the fi xed costs have to be imported, their cost should be converted from foreign curre ncy into home currency. The estimated amount of fixed capital requirements can b e determined by adding up the estimated cost of individual assets. A safet> marg in may be added to this figure to take care of the increase in cost of an\ :: th ese assets before actual purchase. Fixed capital is required for a long time period. Therefore, it is rsisec ::: : - term sources of finance. Shares, debentures, long terr: frcrr i institutions and ploughing back of profits are the main sources of fixed capibL Decisions concerning fixed capital are crucial because: (a) these decisions have effects on long term growth of business, (b) large amount of funds is involved, (c) risk involved is high, and (d) such decisions are not reversible without in curring heavy loss. 11.5 FACTORS INFLUENCING FIXED CAPITAL The amount of fixed capital required in a business enterprise depends upon follo wing-factors. 1.^Nature of Business A manufacturing enterprise needs plant and machinery which a trading firm d not require. Similarly, a public, utility concern such as on Electric Sup; Undertaki ng has to invest large funds in power generation plant and cable Therefore, manu facturing and public utility concerns require greater fixed capi:i than a tradin g enterprise or a service concern. Thus, the amount of fixed capi will depend on the nature and character of business. Size of Business A large scale enterprise needs more fixed capital than a small firm. For example l1 a giant steel mill such as the Tata Iron and Steel Company requires much grea ter investment in fixed assets than a mini Steel Plant. Various fixed assets suc h as land and buildings, plant and machinery, furniture and fixtures, etc. are r equirec in a greater quantity in a large enterprise. These assets are costly and , therefore, a large enterprise requires more fixed capital than a small firm. lethod of Sale A manufacturing firm which sells its products directly to consumers through its own retail stores (e.g. Bata) requires more fixed capital than a firm which sell s its products through wholesalers and retailers. Types of Goods Produced The kinds of goods produced also influence the amount of fixed capital. For exam ple, a firm producing heavy goods like motor cars, refrigerators, air conditione rs, etc. requires more fixed capital than a firm producing light goods like soap s, hair oil, ball pens, etc. ^-"^Method of Production A firm which manufactures all components, and than assembles them into a finishe d product require more fixed capital then a firm which buys components from the market and assembles them into a finished product. j. Type of Manufacturing Process Process industries such as an oil refinery, require more fixed capital than asse mbling industries such as a watch manufacturing factory. Similarly, firms operat ing in heavy industries (e.g. ship building, aircraft manufacturing, locomotive manufacturing, etc.) need greater fixed capital than light industrial units (e.g . sugar mill). 7. Degree of Mechanisation

A company employing automatic machinery needs more fixed capital than a firm using hand tools. Similarly, a powerloom requires greater fixed capital than a h andloom unit. Thus, the technique of production affects the arr.oun: of fixed ca pital. 8.^lilode of Acquiring Fixed Assets A business enterprise purchasing plant and machinery on hire purchase basis :r l ease, needs lesser fixed capital than another enterprise which bu>s plar: and ma chinery on cash down basis. Thus, the amount of fixed capital ais^ depends on th e manner in which an enterprise acquires fixed assets. Fixed Capital at a Glance Meaning : The capital invested in fixed assets Factors : Nature of business, size of business, type of manufacturing process, d egree of mechanisation, mode of acquiring fixed assets. 11.6 MEANING OF WORKING CAPITAL The capital Jnyested m current assets such as stock of materials and finished go ods, accounts receivabje7bills_receivablershort-term securitieTand~cash and bank balancesjbr meeting day-to-day expenses is known as working capital or current capital. The term 'working capitaTIs usecfin two senses, namely, gross working c apital and net working capital. GrossJWorkingCapital is the tolaljn vestment in current assets. The amount of gr oss working capital indicates the total funds available for financing the curren t assets. It is a quantitative concept which fails to reveal the true financial position of a company. Every increase in current liabilities will increase the g ross working capital. The gross working capital keeps on changing or revolving continuously. It is inv ested, recovered arid reinvested repeatedly during the operating cycle of busine ss. It is of a self-liquidating nature as it is converted into cash again and ag ain. It flows in and out of business continuously like water in a river. For exa mple, cash is used to buy raw materials and pay wages, etc. The raw materials an d operating expenses result in stock of finished goods. Goods sold on credit bas is result in debtors or bill payable. Collection of debts result in cash which i s again invested into raw materials, etc. This circle goes on regularly. Therefo re, gross working capital is also known as 'circulating capital' or 'revolving c apita:'. According to Gerstenberg, "circulating capital means current assets of a compare that are changed in the ordinary course of business from one form to, another, as for example, from cash to inventories, inventories to receivables, r eceivables into cash. There is always a time gapj between the sale ofgoods and receipt of cash. V, ;- . capital is required to sustain (the sale activity during this period. This time a: between sales and realisation of cash is called 'operating cycle of busi-.e^ ' i manufacturing enterprise, the operating cycle is the length of time reqjtrec complete the following activities: (a) Conversion of cash into raw materials. (b) Conversion of raw materials into work-in-process. (c) Conversion of work-in-process into finished goods. (d) Conversion of finished goods into accounts receivable. (e) Conversion of accounts receivable into cash. This cycle (see following figure) is repeated again and again. Raw Materials \ > r Operating Expenses Credit Sales Stock of Finished Product

Fig. 11.1: Cycle of Working Capital Working capital is also known as 'circulating capital' because it keeps on circu lating in business. ^ \ , K (L * LNet Working Capital C Net Working Capital represents theexggss of r.nrrp.ntassets over current liabili ties. Current asse'ts include cash, in hand, cash at bank, stock, debtors, bills receivable, etc. while current liabilities consist of accounts payable, outstan ding bills payable, bank over-draft and outstanding expenses. Net working capita l is a qualitative concept and it reveals the soundness of current financial pos ition. Net working capital is that portion of firm's current assets which are fi nanced with long-term funds. Current ratio (ratio between current assets and cur rent liabilities) indicates the firm's ability to meet its current liabilities a nd operating expenses. An increase in current assets would not affect the net wo rking capital if there is a corresponding increase in current liabilities. In ot her words, an increase in net working capital implies increase in the funds of t he company. On the basis of time, working capital may be divided asjaliows: I. P ermanent or Regular Working Capital It represents the minimum amount of investment in current assets required at all times to carry on business activities. Permanent or fixed working capital is req uires to maintain certain minimum levels of stocks of raw materials and finished products, cash and bank balances, debtors, and other current assets. It is repr esented by excess of current assets over current-liabilities. It is permanently, required for the business. It should therefore, be financed out of long-term fu nds. It cannot be converted into cash in the natural course of business. 2. Temporary or Variable Working Capital The amount of such working capital keeps on fluctuating from time to time. In ot her words, it represents additional current assets required at particular period s of time. For example, extra inventory has to be maintained to support sales du ring the peak period. On the other hand, investment in inventory and receivables will decrease during the off-season. Variable workijig_f^pital of two types (a) Seasonal Working Capital. Some business firms require additional working capital during a particular season. Such working capital is known as 'seasonal working capital'. For example, a manufacturer of woollen textiles may need extra funds to carry on production and to accumulate stock during winter. (b) Special Working Capiia 1. That portion of variable working capital which is required to meet unforeseen contingencies like slump, strike, tire, flood, w ar, etc. is known as special working capital. It is of a temporary nature. The r equirements for and the amount of variable working capital keep on changing depe nding upon the nature of business and contingencies. For example, during a depression demand and sales decline and the enterprise may have to carry unsold stock of goods. The main sources of working capital include commercial banks, ploughing back of profits, public deposits, shares and debentures. 11.7 IMPORTANCE OF WORKING CAPITAL Adequate working capital is essential for smooth and efficient working of e\er> enterprise. Lack of sufficient working capital may endanger survival of the firm Even a sound business concern may have to be liquidated if it does r.c: ra-. e necessary funds to meet its current liabilities. Similarly, excess of \\ arkirg :ar :a may lead to higher costs and loss of contact with banks, etc. Both : ~: r rage : : working capital and its redundancy are harmful. The right amount :: - -g capital is as important in business as the proper circulation of bl::; - - ar, body. "No single error in financial planning can work greater harm :: a rorrcra: than a failure to provide for adequate working capita!." Acer _a:t rrx rg ;ar i 3i provides the following advantages to a business enterr: ise:

(a) A firm with adequate working capital can meet its liabilities promptly. Prompt payment helps to raise the credit standing or reputation of the enterpris e. favourable business opportunity e.g. to purchase raw materials at a di (b) Adequate working capital enables the firm to ac -antage of any or to execute a special order. (c) Financial soundness of business boosts the morale of employees. Borrowin gs can be made at cheaper rates of interest. (d) Lack of adequate working capital may result in interruptions in operatio ns and under-utilisation of plant capacity. A firm with adequate funds can tide over depression and can maintain financial solvency of business. (e) Adequate working capital permits timely and regular payment of cash divi dends. This helps to maintain cordial relations with shareholders. To conclude adequate working capital is the first requirement for preserving goo d trade and bank credit, for meeting all expenses and liabilities promptly, and for taking care of emergency and special needs. On the other hand, redundant cur rent funds reduce the return on investment and encourage waste and manipulation. 11.8 FACTORS INFLUENCING WORKING CAPITAL The factors which govern the amount of working capital in a business firm may be stated as follows: 1. Nature of Business Public utilities and service organisations require little working capital as sal es are on cash basis. There is little time gap between production and sales and these enterprises do not maintain large stock of goods. In trading and manufactu ring concerns, on the other hand, large amount of working capital is needed to m aintain stocks. 2. Size of the Enterprise The volume of business has a direct influence on working capital requirements. L arge firms require greater working capital for investment in current assets and to pay current liabilities. 3. Length of Operating Cycle Complex and round about process of production requires a long time to prepare th e finished product. Greater is the time and cost involved in production, higher is the investment in inventories and wage bill. For instance, a firm manufacturi ng an aircraft requires a larger amount of working capital than a firm producing confectioneries. Longer is the time taken to produce goods, greater working cap ital is required. 4. Terms of Purchase and Sale A firm buying raw materials and other services on credit and selling goods on ca sh basis will require less investment in working capital. On the other hand, an enterprise which purchases raw materials on cash basis but sells the finished pr oduct on credit basis, will need greater working capital. The period of credit a nd the efficiency in collection of debts also influence the amount of working capital of a firm. A firm which gets liberal credit from its suppliers needs wor king capital. On the other hand, a firm which grants liberal cred:: to customers needs more working capital. 5. Turnover of Working Capital Turnover implies the speed with which the working capital circulates in business The rate of turnover of working capital is measured by the ratio of sales to cu rrent assets. More rapid is the flow of working capital, lesser is the need for working capital. This is because goods produced are sold in a short period of ti me and the firm gets money to start the production cycle again. 6. Cyclical and Seasonal Fluctuations Business firms which are subjected to business cycles and seasonal demand may ne ed greater working capital. During depression, investment in stock and debtors m ay be high while in a boom sales tend to be quick and stocks are smaller. Simila rly, a woollen mill may require more working capital during some months to keep stocks of raw materials and finished goods. Firms selling seasonal products can

recover working capital through sale of such, products during particular seasons only and therefore they need greater working capital. 7. Dividend Policy A firm following the policy of paying cash dividends regularly may need more wor king capital than a firm, which does not follow such a policy. Similarly, invent ory policy may influence working capital. 8. Management Attitude Towards Risk If management has a risk-bearing attitude it may operate with small amount of wo rking capital. It may maintain regular connections with banks to borrow funds at short notice. 9. Cost of Materials When the raw material accounts for a major portion of the total cost of a finish ed product, the business will require relatively more working capital. For examp le, a sugar mill will need greater working capital than an ice-manufacturing fir m. This is because the cost of raw material (sugar-cane) is high in the first ca se but it is low (water) in the second case. 10. Cost of Labour A firm employing labour-intensive methods of production will require more funds to pay to its employees than a firm employing capital-intensive methods of produ ction. 11. Need for Stocks Business units which produce goods in anticipation of demand require more v.: ; capital than firms producing goods only against specific orders. This is be:i>e re former have to maintain large stocks of raw materials and finished goods. 12. Current Expenses Need for cash to meet the operating expenses like wages, rent, freight, taxes, e tc. also exercise an influence on the amount of working capital. 13. Price Level Changes These have an important bearing on the working capital since, it is directly aff ected by the current assets and their costs. If there is a price rise and costs of raw materials and labour rise, it will result in an increase in the working c apital requirements. Sometimes companies may be able to correspondingly increase the prices of their goods, then a severe working capital problem may not be fac ed by them. The effect of rising prices will be different for different business es. Working Capital at a Glance Meaning : Meaning : Money invested in current assets. Types : Gross, net, permanent, temporary. Factors : Nature of business, size of enterprise, length of operating cycle, ter ms of purchase and sale, turnover of current assets, cyclical and seasonal fluct uations, dividend policy, current expenses, management attitude towards risk. Distinction between Fixed Capital and Working Capital Basis of Distinction Fixed Capital Working Capital 1. Nature Remains sunk in business Revolves around in business 2. Purpose To buy fixed assets To buy current assets 3. Main Sources Shares, debentures, loans, Commercial banks, public retained earnings deposits, etc. 4. Time Period Required for long term Required for short term 11.9 SOURCES OF BUSINESS FINANCE Various sources of business finance can be classified into two broad categories(1) Owned Funds and (2) Borrowed funds Owned Funds Business Finance Borrowed Funds I Equity Shares Preference Shares - Retained Profits

I Debentures Public Deposits institutional Finance Owned funds Owned funds consist of the capital contributed by the owners and the reta:~.ec p rofits. The key features of owned funds are as follows : 1. Owned funds provide risk capital because it is the owners who bear The r isk of loss. But high level of profits earned in times of prosperity accrue enti rely to the owners of the business. 2. Owned funds are a source of permanent capital. These funds are not retur nable and are available throughout the life of the business. Therefore, a large part of owned funds are used to acquire long-term fixed assets. 3. The shareholders who provide owned funds do not manage and control the c omnany. They elect directors and Board of Directors supervise and control ine co mpany's affairs. Thus, there is separation of ownership fromjnanagement. 4. No^security is required to raise ownership funds. Merits: Ownership fund s offer the following benefits. 1. These provide risk capital which serves as the basis for raising loans. 2. Funds are available for the lifetime of the company. These can be used t o meet any unforseen contingency or problem. 3. Owners acquire the right of control and supervision over management. Suc h control helps to ensure that the business is conducted in the interests of the owners. 4. Professional managers can be employed to look after the interests of all stakeholders because management is separate from ownership. 5. Assets of the company are free for raising loans as no security is requi red for equity. 6. Unlimited amount of capital can be raised by issuing more shares. Limita tions : Owned funds suffer from the following weaknesses. 1. Issue of a large number of shares leads to diffusion of ownership and co ntrol over management. The promoter's power of control over management of the bu siness may be reduced. 2. Ownership funds can not be reduced as share capital is non-refundable. T here is possibility of under-utilisation of ownership funds. Borrowed Funds These include all the funds available by way of loans and credit. Their mar char acteristics are as follows : 1. Loans can be issued for specified period at fixed rates of interest. Thu s, borrowed funds can serve the purpose of long terms, medium term and short ter m finance. 2. Security of assets or personal guarantee is required for raising loans 3. Interest on borrowed funds is payable at periodic intervals. The princip al amount is to be repaid after the specified period. These liabilities have to be met inspite of low profits or loss. 4. Lenders do not exercise any control over the management of the company. But they can sue the company in case of default in payment of interest or repaym ent of the loan amount. Merits : Borrowed funds offer the following benefits : 1. The control of owners over management of the firm is not affected. 2. Interest payable on borrowed funds is deductible as an expense from inco me. Therefore, the amount of tax liability is reduced. 3. Capital structure remains flexible as loans can be raised and repaid as per requirements. 4. A fixed rate of interest is payable even when profits are high. The owne rs can enjoy a higher return on their investment. Limitations : Borrowed funds suffer from the following weaknessses : 1. Payment of interest and repayment of loans cannot be avoided even if the re is no profit. Default in payment may even lead to insolvency of the firm. 2. Security of assets has to be offered for raising loans.

3. Credit worthiness of the firm is reduced. 11.9.1 Equity Shares A company can issue two types of securities: (i) ownership securities or shares. Equity shares and preferences shares constitute the ownership securities (ii) c reditorship securities or, debentures. The owned capital of a company is split i nto a large number of small equal pans. Each such part is known as a share. A sh are is a unit of member's interest in the capital of the company. Share capital provides the permanent base to a company's capital structure. It constitutes the risk capital. Shares, are generally of two types: Equity Shares, and Preference Shares Shares which carry no preference rights or priority in the payment of dividend a nd in the repayment of capital are called equity shares or ordinary shares. Equi ty shares are issued prior to other securities and repaid in the last. Dividend on such shares is payable only when there are profits and the dividends are decl ared. Dividend on these shares if paid after paying dividend on preference share s. In the event of winding up of the company, equity shares are paid after all o ther claims are repaid. But holders of equity share enjoy full voting rights and share the residual profits. Equity shareholders provide the 'risk capital' or ' venture capital'. Thus, equity shareholders are the real risk bearers and contro ller of a company. Advantages of Equity Shares (1) No burden on finances. Equity shares impose no fixed burden on the compa ny's profits because the dividend on such shares is pa;- abie only at the discre tion of the management and subject to the availability of adequate profits. Equi ty shareholders provide the risk a venture capital. (2) Long-term finance. Equity share capital is refunded only at the lime of winding up of the company. Therefore, equity capital remains v. ith the company for ever. It is permanent capital of the company. (3) No charge on assets. Equity shares do not create any charge or mortgage on the assets of the company. The company is free to use its property for raisin g loans. (4) Source of strength. A company with substantial equity capital commands p restige in the investment market. Its ability to borrow is high. Equity shares a re the foundation of a company's financial structure. (5) Small nominal value. Thq face value of an equity share is generally very low. As a result equity shares have a wide appeal and even persons belonging to low-income groups can buy them. (6) Attractive to enterprising investors. Equity shares are ideal for bold a nd adventurous investors who like to take risks in the hope of highei returns. H olders of such shares enjoy benefit of capital appreciation and claim to new iss ue of equity shares. They also enjoy full voting rights. Disadvantages of Equity Shares 1. Manipulation of control. Equity shares carry full voting rights. They fo rm the nucleus of control. This gives rise to many undesirable practices by pers ons who seek to gain control over the company. Often there is cornering of votes and manipulation of control by cliques of shareholders to their own advantage. 2. Danger of over-capitalisation. Capital raised through equity shares is n ot refundable during the lifetime of the company. Mistake in estimation of finan cial requirement or overenthusiasm may lead to over-capitalisation resulting in lower rate of earnings and dividends. Financial structure becomes inflexible. 3. No trading no equity. When the entire share capital is raised through eq uity sares, the benefit of trading on equity is not available. 4. Perpetuation of control by a few. Any new issue of equity shares has to be first offered to the existing shareholders. As a result the compar; continue to be managed by a handful of persons. Ordinary and small shareholders remain ow ners in name only. 5. High risk. Equity shareholders sink or swim with the company Divider;: a nd refund of capital are both uncertain. Often there is speculation - the prices of equity shares. Therefore, equity shares do not appeal to cautions interests.

Mpreover, equity shares are a costly source of finance and dividend paid are no t deductible for tax. 11.9.2 Preference Shares Preference shares are the shares which carry certain preferential rights both re garding the dividend anu the return of capital. First, dividend at a fixed rate must be paid on preference shares before any dividend is paid on equity shares. Secondly, in the event of winding up of the company, preference shareholders mus t be paid back their capital before any other class of shareholders. Generally, preference shares do not carry any voting rights except when their interests are directly affected. Preference shares can be of the following types: 1. Cumulative and Non-cumulative Preference Shares. In case of cumulative pr eference shares, dividends not paid in a particular year are carried forward to the next year. Such unpaid dividends go on accumulating and become payable out of the profits in subsequent, jears. Such arrears of dividend must be paid before dividend is paid on equity shares. On non-cumulative preference shares dividends do not accumulate. In case the com pany does not declare dividend in any year, the right to dividend in respect of that year is lost for ever. The dividend claim is not carried to subsequent year s. Unless otherwise stated in the Articles of Association, all preference shares are deemed to be cumulative. 2. Participating and Non-participating Preference Shares. Participating pre ference shares give the holder the right to share in the residual profits felt a fter the payment of dividend to preference and equity shareholders. This share i s in addition to fixed dividend. On the contrary, the holders of non-participati ng preference shares do not enjoy the right to share in the surplus profits. The y only get the fixed dividend. 3. Convertible and Non-convertible Preference Shares. Holders of convertible preference shares can get such shares, converted into equity shares after a fix ed period. On the other hand, preference shares which cannot be converted into e quity shares are known as non-convertible preference shares. Unless otherwise st ated all preference shares are deemed to be non-convertible. 4. Redeemable and Irredeemable Preference Shares. The holders of redeemable preference shares can be refunded their capital after the expiry of a specified period or at the discretion of the company. Only a company, limited by shares, can issue redeemable preference shares. The intention to return the money should be made clear when the shares are issued. The Companies (Amendment) Act, 1996 l ays down that a / / public company limited by shares cannot issue preference shares which are irrede emable or redeemable after the expiry of more than 20 years. Preference shares are a hybrid security comprising features of both equity share s and debentures. Like debentures they carry a fixed dividend and enjoy priority over equity shareholders but no voting right. Like equity shares dividend on pr eference shares is payable only when there are profits. Advantages of Preference Shares 1. Appeal to cautious investors. Preference shares greatly appeal to those investors who look for reasonable safety of their capital along with a fixed but higher return than that obtainable on debentures. 2. No burden on profits. Preference shares do not put a fixed burden on fin ances as dividends are payable only out of profits. 3. No interference in management. Generally, preference shares do not carry voting rights. Therefore, promoters can retain exclusive control over the compa ny by issuing preference shares to outsiders. 4. No charge on assets. Issue of preference shares does not involve any mor tgage or charge on the assets of the company. The company can keep its fixed ass ets free to be used for raising loans in future. 5. Trading on equity. Rate of dividend on preference shares is fixed. When

the company's earnings rise, the company can pay higher rates of dividend to equ ity shareholders. Preference shares are an economical source of finance because the rate of dividend is usually low. 6. Flexibility. In case of redeemable preference shares the amount can be r epaid as and when the company does not need it. Participating or convertible pre ference shares can be issued to attract investors who want to share in the growi ng prosperity of the company. Disadvantages of Preference Shares 1. Limited appeal. Preference shares have no appeal for investors who want to take risks. More cautious and orthodox investors also do not like them, as re turn on such shares is uncertain and irregular. In order to attract investors th e company is forced to offer higher rates of dividend on preference shares. The issue of preference shares is generally costlier than debentures. Several legal formalities are involved in the issue and redemption of preference shares. 2. Fixed liability. Dividend on preference shares has to be paid at a fixed rate before it is paid on equity shares. In case the company's earnings are ina dequate, very little might be left for equity shareholders. Such liability becom es all the more burdensome in the case of cumulative preference shares. Issue of preference shares may also affect the credit worthiness of a company. 3. Lack of voting rights. Preference shares do not carry voting rights in t he normal course. When the company's earnings rise rapidly, holders of such shar es do not get a share in the prosperity of the company except in case of partici pating preference shares. 4. Fear of being shown the door. Holders of redeemable preference shares ha ve to face yet another unpleasant prospect. The company raises capital from them when it is badly in need of funds. But once its purpose is served, it bids good bye to them by paying back their money. Preference shares are unpopular due to low rate of return, uncertainty as to its payment and absence of a voice in the management of the company. However, prefe rence shares may be a useful source of capital for a company under the following conditions: 1. When the assets are not acceptable as sufficient collateral security for issuing debentures. 2. When higher interest will have to be paid by issuing debentures against assets which are already mortgaged. 3. When the company's promoters want to retain control without creating fix ed obligation as to payment. 4. When the company needs funds for medium-term, it can issue redeemable pr eference shares. 5. Preference shares can be issued as a bonus for increasing the sale of ot her shares. 11.9.3 Retained Profits (Self-Financing) Retained earnings represent that portion of a company's net profits which is kep t in business for investment purposes and not distributed among the share holder s as dividend. Retained earnings or ploughing back of profits refers to the proc ess of retaining a part of net profits for investments in business. Well-establi shed companies commonly use retained earnings or undistributed profits tc financ e their business needs. They build large reserves out of profits. This method is also known as 'self-financing' because it is an internal source of finance. Ret ained earnings are a popular source of finance for modernisation and expansion p rogrammes. Such earnings can also be used to redeem old debts and to meet workin g capital requirements. It is an ideal source of finance. The amount of retained earnings in a company depends on several factors. Generally, more are the net p rofits of a company, greater is the capacity to plough back profits. Secondly, d ividend policy of the company determines the extent to which profits can be reta ined for reinvestment in business. A company which follows a policy of paying li beral and regular dividend every year may not be able to retain as much profits as a company following a conservative dividend policy. Thirdly, the age of the c ompany affects the practice of self-financing. New companies generally do not re tain much profits due to their desire to satisfy the shareholders. On the other

hand, an old company may distribute or.'.; a small part of the profits among shar eholders and may retain the major pan for ploughing back. Lastly, the future pla ns of the company regarding modernisation and expansion also have an influence o n retained earnings. Ploughing back of profits offers the following benefits: (i) It is the most convenient and economical method of finance. No legal for malities are involved and no negotiations are to be made. No return is to be pai d on retained earnings and no fixed obligations are created. (ii) The financial structure of the company remains fully flexible. No charge is created against the assets and no restrictions are put on the freedom of man agement to raise further finance by floating new securities in the market. (iii) Ploughing back of profits adds to the financial strength and creditworthi ness of the company. A company with large reserves can face unforeseen contingen cies, trade cycles and capital market crisis with ease and economy. Retained ear nings increase the borrowing capacity of the company. (iv) Retained earnings can be used to redeem debts and to replace obsolete as sets. A company with large reserves can take advantage of business opportunities . (v) Reserves created by ploughing back of profits can be used to stabilise t he rate of dividend on equity shares. Regular dividends help to improve relation s with shareholders. (vi) Use of retained earnings does not disturb the voting control of the comp any. (vii) Reinvestment of earnings helps to increase capital formation which is ne cessary for the rapid economic development of the country. Excessive ploughing back of profits may result in the following drawbacks: (i) The management of a company may not always use the retained earnings in the best interests of shareholders. It may invest them in unprofitable fields or may spend them wastefully. (ii) Too much dependence on retained earnings may tempt the management to iss ue bonus shares to the equity shareholders. Frequent capitalisation of profits m ay result in over-capitalisation. (iii) The practice of ploughing back of profits may be used to manipulate shar e prices on the stock exchange. Vested interests may speculate in the company's shares to deceive genuine and uninformed investors. (iv) Heavy reinvestment of earnings year after year may cause dissatisfacri: r among shareholders as they get low dividend. (v) Indiscriminate use of retained earnings may result in monopoly an concentrat ion of economic power in a few hands. 11.9.4 Debentures Debentures denote borrowing by a company and represent its loan capita Debenture holders are creditors of the company. A debenture is a document certificate iss ued by a company as proof of the money lent to it by the holder, is an acknowled gement of debt as well as an undertaking to repay the specifie sum with interest on or before the prescribed date. A debenture is a certifica issued by a compan y under its common seal as acknowledgement of debt wi or without a charge on the company's assets. Interest on debentures is paid at fixed rate and it is payabl e periodically until the maturity and repayment o debentures. Debentures carry n o voting rights but they generally involve a charge on the company's assets. Distinction between Shares and Debentures There are important points of distinction between shares and debentures: 1. Status of Holders. Shareholders are part owners of a company while deben tureholders are simply its creditors. A share is an ownership security and it fo rms part of the company's owned capital. But a debenture is a creditorship secur ity and it forms part of the company's borrowings. 2. Yield. Shareholders are paid dividend when there are profits and dividen ds are declared. But debentureholders are paid interest irrespective of profits. 3. Nature of Return. Dividends fluctuate with the quantum of profits. They are irregular and uncertain. On the other hand, rate of interest on debentures i s fixed and regular. Thus, the quantum and frequency of return are different. 4. Collection of Funds. The debenture money is collected by the company gen

erally in a lumpsum. But share money is normally collected from shareholders in instalments. 5. Security. Shares are issued without any mortgage or charge on the compan y's property. Debentures are normally issued against the security of certain ass ets. A share is always unsecured but a debenture is generally secured. 6. Conditions of Issue. There are no restrictions regarding the terms of is sue of debentures. But shares can be issued at a discount or at premium only sub ject to certain conditions prescribed under the Companies Act. 7. Claim as to Return. Dividends cannot be claimed as a matter of right. Bu t interest can be claimed as a matter of right. 8. Voting Rights. Shares carry voting rights and shareholders have the righ t to participate in the management of a company. Debentures carry no voting rights in the normal course and debentureholders do not participate in the management of the company. 9. Redeemability. Except redeemable preference shares, share capita! is ref undable only at the time of winding up. Debenture amount is normally refunded be fore the winding up. Debenture money must be repaid in accordance with the terms of issue. But redeemable preference shares cannot be repaid without legal forma lities. , 10. Order of Repayment. At the time of winding up, debentureholders must be repaid before shareholders. Share capital is repaid after claims of debenturehol ders and other creditors are settled. 11. Taxation. Interest paid on debentures is deductible from profits for cha rging income tax. But dividends are not so deductible. Kinds of Debentures Debentures issued by a company can be of the following types: 1. Naked and Mortage Debentures. Naked or unsecured debentures are not secu red as no property is pledged or mortgaged on their issue. On the other hand, mo rtgaged or secured debentures are issued by creating a fixed or floating charge on the company's assets. In case, the company makes a default in payment, the de bentureholders can recover their dues from mortgaged property. 2. Redeemable and Irredeemable Debentures. Redeemable or callable debenture s are repayable on a predetermined date or at any time prior to their maturity a t the option of the company. But irredeemable or perpetual debentures are repaya ble only at the time of winding up of the company. 3. Bearer and Registered Debentures. Bearer debentures can be transferred by mere delivery as no record of such debentures is kept in the Register of Debent ureholders. No legal formalities are required for their transfer and no formal n otice or intimation to the company is necessary. Debenture coupons are attached with such debentures. The holders of bearer debentures can claim interest by fil ling and sending the coupons to the company. But registered debentures are recor ded in the Register of Debentureholders. Interest is payable only to the registe red holder. Such debentures can be transferred only by a transfer deed duN signe d by the buyer and the seller and not by mere deliver.. 4. Convertible and Non-convertible Debentures. In case of convert!r e deben tures, the debentureholders are given the option to convert their debentures int o equity shares after a specified period and or. cersin conditions. This serves as an incentive to the debenturehoiders i>: can in course of time participate in the profits and management of company. Nonconvertible debentures do not carry any right to be conve into equity shares. Advantages of Debentures 1. Trading on equity. Interest on debentures is paid at a fixed rate, a res ult every increase in profits can lead to higher rate of divide to equity shareh olders. 2. Economical. Raising of funds through debentures is cheaper as co pared t o shares. Debentures are a safer investment and, therefore, th can be issued at a rate of interest lower than the rate of divider, Underwriting commission, brok erage, etc., are also comparatively lo

3. Appeal too cautious investors. Debentures can be issued to raise capit f rom those investors who want a fixed and regular income witho undue risk. Debent ures provide greater security and a fixed retu unaffected by the company's profi ts. They often carry a charge o mortgage on the company's assets. In case of def ault by the company the debentureholders can recover their dues from the mortgag ed asse^ This helps to protect the interest of debentureholders. 4. Flexibility. A company can issue redeemable debentures to meet i mediumterm needs. It can repay the debenture money when it do not need them any more. In this way, it can avoid the danger of overcapitalisation. Debenture capital can be repaid from the earnings of the company. 5. Tax relief. Interest paid on debentures is allowed as a deduction while computing the taxable income of the company. This results in saving in income-ta x. 6. No interference in management. Debentureholders do not enjoy voting righ ts and as a result they do not interfere in the management of the company. The s hareholders can retain the control in their hands b> issuing debentures. Disadvantages of Debentures 1. Fixed burden on earnings. Interest on debentures has to be paid irrespect ive of profits. During periods of depression, it may become a heavy burden on th e company's earnings, 2. Loss of Prestige. Issue of debentures generally involves a charge on ass ets. As a result the credit-standing and borrowing capacity of the company is re duced. It may have to pay higher rate of interest to borrow from banks and finan cial institutions. 3. Charge on assets. In order to sell debentures, a company has normally to create a charge or mortgage on its assets in favour of debentureholders. 4. Limited appeal. Debentures are not an attractive investment for most of the investors. They carry no voting rights, no right to share in the prosperity of the company and limited marketability. Thus, debentures are an appropriate source of capital only when the earnings are adequate and stable and there are sufficient assets to offer as mortgage. Deben tures are not suitable for companies with fluctuating earnings and for companies with very little fixed assets. Trading companies, companies manufacturing fashi on goods, etc., are examples of such companies. Comparative Evaluation of Equity Shares, Preference Shares and Debentures In the course of financial planning, one of the important decisions to be made i s the choice of securities to be issued. This decision requires a comparative ev aluation of various types of securities. Often a company may choose all the secu rities. In order to determine the suitability of shares and debentures for a com pany, the following factors should be taken into consideration: Cost. Equity shares are a costlier source of finance than preference sha res and debentures. Equity shareholders expect a higher return to compensate the m for the higher risk which they bear. Debenture interest is deductible from pro fits for income-tax purposes. Period of Finance. Equity shares provide long-term finance for the lifet ime of the company. It has not to be repaid before the winding up of the company and serves as the risk capital. Preference shares and debentures provide long-t erm and medium-term finance. Funds received through these securities can be paid back whenever the company desires. Risk. Return on equity shares depends upon the profits and involves no f ixed burden on the company. Issue of equity shares involves no risk of insolvenc y even if the company fails to earn sufficient profits. But dividend on preferen ce shares and interest on debentures represent a fixed burden on the company. If the earnings are uncertain and irregular, equity shares should be issued. But w hen the earnings are fairly regular and high, debentures may be issued. Trading on Equity. If a company issues only equity shares, there is no s cope for trading on equity. Use of non-participating preference shares and non-c onvertible debentures helps to increase the return to equity- shareholders. Control on Management. Equity shareholders have full voting rights in th e meetings of a company. Therefore, issue of equity shares may dilute control of

the company's affairs. Preference shares and debentures car- limited or no voti ng rights. When the company does not want to d control, it is advisable to raise further capital by issuing preference r ei and debentures. Capacity to Borrow. The issue of equity shares increases the capa a comp any to borrow funds as its creditworthiness is increased. Bu: of debentures redu ces the company's capacity to borrow funds. Is preference shares has no signific ant effect on the borrowing capacir creditworthiness of the company. Flexibility of Financial Structure. Equity shares provide freedor the is sue of other securities but make the capital structure rigid as e capital cannot be paid back in the normal course of business. Prefe shares and debentures can be redeemed and, therefore, help to elasticity in the financial structure of the company. Appeal to Investors. Equity shares are attractive to enterprising inve w ho are ready to take risk and want appreciation of their invest" Preference shar es and debentures can be issued successfully to investors who are cautious and w ant a fixed return on their holdings company may issue all the three types of se curities to raise funds different types of investors. 11.9.5 Financial Institutions Traditionally the role of commercial banks in the field of long-term finance ind ustry has been negligible. Therefore, the Government has set up a number special financial institutions in the country to provide long-term finance to busir. en terprises. The 1FCI, IDBI, ICIC, SFCs are the main among such financ institution s. These term-lending institutions or development banks have beer a major source of finance for floatation of new concerns as well as for t modernisation and ex pansion of existing concerns. They supplement other sourc of finance and fill ga ps. They provide finance both in the form of equity and de These institutions pr ovide both direct (loans) and indirect (purchase a underwriting of securities) a ssistance. These institutions are not simply financi institutions. They also pro vide promotional, technical and managerial service* They take initiative in loca ting and filling gaps in the country's industrial structure In addition to, well -known development banks in the country, the LIC, Genera Insurance Corportion. N IDC, NSIC, etc. also help in providing finance to industry All these institution s have been discussed in the next chapter. The main advantages of institutional finance are as follows : (i) Both risk as well as loan capital is available. Special financial instit utions provide underwriting and direct subscription facilities also. (ii) New companies which may find it difficult to raise finance from the publ ic can get finance from these institutions. Assistance is available when recours e to normal sources is impracticable or unprofitable. (iii) As these institutions carry out a thorough investigation before granting assistance to a concern relationship with them, helps to increase the creditwort hiness of a company. (iv) Loans and guarantees in foreign currency and deferred payment facilities are available for the import of required machinery and equipment. (v) The rate of interest and payment procedures are convenient and economica l. Facilities for repayment in easy instalments are made available to deserving concerns. (vi) Along with finance, a company can obtain expert advice and guidance for the successful planning and administration of projects. However, institutional financing may involve the following limitations : (i) The concern requiring finance from special financial institutions has to submit itself to a thorough investigation. A number of formalities and document s are involved. (ii) Many deserving concerns may fail to get assistance for want of security and other conditions laid down by these institutions. (iii) Sometimes, these institutions place restrictions on the autonomy of mana gement. They lay down a convertibility clause in loan agreements. In some cases, they insist on the appointment of their nominees on the Board of Directors of t he debtor company. 11.9.6 Public Deposits

The term 'public deposit' implies any money received by a non-banking company by way of deposit or loan from the public including the employees, customers and s hareholders of the company other than in the form of shares and debentures. Publ ic deposits have been a peculiar feature of industrial finance in India. Compani es have been receiving public deposits for a long time in order to meet their me dium- term and long-term requirements for finance. The practice of accepting pub lic deposits developed during the initial decades of the 20th century. At that t ime banking facilities in the country were not well developed. People preferred to deposit their savings with the reputed business concerns due to the higher ra te of interest offered by these concerns and due to lack of faith in the banks. The system of public deposits was very popular in the Cotton Textile Mills of Mu mbai, Ahmedabad and Sholapur and in the tea gardens of Assam and Bengal. In recent years, the method of raising finance through the public deposits has a gain become popular for various reasons. Rates of interest offered by companies are higher than those offered by banks. At the same time the cost of deposits to the company is less than the cost of borrowings from banks. Companies generally accept public deposits for a minimum period of one year and for a maximum perio d of 5 years. However, the deposits can be renewed from time to time. Companies intending to invite deposits advertise in newspapers and take the help of stock brokers. Anyone can fill up the specified form and deposit the money with the co mpany. The company in return issues a deposit receipt which is an acknowledgemen t of debt by the company. The terms and conditions of the deposit .are printed o n the back of the receipt. The rate of interest on deposits varies from 11 per c ent to 15 per cent depending on the period of deposit and reputation of the comp any. While accepting public deposits, a company must follow the provisions of t Compa nies Act and the,directions issued by the Reserve Bank of India. Accordi to the Companies (Acceptance of Deposits) Rules, 1975 as amended in 1984, company can r eceive secured and unsecured deposits in excess of 10 per ce and 25 per cent res pectively of paid up share capital plus free reserves. T Central Government has laid down that no company shall invite a deposit unle an advertisement, includin g a statement showing the financial position of f company, has been issued in th e prescribed form. Under the new rules, deposi cannot be invited for a period of more than 5 years. However, deposits can be renewed. The rate of interest pay a ble on deposits must not exceed 15 per cen per annum. In order to repay the depo sits maturing in a particular year, the company must deposit 10 per cent of the deposits with a scheduled bank or i specified securities. Companies accepting pu blic deposits must regularly file returns giving details of such deposits. Since April 1,1980, public sector companie have also been permitted to invite public deposits. As a source of finance, public deposits offer the following advantages : (i) The interest payable on dubic deposits is lower than 'interest charged b banks and special financial institutions. Interest paid on deposits is a deduct ible expense for income tax purpose. (ii) Administrative cost of deposits is lower than that involved in the issue of shares and debentures. The procedure of inviting public deposits is simple a nd lesser formalities are involved. (iii) As the rate of interest is fixed the company can derive the benefits of trading on equity. By using public deposits a company can pay a higher dividend to equity shareholders and thereby raise its reputation. (iv) The public deposits generally do not involve a charge on the assets of t he company. The company can use its assets as security to borrow from other sour ces. (v) The company can borrow funds from a wider public through public, deposit s. It need not depend upon a single financial institution. Funds are available f or a longer period than bank loans, (vi) Public deposits introduce flexibility in the financial structure ofthe c ompany. There is no danger of over-capitalisation and the deposits can be repaid when they are not required. (vii) There is no dilution of shareholders' control because the depositors hav

e no voting rights. They cannot interfere with the internal management of the co mpany. (viii) The system of public deposits enables a company to create contact with a large number of investors. This may improve the prospects of raising finance th rough the issue of shares and debentures. The method of raising finance through the public deposits suffers from the follo wing limitations: (i) Public deposits are an uncertain and unreliable source of finance. The d epositors may not respond when the conditions in the economy are uncertain. (ii) Deposits may be withdrawn whenever the depositors feei the company is in a shaky position. Therefore, public deposits are available for a short period. It is hoc advisable to depend upon them for long-term, financing. (iii) Depositors do not get any security for their investment. Management may use the deposits as it likes. (iv) Public deposes are generally not available to new companies and those wi th uncertain earnings. (v) Widespread use of public deposits restricts the growth of a healthy capi tal market. It distorts the interest rate pattern and results in the dearth of s ound industrial securities. A spurt in public deposits may pose a threat to cred it planning and plan priorities of government. (vi) Professional investors do not like to invest in such deposits as there i s no chance for capital appreciation. Moreover, there are several legal restrict ions now on public deposits. SUMMARY. Planning : Financial planning is the process of deciding the objectives, pciicie s and programmes concerning the financial activities of an enterprise. Importanc e : Adequate funds, sound capital structure, effective utilisation of funds, coo rdination, effective control. Step : Estimating needs for funds, deciding sources of funds, formulating poiici es. Factors : Objectives, nature of industry, size of firm, capital market condition s, Government regulations, degree of risk. Essentials : Simplicity, foresight, economy, flexibility, optimum use, independe nce, solvency, provision for contingencies. Fixed Capital: Amount invested in fixed assets. Depends on nature of business, s ize of business, methods of selling, type of goods, method of production, type o f manufacturing process, degree of mechanisation, mode of acquiring assets. Working Capital: Amount invested in current assets. Gross and net, permanent and temporary. Importance : Credit standing, smooth operations, advantage of opportunities. Fac tors : Nature of business, size of firm, operating cycle, terms of purchase and sale, turnover of working capital, cyclical and seasonal fluctuations, dividend policy, attitude to risk, cost of materials and labour, need for stock, current expenses. Nature: All business feed finance, needed varying periods of time, several sourc es, both owned and borrowed funds. Significance : Credit standing, advantage of business opportunities, sm operatio ns, modernisation and expansion, business crises. Sources: Owned funds and borro wed funds. Equity Shares : No burden, long-term, strength, small face value, attra returns. Manipulation of control, over-capitalisation, no trading on equity, perpetuati c ontrol, high risk. Preference Shares : Cumulative and non-cumulative, participating and ^participat ing, redeemable and irredeemable. Appeal, no burden, no interference, no charge, trading on equity and flexibi Lim ited appeal, fixed liability, no voting rights, fear of redemption. Retained Profits : Economical, flexibility, no charge, credit worthiness, monopo ly rights, capital formation.

Misuse, risk of overcapitalisation, speculation low dividends, noting concentrat ion of power. Debentures : Simple and mortgage, redeemable and irredeemable, converti and nonconvertible. Trading on equity, economical, appeal, flexible, tax relief, no interfinance, fi x burden, loss of prestige, limited appeal, charge on assets. Public Deposits : Low interest, less formalities, trading on equity, no charg fl exible, no voting rights, wide contacts. Unreliable, short-term, no security, not for new companies, restrict growth capi tal market. Institutional Finance : Equity as well as loan, new firms, credit worthine low i nterest, advise, trading an equity. Formalities, charge on assets, restrictions on management. TEST QUESTIONS 1. Explain the nature and significance of business finance. 2. Describe the various types of business finance and their uses. 3. Describe the characteristics of different kinds of shares which a pubf c ompany can issue. 4. Discuss the importance of equity shares and preference shares as sourc o f long-term finance. 5. Make a comparitive evaluation of shares and debentures as sources busine ss finance. 6. What are the various sources of raising borrowed funds for a business. W hich source is the best and why? 7. Discuss the importance of debentures and public deposits as source; of m edium and short-term finance. 8. What are retained profits? Discuss their advantages and disadvantages as a source of finance. 9. Explain the pros and cons of public deposits as a source of business fin ance. 10. The directors of a company have decided to modernise the plants and mach inery at an estimated cost of Rs. one crore, but could not decide whether to iss ue prefernce shares or debentures for this purpose. As finance manager of the co mpany, advise the directors whether to issue preference shares or debentures in the interest of the company. 11. The directors of a company have decided to modernise the plant and machi nery at an estimated cost of rupee one crore. State the merits and demerits of i ssuing equity shares for the purpose. 12. An established company has decided to expand its production capacity. It doesnot have adequate reserves to finance the expansion. Suggest with reasons a ny two other sources of finance for the company. 13. What is fixed capital? Explain the factors determining it. 14. What is working capital? Explain the factors influencing working capital . CHAPTER 12 ACCOUNTING AND BUDGETING CHAPTER OUTLINE After studying this chapter you should understand : 12.1 Meaning of Accounting 12.2 Distinction between Accounting and Book-Keeping 12.3 Accounting Cycle 12.4 Generally Accepted Accounting Principles 12.5 Users of Accounting 12.6 Meaning of Budget 12.7 Types of Budgets 12.8 Utility of Budgets 12.9 Limitations of Budgets > Summary > Test Questions

Every business firm keeps records of its various financial transactions. Records of such transactions are maintained so that at the end of each year the firm ca n know its profit/loss and financial position. Records and accounts are maintain ed according to certain generally accepted accounting principles. 12.1 MEANING OF ACCOUNTING Accounting simply means keeping an account of money received and money spent. Ac counting may be defined as the~process of recording, classifying, summarising an d interpreting the transactions and events of an organisation in terms of money. It is the art of recording financial transactions in a set of books, classifyin g and summarising the recorded information and presenting it in a suitable manne r to the concerned parties. Accounting is the art and science of recording, classifying and summarising of f inancial transactions and interpreting the results thereof. Accounting is a scie nce because it is based on well-defined principles. It is an art because it invo lves systematic application of knowledge and skills,. Accounting can be learnt b > practice. The science of accounting establishes principles and conventions whi ch are applied by accountants to maintain proper accounts so as to serve the r.e e;; of investors, owners, managements, employees, government, tax authorises and other users. [12.1] "An accounting system is a means of collecting, summarising, analysing anc repor ting in monetary terms, information about the business." Robert Anthon\ "Accounting is the science of recording and classifying business transactions an d events primarily of a financial character and the art of making significar.: s ummaries, analysis and interpretation of these transactions and events an: commu nicating the results to persons who must take decisions or form judgements." Smith and Ashburne "Accounting is the art of recording, classifying and summarising in a significar /. manner and in terms of money transactions and events which are, in part at le as* of a financial character and interpreting the results thereof. American Institute of Certified Public Accountants (AICPA The various purposes o f financial recording are given below: 1. To Ascertain Profitability : The basic purpose of financial recording is to know whether the business operations have been profitable or not. For this p urpose, a statement called 'Income Statement' or 'Profi: and Loss Account' is pr epared. It is a summary of the incomes receive: and expenses incurred during a s pecified period of time. 2. To Ascertain Financial Position : Another main purpose is to kno the fin ancial position of business at a particular point of time. A stateme- called 'Ba lance Sheet' is prepared for this purpose. It is a summar of the assets and liab ilities on a specified date. 3. To Formulate Financial Plans : Financial accounting seeks to provict inf ormation to managers for formulating various financial plans of the enterprise. For example, the firm can plan its future cash by examining the cash receipts an d payments during the last year. 4. To Control Assets : Accounting provides valuable information which enabl es the management to exercise control over various assets an: resources of the b usiness. It can take steps to minimise frauds and misappropriations. 5. To Assess Tax Liability : Financial accounting provides informatic* to t ax authorities for ascertaining the taxes payable by the enterprise 6. To Provide Information to Users : Owners, creditors, suppliers ar.; othe r interested groups require information about an enterprise. Financi: accounting provides such information. Trading and Profit and Los; Account, Balance Sheet a nd other financial statements serve as trt; sources of necessary information to different interested parties. 12.2. DISTINCTION BETWEEN ACCOUNTING AND BOOK-KEEPING Book-keeping is the art of recording financial transactions in the books of acco unt: in a regular and systematic manner. A book-keeper is responsible for maintaining

or keeping the financial records of the organisation. Book-keeping is work of a clerical nature and it is, therefore, entrusted to junior employees. Book-keepi ng differs from accounting in the following ways: 1. Scope : Book-keeping is a narrow term as it is concerned mainly with kee ping books of accounts. It includes four activities : identifying the financial transactions, measuring them in terms of money recording them in the books of or iginal entry and classifying them. On the other hand, accounting is a wide term. It is concerned with summarising and interpreting the recorded information and communicating the results thereof to the interested parties. 2. Stage : Book-keeping is the first stage of maintaining accounts and prov ides no conclusions. Accounting starts where bookkeeping ends. Accounting is the second stage and provides conclusions. 3. Principles : In book-keeping, transactions are recorded according to the principles of accounting. But accounting determines its own principles. 4. Level : Book-keeping work is of a clerical nature and it is, therefore, carried out by junior staff. On the contrary, the work of accounting is performe d by senior officers. 12.3 ACCOUNTING CYCLE Accounting cycle refers to a complete sequence of accounting activities. It begi ns with recording of transactions and ends with the preparation of Balance Sheet . Accounting cycle consists of the following stages : 1. Recording Financial Transactions in Journal (Journalising) : In the first step, financial transactions are recorded in the books of original entry, i.e., journal. In a large enterprise, separate journals are kept for recording d ifferent types of transactions. Cash Book, Purchases Book, Sales Book, Purchase Returns Book, Sales Returns Book, Bills Receivable Book, Bills Payable Book and Journal Proper are used to record transactions. These books are called 'Subsidiar y Books'. 2. Posting in Ledger : The entries recorded in journal are transferred peri odically to appropriate accounts in ledger. This is known as 'posting'. All tran sactions of one nature are posted in one account. This results in classification of transactions. Ledger is called the 'Principal Book' of accounting. At the en d of the year, all accounts in the ledger are balanced. Balancing means determin ing the difference between debit side and credit side totals of an account. 3. Trial Balance : The balances of various accounts appearing in the led ar e transferred to the trial balance. Trial balance is a statement contain balance s of all the ledger accounts. The total of debit balances m be equal to the tota l of credit balances. 4. Income Statement : At the end of the year an income statement prepared f rom the trial balance. Income Statement or Trading and Pr and Loss Account is pr epared to determine the net profit/net loss dir the year. 5. Balance Sheet : Balance Sheet or position statement is a statem of asset s and liabilities on a specific date. It is prepared to know financial position of business. Net profit or net loss ascertained in inco statement is transferred to the Balance Sheet. 6. Opening the New Books Next Year : The balances appearing in Balance Shee t are transferred in the new journal of the next year, same process is again rep eated next year and year-to-year. Account' cycle is, therefore, an ongoing proce ss as shown in the Fig. 12. Fig. 12.1 Accounting Cycle 12.4 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) Meaning : Accounting principles refer to the concepts, conventions and standar w hich are widely accepted and adopted by accountants while recording a reporting the financial information. According to Robert Anthony, "the rules a conventions of accounting are commonly referred to as principles." Need : Accounting principles are necessary due to the following reasons. (a) Accounting principles are required to identify and classify econom transacti ons for meaningful presentation.

(b) These principles help to ensure uniformity in accounting records. As a r esult the financial statements of different firms becomes comparable. (c) Accounting principles serve as a guide to accountants in recording and r eporting business transactions. (d) These principles represent a scientific approach to financial statements . True and fair financial statements are useful to various users. Use of account ing principles creates confidence in accounting information. Accounting is the language of business. In order to make this language precise, accounting authorities have developed certain basic rules. These man-made rules of accounting are called Generally Accepted Accounting Principles. These princip les are accepted and used by accountants all over the world so that financial st atements become comparable and useful to the users. The basic principles of accounting are given below. 1. The Business Entity Concept: According to this concept, a business firir risTreated as a unit separate and distinct from its owners. A completely separat e set of books is kept for the firm and business transactions are recorded from the firm's point of view. The capital provided by the owner is treated as a liab ility of the firm. Interest on capital is treated as an expense of business. Sim ilarly, the money/goods withdrawn by the proprietor from the firm for his person al use is treated as drawings. The concept of separate entity is necessary for a scertaining the true net profits and financial position of a business firm. In t he absence of this concept, the affairs of the firm will be all mixed up with th e private affairs of the proprietor and the true picture of the firm will not be available. The assumption of business entity is applicable to all types of busi sole proprietorship, partnership and company. ness A distinction is made between business transactions and personal transactions. Pe rsonal assets are kept separate from the assets of business. For example, if A o wns property worth Rs 20 lakhs, out of which he invests Rs 10 lakhs in his busin ess, then Rs 10 lakhs will be his private property and Rs 10 lakhs will be busin ess property. 2. The Going Concern Concept: It is assumed that the business will continue to exist for a long time in the future. Transactions are recorded on the assump tion that the business will exist for an indefinite period of time. It is on thi s assumption that a distinction is made between capital expenditure and revenue expenditure. Fixed assets are recorded at their original cost less depreciation. Market value of fixed assets is not recorded, as these assets are not to be sol d in the near future. A firm is said to be a going concern when there is neither the intenti: - nor th e necessity to wind up its affairs. In the absence of this assume: - no outside parties would enter into long-term contracts with the for supplying funds and go ods. This assumption also justifies the distin between fixed assets and current assets. The going concern con also imp] ies that the existing liabilities will b e paid at maturity. Un stock of goods are taken to the next year. 3. Money Measurement Concept : On die basis of this concept, those transacT ions~'Sre recorded in accounts which can be- expre in terms of money. In other w ords, an event, howsoever impo it may be to the business, will not be recorded u nless its mone effect can be measured with a fair degree of accuracy. For exam t he retirement of the ^airman of the company cannot be recorded bee it is not pos sible to measure the monetary effect of retirement ex in terms of gratuity and o ther benefits payable to the chairman. Money is a common denominator. With the help of money, diverse it can be added t ogether. The total value of assets, such as raw mater: machinery, land and build ings, furniture and fixtures, etc., can be sured in terms of money. Thus, money measurement concept he to make accounting records homogeneous, relevant, simple and un standable. 4. Accounting Period Concept: It is due to this concept that fman statement s "are~prepared at regular intervals, generally one year, period is called accou nting period. The net profit/net loss of busi is ascertained separately for each accounting period. Similarly, the finan position of business is ascertained on the last day of an account period. Under tax laws, the accounting period starts

from 1st April ends on 31 st March next year. The going concern concept states that, a business is assumed to conti indefinite ly. As such, the results of business operations can be ascertai only after the l iquidation of business. But the measurement of net pr and financial position of the business after a very long period will of little use to owners, managers, in vestors and others. The users financial statements need periodical reports on th e performance of busin Therefore, the entire life of the firm is divided into ti me intervals the purpose of financial reporting. In accounting, such a time inte is called accounting period. The accounting period is usually one ye Accounting statements are prepared at the end of each year so t the interested parties are able to judge the progress of business, assumption requires that the expenditur e whose benefit will accrue o\ a long period should be apportioned suitably over each year. This involv a process of estimation. 5. The Matching Principle : According to this principle, cost of a particul ar period should be charged from the revenue of same period only. On>- such matc hing of cost and revenue can reveal the true profit or loss for a period. Revenu e must be ascertained first for a period and then the cost of that period should be charged to it. When cost is associated with a particular product or service, revenue earned from that product or service should be matched to its cost. This principle provides the guidelines as to how the expenses are to be matched with revenue. It requires that in determining the net profit, all costs which are ap plicable to revenue of that period should be charged against that revenue. For m atching costs with revenue, first revenues should be recognised and then costs i ncurred for generating that revenue should be recognised. The matching of costs with revenue is based on the accrual system of accounting. While matching, costs with revenues, the following points must be considered. (a) When an item of revenue is included in the Profit and Loss Account, all expenses incurred on it whether paid or not, should be included in the Profit an d Loss Account. Outstanding expenses are debited in the Profit and Loss Account on this basis. (b) If an amount is spent, but revenue from it will be earned in the next ye ar, the amount should be carried down as an asset and should be shown as an expe nse next year. Prepaid expenses, (e.g., prepaid insurance) are shown as assets i n the Balance Sheet on this basis. (c) Cost of goods remaining unsold at the end of the year together with expe nses incurred on them must be carried forward to the next year. Therefore, closi ng stock is carried over to the next year as opening stock. (d) Incomes received in advance must be treated as a liability, while income earned but not received should be recognised as revenue. 6. The Dual Aspect Principle : This principle suggests that every debit has a corresporTdihg~and-equal credit. There must be a giver of benefit and also a receiver of the same. Suppose X purchases a car for Rs 3,00,000. He will get the car and will pay cash Rs 3.00,000. So one account (car) will be debited and ano ther account (cash) will be credited with the same amount. This principle has gi ven rise to the double entry system. It is due to this principle that both the s ides of the Balance Sheet are equal and the accounting equation is always true, i.e. Capital = Assets - Liabilities According to this principle, every business transaction has a double (dual) effe ct on the business. This double effect can be recognised only by recording both the aspects of every transaction. There are two sid of every tran saction. If one account is debited, any other account mu be credited and vice-ve rsa. The system of recording transactions o the basis of this principle is known as 'Double Entry System', is due to this principle that the two sides of the Ba lance Sheet a always equal. The following accounting equation will always hold good at any poi of time. Assets = Liabilities + Capital OR Capita] = Assets - Liabilities Whenever a transaction is recorded it must be recorded in two or mo accounts to

balance the equation. If a transaction increases or decreas one side of the equa tion, it will also decrease or increase the oth side of the equation by the same amount. For example, A commenc business with Rs 10 lakhs in cash and takes a lo an of Rs 2 lak from the bank and he purchases plant and machinery worth Rs 8 la for cash. The equation will be as follows : Assets = Liabilities + Capital Rs 8 lakhs (plant + machinery) + Rs 4 lakhs (cash) = Rs 2 la + Rs 10 lakhs. 7. The Compjete Disclosure Principle : According to this principle, accour should be prepared in such a way that all the material information quired by use rs of financial statements is clearly disclosed. Informati which occurs after th e preparation of Balance Sheet should also fully disclosed and no material facts should be concealed. The disci sures can be by way of footnotes or annexures to the financial sta~ ments. The Principle of Complete Disclosure suggests that there should be compl and und erstandable reporting on the financial statements of all signific information re lating to the economic affairs of the firm. To meet t requirements of this princ iple, all financial statements are supported footnotes. For example, change in t he method of depreciation or meth of valuation of stock, market value of investm ents and contingent liabili are shown in footnotes. The Companies Act has prescr ibed the profor and contents of Balance Sheet and Profit and Loss Account to ens u full disclosure of financial information. 8. The Revenue Principle : This principle suggests that revenue shou

be treated as realised whenever the ownership of goods changes h is immaterial w hether the revenue is received in cash or not. 9. Thejbqjfin&eJMnciple : According to this principle, every cost which is incurred to earn revenue is known as expense. Costs incurred or. manufacturing, selling and distributing goods and services are expenses. Expenses should be rec ognised whenever incurred, irrespective of whether cash is paid or not. 10. The. Realisation Principle : According to this principle, revenue is dee med to be realised when the goods have been transferred or the services have bee n rendered to a customer. In the realisation of revenue, the receipt of cash is not significant. If a firm sells goods in April and receives cash in June, reven ue will be considered as realised in April when the goods were sold. Similarly, expenses are recognised not when the cash is paid but when the assets or services are used to produce revenue. For example, rent for January 1, 2001 to March 31, 2001, though unpaid, will be recognised during the accounting year 2000-2001. Likewise, cost of goods lost by fire is immediately recognised in the year of loss. Users of Accounting : Various users of accounting information may be divided Internal Users -Investors -Trade Creditors Lenders -Tax Authorities Others -Management Employees Fig. 12.2 : Different Users of Accounting Internal Users: The persons who manage the enterprise and those who work in it a re called intenal users: (a) Management: Managers need accounting information fo r making appropriate decisions and for exercising control. For example, manageme nt decides the prices of products on the basis of information relating to cost o f material, labour and overheads. Managers require information concerning expens es, revenue, assets, liabilities, sources and uses of funds, etc. retaking strate gic and operating decisions. into two broad groups as follows: Users of Accounting! External Users (b) Employees: Employees are interested in profits of the firm astheir wages, sa laries and bonus depend on the profits. They also want to know the position of t heir provident fund investment and financial position of the business.

2. External users: External users are having direct and indirect interest in a b usiness firm. The main information sources for them are quarterly, half yearly a nd annual reports. Present and potential investors and auditors are having direc t interest. Customers, tax authorities regulatory agencies, trade unions, stock exchanges and public have indirect interest. (a) Investors: Present investors [shareholders] need informatioin to decide whether to hold or sell their shares in the company. Potential investors need ac counting informatiion to decide whether or not to buy the shares of a particular company. (b) Creditors: Trade creditors are the suppliers of goods and services on cr edit. They want to know the creditworthiness of the firm by studying its financi al statements. They decide the amount and period of credit with the help of such information. (c) Lenders: Banks, financial institutions and others who grant loans want t o know the repaying capacity of the firm, from its accounting records, and finan cial statements. (,d) Tax Authorities: Tax officials need accounting information to assess the fi rm's tax liability. (e) Others: Department of company affairs, SEB1, stock exchanges, labour unions and public want to know the financial health of the business to ensure that the business is being run in a proper manner. Some of the users and their heeds for information are shown below. Need for information Users 1. Management 2. Employees Management need information to review the firm's (a) short-term solvency, (b) lo ng-term solvency, (c) activity (viz., effective utilisation of its resources), ( d ) profitability in relation to turnover, (e) profitability in relation to inve stments and to decide upon the course of action to be taken in future. Employees and their representative groups are interested in information about the stabili ty and, profitability of the employers. They are also interested in information which enables them to assess the ability of the enterprise to pa\ remuneration, retirement benefits and to 3. Short-term creditors [For example, suppliers of raw-materials/goods, sup pliers of short-term loans] 7. Government and their agencies 8. Public 4. Long-term creditors [For example, suppliers of long-term loans] 5. Tax Authorities 6. Customers provide employment opportunities. Short-term creditors need information to determine whether the amount owing to t hem will be paid when due and whether they should extend, maintain or restrict t he flow of credit to an individual enterprise. Long-term creditors need information to determine whether their principals and t he interest thereof will be paid when due and whether they should extend, mainta in or restrict the flow of credit to an enterprise. Tax authorities need information to assess the tax liabilities of an enterprise. Customers have an interest in information about the continuation of an enterpri se, especially when they have established a long term involvement with, or are d ependent on, the enterprise. Government and their agencies are interested in the allocation of resources and, therefore, the activities of enterprise. They also require information in order to regulate the activities of enterprise, determin e taxation policies and as the basis the national income and similar statistics. Enterprises affect members of the public in a variety of ways. For example, ente rprises may make a substantial contribution to the local economy in many ways in cluding the number of people, they employ and their patronage of local suppliers . Financial statements may assist the public by providing information about tren

ds and recent developments in the prosperity of the enterprise and the range of its activ ities. While all the information needs of these users cannot be made by financial state ments, there are some needs which are common to all users. The information 9. Present investors [For example, equity- share holders] contents of the financial statements which meet information needs of the investo rs or providers of risk capital will also meet most of the needs of other users. Present investors need information to judge prospects for their investment and t o determine whether they should buy, hold or sell the shares. 10. Potential Investors [For example, those who want to invest] Potential investors need information to judge prospects of an enterprise and to determine whether they should buy the shares. 12.6 MEANING OF A BUDGET estimate of needs and expected results prepared in advance oTtEe~period to which it relates. A budget is formal expression of plans and policies laid down by th e management for the concern as a whole and for each of its sub-divisions. Accor ding to the Institute of Cost and Management Accountants England, a budget is "a financial and/or quantitative statement, prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attainin g a given objective." Thus, the main features of a budget are as follows : (i) A budget relates to a future period and is prepared in advance. (ii) It is based on the objectives to be attained and a detailed plan of acti ons. (iii) It is a statement expressed in monetary and/or physical units. For examp le, a budget may provide for a sale of Rs. 1,00,000 (monetary units) or for a sa le of 1000 kg (physical units) or for a sale of 1000 kg of Rs. 1,00,000 (both mo netary and physical units). (iv) It is based on the objectives to be achieved and the policies to be purs ued by the organisation. The process of preparing budgets is known as budgeting. A budget needs to be dif ferentiated from a forecast. A forecast is a statement of probable events. It is the basis for preparing plans and budgets. A budget is generally evolved from t he forecast. There are the following differences between a forecast and a budget. A forecast is merely an estimate of what is likely to happen. It is a st atement of probable events. On the other hand, a budget is a statement of planne d events. It reflects the programme to be followed in future under prescribed co nditions. A forecast is a judgement that can be made by anybody while a budget is a plan that requires authority of management. A forecast forms the basis for the budget. The forecast of a function need not be coordinated but budgeting require s coordination of various functions. Forecasts may cover a period of several years while a budget is prepared for a year or lesser period. Budgeting involves control of variations from the approved plan but fore casting involves no such control. A forecast represents events oyer which no control can be exercised. On the other hand, a budget represents a state of control. For example, a branch ma nager may forecast the sales which his branch may be able to make during the com ing year on the basis of his knowledge of market conditions. Keeping in view thi

s forecast and the production capacity of his firm, he will prepare the Sales Bu dget of his branch. Thus, a budget may be set at a line different from what the forecast indicates. Forecasting ends with assessment of probable events, while budgeting sta rts after making a forecast. In other words, budgeting succeeds forecasting. (ix) Forecasts are made not only for budgeting but for other purposes also. For example, forecasts are made where several alternative choices are available to d ecide the best alternative. A firm may forecast sales at different price levels in order to decide the optimum price of its product. 12.7 TYl'ES OF BUDGETS L,-Sales Budget : The sales budget, generally, forms thsjundamental basis on whi ch all other budgets are built up. It lays down the revenue goals of the enterpr ise. Sales budget is essentially a forecast of sales to be achieved during~a spe cified period in future. The Sales Manager is directly responsible for the prepa ration and execution of this budget. Sales budget shows the break up of total sa les productwise, territorywise and monthwise. While preparing the sales budget, the following factors should be taken into con sideration : (i) Past sales figures and trend: The record of past sales and their trend i s the most reliable guide as to future sales, because the past performance is re lated to actual business conditions. However, other factors such as seasonal flu ctuations, growth of market, trade cycles, etc. should also be considered. (ii) Salesmen's estimates : Salesmen come in direct contact with customers. T hey are, therefore, in a position to estimate the potential demand of customers. However, proper adjustment should be made for over-optimistic or too conservati ve estimates of the salesmen depending upon their temperament. (iii) General trade prospects : General prospects of the particular trade or i ndustry considerably influence sales. Information regarding general trace prospe cts can be collected from trade papers and magazines. (iv) Orders on hand : Orders already booked by the firm are an important cons ideration in case of industries where production is quite a lengthy process. (v) Future product plans : Proposed expansion or discontinuance of particula r products can have a considerable influence on future sales. (vi) Potential market: The potential market for the company's products car be judged through market research. Expected population growth, purchasing power of consumers, buying habits of people, degree of competition in the market are imp ortant factors influencing the market potential. (vii) Seasonal fluctuations : The effects of seasonal fluctuations on sales ca r be minimised by offering special concessions and off-season discounts. (viii) Plant capacity : Sales budget should be so formulated that the firm car achieve balanced production and make proper utilisation of plant facilities. Pro duction capacity generally serves as a constraint on the amount of sales. (ix) Availability of materials : Adequate supply of raw materials and power m ust be taken into consideration before preparing the sales budget. (x) Financial resources : Increase in sales beyond a particular level requir e additional capital. Therefore, sales budget must be kept within the financial capacity of the firm. (xi) Other factors : (a) The nature and degree of competition in the industry. (b) Cost of distributing goods. (c) Government controls, rules and regulations relating to the industry. (d) Political situation at national and international levels which may influ ence the market. Production Budget: Production budget contains an estimate of the total volume -e ft producliiaiL^oSuctwTse and week or monthwise and~a" forecast of the~closTng i nventoi^jrfjlnished product" Genei ally, production~trudgetiT^ase(i~crpon the sa les budget. However, when it is not possible to forecast sales on account of fre quent changes in style and fashions, product budget is based upon past experienc e. The works manager is responsible for the preparation and execution of the pro duction budget. The production budget may be expressed in quantitative or financ

ial units or in both. Determining the annual output required and prorating it th roughout the year are the two main problems in the preparation of production bud get. Production budget is prepared to achieve the following objectives : (i) To answer the following questions : (a) What is to be produced? (b) When it is to be produced? (c) How much it is to be produced? (d) How it is to be produced? (e) Where it is to be produced? (ii) To plan and organise the production programme for achieving the sales ta rget. (iii) To serve as a basis for preparation of production cost budgets, e.g., ma terials cost budget, labour cost budget, etc. (iv) To prepare a cash forecast. A well-planned production programme is required to ensure sufficient stock for s ales, to keep inventory within reasonable limits and to manufacture goods in the most economical manner. While preparing the production budget, the following fa ctors should be taken into consideration. (i) Sales requirements : The quantity of goods to be sold is the main factor affecting the quantity of goods to be produced. (ii) Inventory policy : Inventory levels should be decided in advance so that neither there is shortage of goods nor overstocking of goods. Inventory levels influence the output. (iii) Plant capacity : The maximum quantity of goods that can be produced depe nds upon the available plant capacity. There must be sufficient capacity to prod uce the annual requirements and also to meet seasonal high demands. (iv) Balances production : Production should be evenly distributed through ou t the year so as to ensure better utilisation of plant facilities and to reduce costs. In case of seasonal industries an optimum balance between even production and stable inventory levels should be maintained. (v) Availability of material and labour : Adequate and timely supply of raw materials, labour force and power affect the production programme. (vi) Time taken in production process : Production should be started well in thine, keeping in view how much time it would take in the factory to /convert the raw materials into finished goods. iyiaterials Budget After deciding the volume of sales and the-volume of production, it isjaecessary to estimate the cost of producing the budgeted output. Cost of production inclu des nuTterials. labour and overheads. :\~sepani!e budget for each of these items is prepared. Materials may be direct or indirect. The material budge/ is generally prepared o nly for direct materials. Indirect materials are included in overhead budget. Th e preparation of materials budget involves the following steps : (i) estimating the raw material requirements, (ii) scheduling the purchases of raw materials in required quantities at the required time, (iii) controlling the inventory of raw materials. Materials requirements are estimated by multiplying the exact material requireme nts for each class of product by the number of units to be produced. The total q uantity of raw materials required for the budget period is first estimated and t hen is broken down monthwise, etc. The breakdown and length of the period should be in uniformity with the production budget. In those industries in which raw material requirements are standardised, the mat erials budget can be prepared very exactly on the basis of standards. In other c ases, the percentage of raw materials to total cost of production can be calcula ted on the basis of past experience. With the help of such percentage, a rough e stimate can be made for the raw materials required for the budgeted output. This figure should be adjusted keeping in view the current price and the normal wast age of materials in the course of production. The materials budget can be classi

fied into two categories : (a) materials requirement budget, and (b) materials procurement or purchase budget. The former tells about the total quantity of materials required during the budge t period. The latter reveals the materials to be acquired from the market during the budget period. Materials to be acquired are estimated after taking into acc ount the closing inventory and the opening inventory or the materials for which orders have/already been placed. irect Labour Budget The Dirgct Labour Budget indicates the direct labour require d for producing the budgetgd output. This budget contains details regarding dire ct lahoiirlrpnrs and cost. Direct labour cost is calculated by multiplying the d irect labour hours with the labour cost per hour. Direct labour hours can be cal culated by multiplying the direct labour hour per unit of output with the budget ed output. The type of production process and the available cost records will de termine whether and how it is possible to express production in terms of direct labour hours. Direct labour budget may be divided into two categories : (a) Direct Labour Requirement Budget, and (b) Direct Labour Procurement Budget. The former indicates the total direct labour required in terms of quantity or/and valueyWhile the latter tells the add itional direct workers to be recruited. Factory Overhead Budget *actory or manufacturing overheads include the cost of indirect labour, indirect materials and indirect expenses. These overheads can be classified into three ca tegories : (a) Fixed, i.e., which tend to remain constant irrespective of change s in the volume of output, (b) Variable, i.e, which tend to vary with changes in output, and (c) Semi-variable, i.e., which are partly variable and partly fixed . The fixed manufacturing overheads can be estimated without much difficulty on the basis of the past information and knowledge of any changes which may occur d uring the ensuring budget period. Variable overheads are estimated after conside ring the scheduled production and operating conditions during the budget period. Administrative Overhead Budget T.hiybudget contains the_expenses of all administrative office^ of the firm. A c areful analysis of the needs of all administrative departments of the enterprise is necessary. These needs can be estimated on the basis of costs of prior years . The plans and responsibilities of different departments during the budget peri od should also be considered. The administrative overheads budget is prepared af ter aggregating the separate budgets of all administrative departments. Selliixg'and Distribution Overheads Budget .TTiis budget contains all the expenses relating to selling, advertising, delive ry of goOdsTcTcustomers, etc. These costs should be anlFysed' accordiug-to-produ cts, Typesfof customers^ territories and the sales outlets, etc. The Sales Manag er is directly responsible for the preparation and execution of this budget. Sel ling expenses should be co-ordinated with the volume of sales expected. Efforts should be made tocontrol distribution expenses. While preparing the selling and distribution overheads budget, advertising policy, distribution systems, market conditions; etc., should be taken into consideration. Capital Expenditure Budget a This budget indjcafes-the-amount-of capitaljgguired for procurement of capital ssets during thebudgetj3eriod. This budget is prepared after taking into account the^aiTaBliTprocluction capacity, probable reallocation of existing assets and possible improvements in the techniques of production. Wherever necessary, separ ate budgets, may be prepared for each fixed asset, e.g., building budget, plant ^nu machinery budget, etc. ash Budget This budget is a summary statement of the firm's expected inflows and outflows o f cash over a future time period. It involves a projection of future cash receip ts and cash payments over different time intervals. A cash budget is helpful in (i) determining the future cash requirements of the firm, (ii) planning for financing of those requirements, and (iii) exercising control over cost and liquidity of the firm.

The overall objective of a cash budget is co enable the firm to meet its commitm ents in time and at the same time prevent accumulations of excess cash balance. The M aster Budget The master budget iS a^summary of the budget schedules in capsule form made for the purpose of presentmg WeTgpOT onTlTe^lTiglirights of the budget "forecast The Institute of Cost Management Accountants, England, has defined it as "the summa ry budget, incorporating its component functional budgets, which is fin all} app roved, adopted and employed." Thus, the master budget is a summarised form of al l the budgets of a firm. This budget requires the approval of the Budge: Committ ee before it is put into operation. The preparation of the master budget involves the following steps : (i) First of all the sales budget is prepared keeping in view the number of units likely to be sold each month, the prices, at which they are likely to be s old and the composition of cash and credit sales in total sales, (ii) The next step is the preparation of the production budget. The opening a nd closing stocks, budgeted sales, etc., are considered for this purpose. (iii) Cost of production budget consisting of direct materials budget, direct labour budget and factory overheads budget is prepared. (iv) Cash budget is prepared thereafter keeping in view different sources o: cash inflows and outflows. (v) A projected income statement can be prepared with the help of the inform ation available from the above budgets. (vi) A projected balance sheet can be prepared on the basis of the previous y ear's balance sheet and the current information. 12.8 UTILITY OF BUDGETS Budgets are very useful in management. They offer the following advantages : 1. Sound Planning : Budgets make planning purposeful and precise. Objective s and programmes are expressed in physical or monetary units . in budgets. Budgets are prepared on the basis of forecasts. Therefore, budgets force managers to think about the future. Budgets help to minimise snap judgeme nts and unplanned actions. Budgets guard against undue optimism, because budgeta ry targets are fixed after careful thought. Budgets also act as a safety guard b y providing an automatic check on the judgement of executives. 2. Higher Efficiency : Budgets bring efficiency and economy in the working of a business firm.They help management in obtaining the most profitable combina tion of different factors of production. 3. Sense of Responsibility : Budgets helps to establish divisional and depar tmental responsibility. They prevent "buckpassing" and create a sense I of respo nsibility among managers. 4. Source of Motivation : Budgets represent the 'milestones' to be reached. They tell people what is expected. Budgets become the goals or targets to be attaine d. The budget is an impersonal policeman that maintains ordered effort in the or ganisation. Coordination : Budgets force executives to think as a group. Budgets * are prepared^m^copsutotion^with one-another^JEh^efore, they help in achieving co-ordination between different departments of the enterprise. The interaction b etween persons.working- -itrttifferent departments that takes place during the p rocess of budgeting facilit&tes uniformity of policies ajid-united action. 6. Delegation of Authority : Budgets allow delegation of authority without loss of control. It permits participation of employees at all levels. According to Koontz and O'Donnell, "reduction of plans to definite numbers, forces a kind of orderliness that permits the managers to see clearly what capital will be spe nt by whom, and where, and what expense, revenue or units of physical input or o utput his plans will involve. Having ascertained this, the manager can more free ly delegate authority to effect the plan within the limits of the budget. Budget ing is somewhat a democratic way of managing." 7. Effective Control : Budgets are an important tool of managerial control. Use of budgets for evaluation and control of performance is known as 'budgetary control'. Budgetary control facilitates 'control by exception' by focussing atte

ntion on deviations from budgeted targets. Budgets provide exact standards with which actual results can be evaluated and variations between actual performance and budgetary targets can be analysed. 12.9 LIMITATIONS OF BUDGETS Budgets suffer from the following drawbacks : I 1. Inflexibility : Very often budgets are so detailed that they become cumbe rsome. Over-budgeting may create rigidity by depriving the managers of the freed om and flexibility in managing their department. 2. Inaccuracy : Budgets are based on forecasts or projections and historica l trends. Forecasts may not be cent ^er cent true and trejnds may not repeat. Bu dget estimates are generally based on the price level at a particular point of t ime. These estimates may become meaningless when there is either inflation or de pression in the market. . 3. Distortion of Goals : Sometimes, budgets are treated as an end in themse lves. People may be extra cautious jto function within the bouncur'es of budget figures. In order to'keep'within'budget limits, they may overlook the goals of t he organisation. In such cases, budgetary goals supersede enterprise goals and b udgets obstruct the attainment of objectives. 4. Expenditure : Budgetary control requires expenditure of time, money and efforts. It is difficult to prepare various kinds of budgets. 5. Hiding Inefficiencies : Budgets may be used to hide wastage and inefficie ncy. A department may be inefficient even though its expenses are within the bud get limits. Expenditure incurred in the past may become evidence for it in futur e even though it may be unproductive. Managers of different departments may subm it inflated figures of resources required by them. 6. No Substitute for Management : Budgetary control by itself cannot preven t deviations from occurring. It only points out deviations from the standards an d a deliberate effort has to be made to prevent deviations. Therefore, budgetary control is not a substitute for executive judgment. 7. Psychological Problems : Budgets are used to evaluate performance. Individuals and groups who do not want to work hard consider budgets as pressure devices. Inefficient employees resist budgeting and put pressure to lower budge tary targets. Success of budgeting depends on mutual understanding and co-operat ion between all the persons working in the enterprise. SUMMARY Book-keeping is the art and science of recording transactions while acco unting is the art and science of recording, classifying and summarising transact ions. Keeping records, calculating profit or loss, ascertaining financial posi tion, and making accounting information available to stakeholders are the purpos es of financial recording. The accounting cycle consists of journal, ledger, trial balance, trading and profit and loss account and Balance Sheet. Basic accounting concepts or assumptions include business entity concept, going concern concept, etc. Money measurement concept, and accounting period concept, realisation, m atching full disclosure verifiable, and dual aspect are the basic principles of a ccounting. A budget is a quantitative plan prepared in advance for a future time pe riod. Sales budget, production budget, capital expenditure budget, cash budget and master budget are the main types of budgets. Budgets are an important tool of planning, co-ordination, delegation, mo tivation and control. Budgets suffer from inaccuracy, rigidity, misuse, psychological barriers etc., and cannot be a substitute for management. TEST QUESTIONS 1. Distinguish between book-keeping and accounting. 2. Explain the purposes of financial recording. 3. Explain the accounting cycle.

4. Explain the basic assumptions of accounting. 5. Discuss in brief the basic principles of accounting. 6. "Accounting records serve as a source of information to the people insid e and outside the enterprise." 7. Who are the users of accounting ? How does accounting serve their needs ? 8. Define the term 'Budget' and distinguish it from 'Forecast'. 9. Explain the main types of budgets used, in business enterprises. 10. Discuss the advantages and limitations ,bf budgets. CHAPTER 13 MANAGING PRODUCTION CHAPTER OUTLINE After studying this chapter you should understand : 13.1 Basic Concepts 13.2 Types of Production System 13.3 Organisation of Production Function 13.4 Responsibilities of Production manager 13.5 Relationship of Production with other Functions 13.6 Production Management 13.7 Meaning of Production Planning 13.8 Elements of Productin Planning 13.9 Meaning of Production Control 13.10 Elements of Production Control 13.11 Benefits of Production Planning and Control 13.12 Limitations of Production Planning and Control > Summary > Test Questions Production implies the creation of goods and services to satisfy human wants. It involves the transformation of inputs (resources) into outputs (products). Acco rding to Carl Heyel, "production is the process of transforming raw materials or purchased components into finished products for sale.'" Production is the proce ss of transforming inputs into a specified sfet of outputs. The basic feature of a business firm is that it buys productive resourcess such as land, labour, cap ital and intermediate goods from other entities and transforms them into differe nt goods or services which it sells to its customers"2 Any process involving the conversion of raw materials and component parts into finished products may be c alled production. The essence of production is the creation of goods and service s by the conversion of materials or parts. Such conversion of inputs into output s adds to the value or utility of products. The utility so created is the differ ence between the value of inputs and the value of outputs. Inputs Process Outputs Very often production function is associated with factory production only. This is a narrow view of the production function. The modern c oncept of production is much wider and it includes in its purview all activities which create utility or [13.1] increase utility for individuals and society. Every economic organisation bu;. i nputs (land, labour, capital inter-mediate goods, efc.) from other organisatio a nd transforms these inputs or resources into different goods and services f sell ing to customer. In a wide sense, production is the process of product something useful with the object of satisfying human wants. 13.1 BASIC CONCEPTS A system is a logical arrangement of components (physical and conceptua designed to achieve particular objectives according to a plan. Production syste is the f ramework within which the production activities of an organisation carried out. Production system is sub-system of the economic system. The production system is composed of the following sub-systems. (i) Inputs : Inputs are the physical and human resources utilised t producti on process. They consist of raw materials, parts capital equipme information' hu man effort, paper, etc. Inputs constitute the variable co_ of production.

(ii) Conversion Process : Conversion or transformation processes refer to "se ries of operations which are performed on materials and parts. The operations may be manual, mechanical, chemical, assembly, inspectio receiving, s hipping, etc. (Hi) Outputs : Outputs are the products or completed parts resulting from t' con version process. Outputs generate revenue. (iv) Storage: Storage takes place after the receipt of the inputs, between o operation arid the other and after the output. (v) Jxansportation : Inputs are transported from one operation to another th e production process. (vi) Information : The information sub-system of production syste Hhrrfercormec ts all physical activities and serves as a basis for manageri decision-making. It provides system control through measuremen comparison, feedb ack and corrective action. The various components of the production1 system are illustrated in Fig. 13." Th e input is received and then stored for future use. From time to time, input dra wn from storage for the purpose of processing. Several priority rules (e.g. firs t-in first out, urgency, date of delivery or completion, etc.) are followed f dr awing inputs from the storage. 13.2 TYPES OF PRODUCTION SYSTEMS ^'"Continuous or Flow Production Meaning. According to Buffa, "continuous flow production situations are those wh ere the facilities are standardised as to routings and flow since inputs are sta ndardised. Therefore, a standard set of processes and sequences of process can b e adoted". Thus, continuous or flow production refers to the manufacturing of la rge quantities of a single or at most a very few varieties of products with a st andard set of processes and sequences. The processing is done through a sequence of operations which form a continuous movement or flow. The work flows through a series of interconnected operations in such a way that the material passes fro m one stage to another without waiting or interruption. Under high volume, stand ardised production, the operations form a sequence and the conveyors connecting different operations themselves act as storage space. Steel mills, automobile as sembly plants, chemical plants, oil mills, sugar mills, etc., are examples of co ntinuous production system. Characteristics. The main features of continuous production system are as follow s : (i) The volume of output is generally large (mass production), and goods are produced in anticipation of demand. Inputs Receiving Storage Processing s Operation Operations A INFORMATION AND CONTROL SYSTEM I t DECISION-MAKER Fig. 13.1 Production System (ii) The product design, the conversion process and the operations sequence a re standardised, i.e., identical products are produced. (Hi) Machines and equipment are arranged according to product layout patte. (iv) Special purpose automatic machines are used to perform standardi operati ons. (v) Machine capacities are balanced so that materials are feed at one end th e process and finished product is received at the other end. (vi) fixed path materials handling equipment is used due to the predetermine: sequence of operations. Merits and Demerits. The main advantage of continuous system is that worm-progres s inventory is minimum. As the processing of material is continuou: and progress ive, there is no waiting period. Each work is passed to the next stage immediate

ly after he previous operation is complete without waiting for the completion of work on the total batch. As a result costs of materials handling are minimised and full use can be made of automation. Few job instructions are needed and le ss storage space is required. Cost per unit can be minimised bv investing in spe cialized equipments. Continuous production offers the following advantages : (a) The quality of output is kept uniform because each stage develops skill through repetition of work. (b) Any delay at any stage is automatically detected. As a result there is a utomatic control of time and the direct labour content is reduced. (c) Work-in-progress is minimum on account of sequence balancing. (d) Handling of materials is reduced due to the set pattern of production li ne. (e) Control over materials, costs and output is simplified. The repetitive n ature of processes make production control easier. (f) Overhead cost per Unit is reduced due to spreading of large fixed costs of specialised equipments over a large volume of output. (g) There is quick return on capital employed. Continuous system, however, is very rigid and if there is a fault in one operati on, the entire process is disturbed. Due to continuous flow, it becomes necessar y to avoid piling up of work or any blockage on the line. Unless the fault is cl eared immediately it will force the preceding as well as the subsequent stages t o be stopped. Suitability. Continuous system is best suited to organisations which ijntend to produce a limited variety of products on a large scale. The heavy fixed costs of specialised equipments that are utilised for operating at low cost per unit tan be distributed over a high volume of output. Continuous production system can b e applied to those industries which satisfy the following requirements : (a) Uniform demand. The market demand for products should be stable and regular so that there is no piling up of stock. However, a provision should be made for balancing and adjusting demand. During peak demand, the production may be supple mented while during slack demand the material maybe stored. There should not be significant gaps between the rate of output an d the average level of demand. (b) High volume of production. Unless the volume of output is large enough o verhead costs of specialised machines may be very high. (c) Product Standardisation. The product must be standardised so as to permi t the use of same process and material and a steady flow of output. (d) Process balancing : There must be a proper balance between different sta ges of operation or production so at to maintain a uniform flow of product. Raw materials should also be easily available. Example Suppose there are ten stages in the manufacture of a product. In the first stage , the work content of the product is 3 hours and the capacity of the production unit is 250 per week and the working hours are 50 per week. Thus, work content per week = 250 x 3 = 750 hrs. 750 Number of operations required = 15 per hour 50 . , . 3 x 60 Time for each operation = 12 minutes 15 Now, if there are five stages, each stage should match with this time of 12 minu tes. In case, some stage involves less time, the production capacity of such a s tage should be increased to feed the idle time which is called 'synchronising lo ss.' (e) Material flow. In order to maintain the flow of work, correct quantity a nd quality of materials should be fed to the production process at the right tim e. (f) Preventive maintenance. The breakdown of one machine in the line results

into total stoppage of the production process. Therefore, preventive maintenanc e should be undertaken to minimise downtime and without waiting for breakdown of machinery. Continuous production is of the following types : (a) Mass Production. Mass production refers to the manufacture of standardised p arts or components on a large scale. Standardisation of materials, machines, pro ducts and processes is the basic feature of mass production. The parts manufactu red under mass production are combined in assembly line for making different pro ducts. Generally the degree of mechanisation and automation is high. The product ion process is continuous, and automatic machines are used. Mass production system is employed in many industries where the production is ca rried on without interruption. Electronics, electricals, automobiles, bicycles and container industries are a few examples of mass produc tion industries. Mass production system offers economies of scale as the volume of output is large. Quality of products tends to be uniform and high due to stan dardisation and machanisation. In a properly designee and equipped process, indi vidual expertise plays a less prominent role. Of course the exact quality level depends upon the quality control system and management policy of the plant. (b) Process Production. Under this type of flow production, production is carried on continuously through a uniform and standardised sequence of operations. Highly sophisticated and automatic machines are used. Process production is employed in bulk processing of certain materials. For example, crude oil is processed into petroleum, kerosene, diesel oil and gasoline. Similarly, sugarcane is processed into sugar and molasses. In the automobile industry process production is used i n making chassis. Chemicals, cement. etc. are other examples of process producti on industries. Plants employing process production system are known as 'process plants '. On the basis of the nature of production process, flow production may be classified into analytical and synthetic production. In analytical process of production a raw material is broken into different products. For example, crude oil is analysed into gas, naphtha, petrol, etc. Similarly coal is processed to obtain coke, coal, gas, ammonical liquor, coal-tar, etc. Synthetic process of production, on the other hand, involves the mixing of two o r more materials to manufacture a product. For instance, lauric acid, myristic a cid, plasmitic acid, stearic acid, linoleic acid, etc. are synthesised to manufa cture soap. In assembling process two or more components axe combined to manufacture a finishe d product. Manufactured parts are jokied into subassemblies or final assemblies. Such process is employed in assembling automobiles, radio sets, televisions, bic ycles, watches, cameras, etc. Fig. 13.2 Analytical Process

Fig. 13.3 Synthetic Process Raw Materials Parts 1 >Finished Product Fig. 13.4 Assembling process (c) Assembly Lines. Assembly line is a type of flow production which developed i n the automobile industry in the U.S.A. A manufacturing unit prefers to develop and employ assembly line because it helps to improve the efficiency of productio n. The use of flow production methods results in cost reduction. Assembly line i s particularly useful when a limited variety of similar products is to be produc ed on a mass scale or in fairly larpe batches on a regular or continuous basis. In any production system the most vital decision is the proper layout of assembl y line. The design of assembly line involves the proper balancing of technology

and other manufacturing facilities so as to develop a rational approach for opti misation of results. The assembly line design depends largely upon product dfesi gn and location of production. In order to develop an assembly line machines are positioned keeping in view the following considerations: (i) the rate of flow of work (ii) the direction of manufacturing operations (in) the convenience and comfort of operators or workers (iv) the availability of service facilities like water, electricity, compress ed air, oxygen, etc. (v) the supply and demand of materials. > In an assembly line, each machine must directly receive material from the previo us machine and pass it on directly to the next machine. Therefore, the location of machines is automatically regulated by the sequence of operations. Machines a nd equipment should be arranged in such a manner that every operator has a free and safe access to each machine. Space should be provided for free movement of fork lifts, trucks, etc. which deliver materials and collect finished products. The passage should not be blocked and workers must not be in danger of being hit by the moving trollies, etc. At the same time there should be economical utilisatio n of floor space. These days assembly line process is employed in assembling automobiles, radios, televisions, computers, videos and other electrical and electronic products. ^Intermittent Production According to Buffa, "intermittent production wide situations are those where the facilities must be flexible enough to handle a variety of products and sizes, o r where the basic nature of the activity imposes change of important characteris tics of the input (e.g., change in product design). In instances such as these, no single sequence pattern of operations is appropriate, so the relative locatio n of the operation must be a compromise that is best for all inputs considered t ogether." Under intermittent production the basic product design changes from ti me to time. Therefore, facilities, should be flexible enough to handle a wide va riety of products and of different shapes and size. Production facilities are ar ranged according to their functions so that functional skills and expertise can be concentrated on a specialised operation. Job type machine shops, batch type c hemical operations are examples of intermittent model. The main characteristics of intermittent production are as follows: The flow ofproduction is intermittent, not continuous The volume of production is generally small A wide variety of products are produced General purpose machines and equipment are used so as to be adaptable to a wide variety of operations No single sequence of operations is used and periodical adjustments are made to suit different jobs or batches. Functional or process layout is adopted The components are produced for inventory but they are assembled as per customer orders. enough to accoxnmodate variety of routes for different inputs. (iii) Trie skill and speed of each centre is different. In order to maintain a proper flow of work, it becomes, therefore, necessary to provide storage facili ty between different production centres. There must be sufficient flexibility of routes, volume and product design. Adequate storage between operations helps to make better utilization of men and machines. The distinction between continuous and intermittent system has nothing to do wit h the regularity of manufacturing operations. For example, a tomato cannery oper ates only a few months every year even though it is a case of continuous product ion. On the other hand, a job machine shop and a custom made furniture factory, both intermittent, may operate throughout the year. Intermittent Production may be of two types :

(1) Job production; and (2) Batch Production. ^o^JProduction Meaning. Job or unit production involves the manufacturing of a single complete unit with the use of a group -of operators and processes as per the customer's o rder. This is a 'special order' type of production. Each job or product is diffe rent from the others and no repetition is involved. Therefore, each job is indiv idually planned. The whole job is one operation and work is completed separately on each job. The product is usually costly and non-standardised*. There is abse nce of identical jobs and long runs on a singlejob. Jobs are carried out to the customer's specifications. Thus, job production consists of "the bringing togeth er of materials, parts and components in order to assemble and commission a sing le piece of equipment or product. Under job production, goodsVre produced to specific customer order. Customers do not make demand for exactly the same product on a continuing basis and. therefo re, production becomes intermittent. Each product is a class by itself and const iutes a separate job for production. Construction, jobbing functions, machine sh ops, printing press are common examples of job production. Firms engaged in subcontract, work such as tool making, machining, sheetmetal work and subassembly, u se job production system. It is also used in tailoring ship building, constructi on, etc. Characteristics. The main characteristics of job production are as follows: (i) The product manufactured is custom-made or non-standardised (ii) Machines and equipment are arranged or assembled at one place, i.e., fix ed position layout is used. (Hi) A wide range of general purpose machines like grinder, drill press, shaper, etc., is used. (iv) Volume of output is generally small. (v) Variable path materials handling equipment are used. Merits. Job production involves comparatively small investment in machinery and equipment. It is flexible and can be adapted easily to changes in product design . A fault in one operation does not result into complete stoppage of the entire process. Demerits. Job shop manufacturing is the most complex system of production. For i nstance, in building a ship thousands of individual parts must be fabricated and assembled. A complex schedule of activities is required to ensure smooth flow o f work without any bottlenecks. Many parts require operation time on the same ma chines even though the operations in the manufacturing cycle take place at diffe rent points of time. Optimum machine loading is, therefore, a very difficult pro blem. Raw materials and work-in-progress inventories are high due to uneven and irregu lar flow of work. Therefore, large storage space is required and material handli ng costs are high. Highly skilled machine operators are required for the efficie nt performance of setting up and operating tasks. Work loads are unbalanced. Lab our and equiment must be flexible to accommodate the continuously changing produ ction. There is often inefficient utilisation of labour and plant. Speed of work is slow and unit costs are high. Thus, job shop production is applicable here custom-made products are to be prod uced on a small scale. Batch Production Meaning. Batch production has beefi defined as "the manufacture of a product in small or large batches or lots at intervals by a series of operations, each oper ation being carried out on the whole batch before any subsequent operation is pe rformed." In this type of production, the work on any product is divided into few operatio ns and each operation is completed for the\whole lot before proceeding to the ne xt operation. Each batch contains identicalxitems but every batch is different f rom the others. A fixed quantity or batch rather than continuous supply is requi red. A particular operation on a batch is performed by one group and then it is passed on to other groups for subsequent operations. For example, the printing o

peration may be done by one group, the jobbing work by another, and so on. Gener ally, one group completes the operation on the whole lot before it is passed on to the next group for subsequent operation and a part of the lot is not transfer red. Thus, batch production is a mixture of mass production and job production. Under it machines turn out different products at intervals, each product being produc ed for comparatively short time using mass methods. Industrial blowers, electric motors, book printing, export production, machine t ools are usually done by batch system. In batch production, machines and other f acilities become available for the production of another batch after the product ion of a particular batch is completed. Both job production and batch production are similar in nature except that in ba tch production the quantity of product manufactured is comparatively large. Char acteristics: The essential features of batch production are given below: (i) A large variety of products are manufactured in lots or batches. (ii) Both general purpose machines (for producing parts) and special purpose machines (for assembling the parts) are used. (iii) Variable path materials handling equipment is used (iv) Machines and equipment are arranged according to the sequence of operati ons, i.e., process layout is used. Merit and Demerits. Batch production combines the features of both flow producti on and job production types. Some degree of specialisation is possible and capit al investment is comparatively low. But work-in-progress inventory is high and l arge storage space lis required. Due to frequent changes in product design no st andard sequence of operations can be used. Machine set-ups and tooling arrangeme nts have to b^ changed frequently. The main problem in batch production is the idle time between one operation and the other. The work has to wait until a particular operation is carried out on t he whole batch. For example, assume that a particular batch is processed through four stages. The first unit of a batch undergoes the first operation within one week but it h as to wait until four weeks when the first operation on the whole batch will be completed. Similarly, after each operation waiting or rest time is involved. Suc h delay results in substantial work-in-progress and considerable time lag in pro duction. As a result investment is high and return on capital employed is low. S ometimes, a buffer stock may have to be maintained in order to ensure operating flexibility and effective use of resources. A proper balance must be arrived at between investment in material and investment in other resources. Suitability. B atch production is applied when either the volume of output increases resulting in some repetitiveness or the market demand is not uniform throughout the year. In the latter case occasional discontinuity in production occurs as switching to other product becomes necessary. 13.3 ORGANISATION OF PRODUCTION FUNCTION A sound organisational setup is essential for efficient management of the produc tion function. The exact nature and type of organisation structure for productio n will differ from one manufacturing enterprise to another depending upon the si ze of the enterprise, nature and types of product, the degree of specialisation desired, production system and process used, type of technology employed, degree of integration, management policy, etc. For example, a large firm may have a se parate research and development section which may not be possible for a small fi rm. A typical organisation of production is given in Fig. 13.5. This chart sets out the functions rather than the titles of the persons carrying out the activit ies. In a small firm, one manager may carry out purchasing, planning, supervisor y and control activities himself. In a large firm there may be a separate manage r for each of these activities. Whosoever carries out the work, the functions sh own will usually be present in some form or another. It must be noted that this organisational setup is not rigid. It must be modifie d to suit the needs and circumstances of the particular enterprise. For example, purchasing function has been shown as a part of the production department. In a very large enterprise, purchasing may be a separate department. Similarly quali

ty control may be put under production planning and control in a small enterpris e. Production function may be organised on line, functional or line staff princi ples. The nature of various activities forming part of the production function i s not similar. For instance, product designing, plant engineering and maintenanc e, etc., are generally staff activities, i.e., they seek to provide advice and s ervice to manufacturing. Some activities of the production department may be per formed with the help of service departments. In a service department, certain sp ecialised common services required by several departments or the entire enterpri se are centralised. For example, recruitment and training of production personne l is done by the personnel department. , It must be understood that the same activities/are necessary in a small factory as in a large one. The main difference is that in a large plant separate departm ents perform the specialised functions which may be carried by an individual in a small plant. The production department may be divided into three broad sections which are des cribed below: 1. Section which compiles and records information. This section collects an d disseminates all the relevant data concerning plant, equipment, labour, stock, etc. Systematic reports are supplied to facilitate efficient planning and contr ol of manufacturing and allied operations. This section should provide informati on pertaining to : (a) Likely demand and the orders received from customers. (b) Stock of materials and components. (c) Plants and equipments available. (d) Capacity of such plants and equipments. (e) Operations, processes and times involved in production. 2. Section concerned with planning operations. This section is responsible for formulating production plans and schemes. It lays down standards and designs . This section also establishes methods of observation, inspection and reporting . 3. Section that translates plans into performance and controls results. Thi s section issues instructions for the execution of plans. It checks performance at regular intervals and takes necessary corrective measures to secure improved results in future. Board of Directors Managing Director Works Manager Research and Development (Product Engineer) Product design and Basic Research development Quality Control Manager Control (Expediter) Testing Cost Accountant Production Planning and Control Product Operation Dis- Testing Standards patcher Plant/Factory Manager Plant/Factory Engineering Process Tool Installation and Layout Work designing designing maintenace engineer study (Plant and (Methods) Plant Services Manager Purchasing Stores Inventory Control Materials handling (receiving and shipping engineer equipment)

Machine Shop Foreman Foundry Foreman Heat Treatment Welding Foreman Assembly Foreman

WORKERS Fig. 13.6 Organisation of Production The various activities included in the organisation of production may be classif ied into three categories: (1) Manufacturing processing of the product (foremen and workers). (2) Ancillary or auxiliary functions activities supporting manufacturing (purc hasing, storage, maintenance, etc.) (3) Advisory functions-activities that provide advice and guidance (method s tudy, quality control, etc.). Sound organisation of production provides the following benefits: (a) Division of activities. There is logical grouping of different activitie s. (b) Specialisation. Expert and trained employees can be employed for each fu nction. (c) Clearcut authority. The structure indicates the functions on which a par ticular manager has authority. Lines of authority identify the subordinates repo rting to a manager and the superiors to whom he is expected to report. (d) Fixation of responsibility. The structure indicates the responsibility o f each employee in the dapartment. (e) Higher efficiency. A sound organisational setup eliminates duplication o f work and overlapping efforts, leading to efficiency. (f) Personnel identity. Each employee knows his position in relation to othe r employees in the organisation. (g) Coordination. Logical grouping of activities and systematic division of work facilitate coordination between different activities. 13.4 RESPONSIBILITIES OF THE PRODUCTION MANAGER The overall responsibility of the production manager is to ensure that right typ e (proper quantity and quality) of products are manufactured at the right time a nd at the right cost. In addition to being responsible for satisfying quantity r equirements and meeting stipulated delivery dates, the production manager is als o responsible for the quantity and cost of the plant's output. Quality and cost of output is affected by production methods and processes. Therefore, production manager is concerned with plant layout, materials handling, work procedures, in ventory control, etc. In brief, the production manager is directly involved in the areas of production planning and control, quality control, work study, plant layout, materials hand ling, inventory control, work measurement, purchasing and product design and dev elopment. Production manager is the executive head of the production department. He is expected to maintain close co-operation and liaison with other department s, e.g., marketing, financing, personnel, etc. 13.5 RELATIONSHIP OF PRODUCTION WITH OTHER FUNCTIONS A business enterprise is a system and its different components or subsystems are interrelated and interdependent in such a way that a change in one part influen ces the other parts and the business system as a whole. According to M.K.Starr " modern production management cuts across departmental and divisional lines. It r ecognises the existence of other viewpoints, such as those of marketing and fina ncial management. In addition it is cognisent of the fact that these other- poin ts of view cut across many elements that are fundamentally in the domain of prod uction". This interrelationship between production and marketing is briefly desc ribed here : Production and Marketing. Production function has the most direct and intimate r elationship with the marketing function. At every stage, right from the product

idea down to after sale service, production and marketing have to work together. Several decisions in production and marketing are based on common premises and inputs. Product design, size and quality have to be determined keeping in view t he needs and preferences of the customers. Similarly, the marketing department s hould consult the manufacturing department while taking decisions on introductio n of new products, improvement of existing products and elimination of obsolete or slow-moving products. There are several areas in which both the departments s hould integrate and co-operate their efforts. For instance, new product ideas em anating from the research laboratory attached to production may be taken up by t he marketing department to build tip potential customers. On the other side, pro duction department may furnish details of the distinct technical features of pro duct to provide new ideas for sales promotion campaigns. Despite close interrela tionship and interdependence, there is often a lack of cooperation and coordinati on between production and marketing departments. The main cause of such conflict is the differing perspectives of the two departments. The production department prefers to handle a small variety of standardised products for the sake of econ omy of operations and ease of production planning and control. On the other hand , marketing people prefer a wide variety of products to attract a large section of customers. Capacity planning, product mix, quality control, cost control, inv entory levels and introduction of new products are the main areas of conflict be tween production and marketing. "Coordination and integration of the efforts of marketing and manufacturing will result only if the managers of these functions accept common aims and participate in putting together and accepting common poli cies. These policies and aims can be generated if the two functions will learn t he requirements of each department." 13.6 PRODUCTION MANAGEMENT Production management is concerned with planning, orgainsing, directing and cont rolling of production systems so as to produce goods of desired quality at minim um cost and at the right time. It involves decision-making concerning production processes in order to produce goods or services according to specifications of quality at minimum cost and as per the demand schedule. Production management de veloped in the factory largely after the Industrial Revolution. Prior to the modern factory system, the production system and proces ses were very simple. With the advent of the factory system, several decision-ma king problems arose, e.g., location and layout of physical facilities, control o f output quality, scheduling of operations, maintenance of facilities, etc. Prod uction management coordinates the different elements of the production function, most important of which is the production process. Production management takes decisions as to the selection and design of production process, in order to prod uce desired goods at minimum cost and at the right time. In a factory, workers c onvert materials into saleable products with the help of conversion activities l ike shaping, altering, repairing, etc. The scope of production management is very wide. It comprises all activities rig ht from design and layout of production facilities till finishing the product fo r despatch to warehouse or customers. Production managemen looks after each and every step in the process of production. It involves the eatablishment of standa rds, the choice of equipment and tools, the controls of cost and quality and the evaluation of performance. Production management establishes a harmonious relat ionship between the product, the paint, the conversion process and the people so as to achieve pre-determined targets. In modern industry there is cut-throat competition at every stage. Therefore eff icient production has become a very significant element in the success of busine ss. Production implies creation of utilities which takes place when raw ' materi als are converted into finished products. Planning and control is necessary for efficient transformation of raw materials into finished products. Effective plan ning and control of the transformation process is the task of production managem ent. According to Brech, "production management then becomes the process of effe ctively planning and regulating the operations of that part of an enterprise whi ch is responsible for the actual transformation of materials into finished produ cts.'"

Production management consists of the following activities: 1. Designing products and packages. 2. Production engineering. 3. Production planning arid control. 4. Purchasing and inventory control. 5. Rapairs and maintenance. 6. Quality assurance and control. Production management requires decisions in the following areas : Long Run Decis ions (1) Plant location and layout. (2) Product design and development. (3) Plant engineering equipment and tools design, manufacturing techniques and process design. (4) Industrial engineering work study, job design, methods engineering, etc. S hort Run Decisions (5) Capacity management demand forcasting, delivery schedule, resource allocat ion, capacity planning. (6) Production planning and control input planning, scheduling, dispatching, e xpediting. (7) Quality control - Specifications, standards, inspection and testing. (8) Inventory management -purchasing, storekeeping, recording, inventory con trol. (9) Maintenance-repairs, servicing, replacement, preventive checking. (10) C ost control and labour control 13.7 MEANING PRODUCTION PLANNING Production planning is concerned with deciding in advance of action what is to b e produced, when, where and how. It involves foreseeing every step in the proces s of production so as to avoid all difficulties and inefficiency in the operatio n of the plant. Production planning has been defined as ' 'the technique of fore casting or picturing ahead every step in a long series of separate operations, e ach step to be taken in the right place, of the right degree, and at the right t ime, and each operation to be done at maximum/efficiency" . In other words, prod uction planning involves looking ahead, anticipating bottlenecks and identifying the steps necessary to ensure smooth .and uninterrupted flow of production. It determines the requirements for materials, machinery and man-power; establishes the exact sequence of operations for each individual item and lays down the time schedule or its completion. Production planning involves management decisions relating to how much to produc e, what materials, parts and tools will be needed, what steps should be followed in the production process, within what time limit the production is to be compl eted and how much work is to be done by each work station. Production planning i s a preproduction activity involving arranging facilities and designing the prod uction system. It is based on sales commitments as to quantity, delivery dates, price, quality etc. Thus, production planning is the 'thinking' phase of the production process. The main decisions required in production planning are ; (a) Designing the product. (b) Choice of technology. (c) Determining capacity and equipment requirements. (d) Planning the layout of physical faci lities. (e) Designing the materials handling system. (f) Routing and scheduling of operations. (g) Installing quality assurance systems. The basic objective of production planning is to create and develop physical fac ilities that best suit the company's goals. Production planning lays down the foundation of production activities. It transl ates sales forecasts into production plans and procedures. It helps to focus att ention on the goals of the production department. Secondly, by anticipating prob lems and charting out the future course of action, production planning reduces u ncertainties in the production system. Thirdly, it ensures regular supply of req

uired materials and other inputs as and when required. Fourthly, production plan ning helps to achieve optimum utilisation of available plant facilities. Fifthly , it helps to ensure the supply of goods to the customers at the delivery dates promised by the enterprise. Sixthly, production planning facilitates coordinatio n between different individuals and groups working in the production department. Lastly, it serves as the basis of production control by which actual performanc e is to be evaluated. The importance of production planning has increased. Complex production operatio ns, wide range of products, pressures for higher quality, growing number of supp liers, technological progress, etc. have made production planning an essential b ase of industrial operations. There is no substitute for production planning as lack of planning means chaos in industry. 13.8 ELEMENTS OF PRODUCTION PLANNING The main elements or functions of production planning are as follows: 1. Estimat ing : First of all, the volume of production is decided through capacity plannin g. The product to be produced is decided on the basis of market requirements. Th e product design is analysed to determine the materials, tools, parts and labour requirements. A bill of materials is prepared to specify the nature and amount of materials required. Inventory levels for materials are decided and purchase r equisitions are designed. A bill of materials serves the following uses : (a) Purchase Department. The bill of materials serves as a purchase requisit ion. (b) Stores Department. The bill of materials serves the purpose of a materia l requisition to the storekeeper. The storekeeper will issue the materials as sp ecified by the foreman. (c) Production Department. The bill of materials serves the purpose of work order to the production department thereby saving time and effort. (d) Costing Department. The bill of materials serves the purpose of a materi al consumption statement. On its basis the cost accountant can immediately calcu late the cost of direct materials in respect of each work order or job even befo re completion o.f /he job. A specimen of the bill of materials is given below : ABC CO. LTD. Bill of Materials No._ For Order No. Part No. Date Item No. Code No. Description Type of material Quantity required Remarks \ \ \ For Purchase Department Drawing Office Copy Purchase requisition Prepared by .... No. and Date Purchase order Checked by : No. and Date 2. Routing : Routing is the process of determining the sequence of operations to be performed in the production process. The methods and techniques of productio n are decided. Routing determines what work will be done on a product or part as well as where and how it will be done. It specifies the operations to be perfor med, their sequence and the proper types of machines, equipment and personnel re quired. The objective of routing is selecting the best and the cheapest method o f work. Routing depends upon the nature of machines, the efficiency of employees , the availability of physical facilities and the type of manufacturing process. In a continuous process industry, route is standardised and fixed. But in a job order shop, every lot must be separately routed. Route is the path over which m aterials will travel in the course of their conversion into finished product. It denotes the flow of work and is required for proper loading of machines and sch eduing of operations. Through routing every step in the process of production is defined. Separate route sheets may be prepared for the main product, the subasse mblies and each of the individual parts which are to be fabricated. A Route Shee

t or Route Chart is a written specification of the sequence of operations. It la ys down the precise route through the plant that the given product will follow. A route sheet contains the following information : (a) the operations required and their desired sequence; (b) machine or equipment to be used for each operation; (c) estimated setup time and run time per piece; (d) detailed drawings of parts, sub-assemblies and assemblies; (e) specifications, dimensions, tolerances, quality, etc.; (f) requirements of tools, jigs and fixtures; (g) machine and labour standards. Route sheets are very useful in guiding operation for each part. They can be use d for the calculation of schedule times for each production order and for record ing progress through production. A typical route sheet is given in Fig. 13.6 : A route sheet also serves as a travelling instruction to guide the foreman and w orkers when and where to deliver the parts for the next operation. CAD/CAM can b e used to prepare route sheets. Thus, routing involves the planning of what work shall be done, the determinatio n of the path that work shall follow and the necessary sequence of operations. I t forms the groundwork for scheduling and dispatching functions. Routing procedu re consists of the following steps : (a) An analysis of the product to determine the materials and parts required for its manufacture. (b) Determination of the manufacturing operations required and their sequenc e. (c) Determination of lot sizes, i.e., the units to be manufactured in each l ot or order. (d) Deciding scrap for each stage of production. (e) Preparing production orders, job cards, labour cards, inspection cards, tool tickets and other forms. o X Time Period (In Hours) Fig. 13.6 Route chart (f) Analysis of the estimated cost of manufacturing the product. * - >1 PART NO. 2 SUB-ASSEMBLY A FINAL ASSEMBLY PART NO. 3. PART NO. 4. SUB-ASSEMBLY B

3. Sequencing : Routing requires detailed knowledge of products and product ion facilities. With the help of such knowledge the sequence of operations is de cided. Sequencing decides the operations to be performed, their order and the ma chines on which they will be performed. Proper sequencing ensures smooth and uni nterrupted flow of work. Proper routing and sequencing also helps in minimising delays, wastage and materials handling costs. With the help of proper plant layo ut, sound materials handling system and an integrated routing plan, the firm can avoid multiple handling, delays, criss-crossing, bottlenecks, etc. Manufacturin g Lead Time : It is the time interval required from the date of receiving a cust omer order upto the date of despatch of goods. It can be determined by estimatin g in detail the time involved in processing of order, preparing the work order, communicating to the shop floor, withdraw! of materials from stores, processing of materials, allowances for any unexpected interruptions, etc. Proper estimatio n of manufacturing lead time will help to ensure that every order is completed a t the earliest, machines are loaded properly, and realistic delivery dates are f ixed. It also helps to enhance customer goodwill through timely delivery of prod uct. Customers attach considerable significance to delivery schedule while placi

ng orders. A long lead time may driv/e away the customers whereas a very optimis tic estimate that cannot be fulfilled will spoil the firm's reputation. Accurate estimation of lead time is very essential for just in time manufacturing. PERT and CPM techniques are used where the order represents, a long duration manufact uring spread over several months. 4. Scheduling. Scheduling involves fixing priorities for different jobs and laying down the starting and finishing dates for each job. It involves the prep aration of a time table which would indicate the total time needed for the manuf acture of a product as also the time expected to be spent on each machine or ope ration. It is concerned with when work shall be done. Scheduling process covers all aspects of the timetabling of production. A production or operation schedule specifies when each operation or process is to be carried out. The objective of scheduling is to issue coordinated schedules to the plant so that the product i s manufactured by the delivery date planned by the sales department. Lack of inf ormation concerning existing workload, lead time, manufacturing time is the main obstacle in good scheduling. Scheduling ranks the job in order of its priority and then provides for its rele ase to the plant at the proper time and in the correct sequence. While preparing schedules, the types of orders and their promised delivery dates must be taken into consideration. Some orders may require overtime work as they are to be deli vered soon. Such rush orders should be given priority over repeat orders which c an be scheduled for completion in the normal course. Non-availability of physica l facilities, materials, parts and required labour serve as the main constraints in scheduling. Scheduling begins with the preparation of a master schedule which represents the overall production programme of the plant for a given period of time. It shows weekly or monthly breakup of production. It indicates the dates on which the var ious jobs have to be completed. Master schedule is prepared on the basis of sale s forecast, route sheet, loading chart and promised delivery schedule. The Gantt Chart type of master schedule is very popular as it facilitates both planning a nd follow-up of the progress of work. A sample master schedule is given below: Production Planning Department Master Schedule Date of Issue: 15-7-96 Product : M 170 Dept: Welding Schedule'No.: M/3 Type Line Required for week ending 21/7 28/7 4/8 11/8 18/8 25/8 2/9 M 170 A 50 55 45 58 M 171 B 45 50 55 M 173 B 50 45 55 M 175 A 56 /58 Fig. 13.7 Master Schedule From the master schedule, detailed shop, departmental and daily operation schedu les are prepared. These schedules help to implement the master schedule. Shop an d departmental schedules should be dovetailed into the master schedule as planne d. In order to ensure coordination, controls must be established at critical poi nts. These controls are accomplished in the detailed schedules for shops and dep artments. Thus, three types of schedules are required for scheduling : (a) Master Schedule. It is the aggregate schedule indicating the dates on wh ich various jobs are to be completed. (b) Departmental Schedule. It fixes the time period within which' a particul ar work or operation is to be completed. (c) Daily Operation Schedule. It indicates the time required to perform each detailed operation on a given job. Gantt charts are used for the purpose of scheduling. These charts measure progre ss against the schedule, the loads on individual machines and the availability o f equipment. The plans and progress against plans are plotted in relation to tim e. Aggregate scheduling, priority planning, facility loading, sequencing and eva

luation of workload are the main elements of scheduling. Preparation of producti on schedule takes into account several factors : various job schedules production capacities and operating efficiencies of various departments maintenance schedule orders already in progress possible holidays, interruptions and absenteeism availability of raw materials. Effective scheduling is essential for efficient production. It helps to meet del ivery commitments, to balance production loads, to minimise inventory level and to maximise utilisation of men and machines. Master production schedule serves t he basis of the manufacturing plan. Scheduling is, however, a difficult exercise because several conflicting objecti ves/ factors have to be considered e.g. due dates, flow times, cost minimisation , flexibility to take care of unexpected situations, full utilisation of capacity. Several techniques such as simulation, linear programming,, gantt charts, criti cal path network, flexible manufacturing system and cellular manufacturing syste m are used for scheduling. Scheduling problems can be tackled by taking the following steps : (a) deleting low contribution products to develop a compact product range fbj deleting low va lue parts (through value engineering) so as to reduce variety (c) better coordination between production and marketing (d) better utilisation of manpower and equipment (e) developing sub-contractors to handle peak loads. The main methods of sch eduling are as under : (i) Forward Scheduling : It determines start and finishing dates for the nex t priority job assigning it the earlies+ available time slot. It is generally us ed for products involving little assembly work but to be supplied as soon as pos sible. It results in faster completion of job but may lead to accumulation - of inprocess inventory. (ii) Backward Scheduling : In this method completion dates and starting dates are fixed from required delivery date. It helps to minimise inventory but may c ause delay in completion of work. It requires accurate lead time estimates and b ill of materials. (Hi) Priority Scheduling : Under it, the order priority for shopfloor operations is decided. (iv) Serial Scheduling : Priority sequence of order is decided. (v) Parallel Scheduling: Orders are loaded on the basis of resource availabi lity and priority order sequence. The purpose is to maximise use of machinery. 5. Facility Loading. Loading means the assignment of specific jobs to specific m achines for the purpose of completing each operation by the specified date. Load ing is the process of converting operation schedules into practice. Scheduling g ives the estimated date for completion of work whereas loading determines the fe asibility of these dates. The loading process consists of computing the time to do the job, ascertaining the bottleneck operations and scheduling the subsequent operation consistent with the Route Sheet. Available capacity should be fully ut ilised in loading. Steps involved in loading a machine or other facility are as follows : (a) Find out the estimated time to perform each operation. (b) Find out the availability of various machines. (c) Identify the earliest date when the required hours can be utilised on a given ' machine. (d) Schedule the bottleneck operation as early as possible. (e) Schedule subsequent operations as early as possible consistent with the route sheet. Loading is a detailed exercise requiring data concerning time required of differ ent machines and their availability. Allocation of work to specific machines hel ps to complete each operation in time. The purpose of loading is to ensure optim

um utilisation of production facilities and to avoid bottle necks in operations. Proper loading offers the following benefits : (i) maximum utilisation of equipment and labour (ii) meeting target dates of production (iii) evaluating capacity expansion needs (iv) improvement in morale. Machine loading determines the workload of each machine i.e. the work to be perf ormed on a machine. When the workload is equal to the capacity of a machine, the machine is said to be fully loaded. If the load is lesser than the capacity, th ere is underloading. When the work-load is more than the capacity, the machine i s overloaded. Such imbalances in loading can be corrected through the following methods : (i) Infinite Loading : In this approach jobs are loaded from production schedule on the assumption that capacity is available to take up work. Actual current lo ading is illustrated and evaluated with the help of Gantt charts and load diagra ms. A load chart is given in fig 13.8. Fig. 13.8 Load chart

MANAGING PRODUCTION Fig 13.8 shows there are four work centres on which jobs are to be processed. Th ese are A, B, C and D. The chart indicates total estimated workload required at each job centre. It also depicts where the load is accumulating. Employees may b e shifted from underloaded work centres to overloaded work centres. A visual load profile may be drawn to find the balance between load and capacity . Fig 13.9 shows that loads for prospective or planned orders exceed capacity fo r some weeks while for open orders there is capacity available for further loadi ng except for one work. In cases of overload, work may be shifted to other centr es. Planned capacity -Work plfflM i mi Open orders Fig. 13.9 Visual Load Profile of a Work Centre (ii) Finite Loading : It is a combination of sequencing, scheduling and loading. First of all the capacity and jobs for a work centre are specified. Then the ca pacity is allocated to the jobs on the basis of starting and completion time. A detailed schedule for each job and work centre is prepared Jobs are then allocat ed to the work centre hour by hour and day by day. fig 13.10 illustrates finite capacity loading. orders Fig. 13.10. Finite capacity Load Profile for a 700 labour hours capacity centre The procedure of loading depends on the nature of manufacturing process and the desired degree of control. In continuous manufacturing, the problem of loading i s to match the plant capacity with demand. Therefore, flow control system is use d to load machines and equipment. In mass production of single product, e.g., ce ment plant, some production facilities are shut down or activated to meet fluctu ations in demand. In assembly line production loading is more complex as several product lines have to be balanced. Sophisticated loading procedures are require d to properly coordinate and control inputs and outputs so as to ensure proper u tilisation of the main assembly line. In batch production several components are produced in small lots for final asse mbly. As orders vary in size and form, machines operate for short time. Short pr oduction cycles flow from one work centre to another. Machines are loaded on the basis of orders. Order control is used to minimise shopfloor inventories. In custom made production, the existing order will be completed before a new ord er is taken. No finished inventory is carried and the problem of loading becomes

complicated. 13.9 MEANING OF PRODUCTION CONTROL Production control involves implementation of production plans or schedules by c oordinating different activities. It seeks to ensure that production operations and actual performance occur according to planned operations and performance. Pr oduction operations are constantly evaluated, guided and directed along the plan s formulated by the planning department. Production control endeavours to give t he best possible service, consistent with available capacities, and at the same time to secure the lowest possible cost. Production control and production plann ing are closely interrelated. Production planning serves as the basis for produc tion control which in turn ensures that production plans are converted into perf ormance. Production Planning and Control Production Planning (Plan your work) Estimating Routing Scheduling Loading Production Control (Work your plan) Despatching Expediting Corrective action Fig. 13.11 Elements of Production Planning and Control Thus, production planning and control is "the process of planning production in advance of operations, establishing the exact route of each individual item, par t or assembly, setting starting and finishing dates for each important item or a ssembly and the finished products, and releasing the necessary orders as well as initiat ing the required follow-up to effectuate the smooth functioning of the enterpris e."1 Production planning serves as the bedrock of production control. Production control in turn ensures successful execution of production plans. Production pl anning and control is the most important tool of production management for maxim ising efficiency of operations. It serves as the nervous system of production. The basic purpose of production planning and control is to ensure that the produ ct shall be produced in the best and the cheapest method, that it shall be of th e required qual ity and that it shall be produced at the right time. The specifi c objectives of production planning and control, are as follows : (i) to ensure that production targets are met. (ii) to ensure smooth production by removing problems and bottlenecks in the production process; (Hi) to coordinate machine and labour for optimum utilisation of resources; (ivj to guide purchase and supply of materials to suit production rate; (v) to minimise cost of production and to maintain quality of output; (vi) to ensure that jobs are completed in time and the delivery schedule is m aintained. (vii) to minimise idle time, overtime and inventory costs. ; I 13.10 ELEMENTS OF PRODUCTION CONTROL Dispatching Routing and scheduling are preparatory steps. Actual production starts when perm ission is granted to commence operations according to plans already laid down. I n dispatching orders are issued in terms of their priority and work is assigned to operations. Dispatching in effect determines by whom the work shall be done. Dispatching involves giving the necessary authority to start the work as per the schedule. Work orders and authorisations are issued to the production departmen

t to perform the work according to planned sequence, using prescribed tools and predetermined schedules. The dispatching department issues requisitions for mate rials and tools on the production order and checks to see that the materials, pa rts and tools, are available in time. Adequate instructions are given and work s chedules are released to the production department in a coordinated manner. Disp atching is the initiating phase of production planning and control. It translate s production plans into output. Orders are issued for the movement of materials, parts and tools to work centres as well as for inspection and recording of work done. The dispatch section of the production planning and control department is respon sible for the following : (a) Collecting and then issuing to supervisors the drawings, specifications, materials lists, job tickets, route cards, requisitions, etc. 1 W.R. Spriegal and Lansburgh : Industrial Management, p. 36.1. (b) Ensuring that materials, parts, tools and other aids are made available tc the manufacturing departments at the right time.. (c) Obtaining inspection schedules and issuing them to the inspection sectio n (d) Informating the progress section that production is commencing. (e) Releasing work orders for the start of manufacturing operations. (f) At the end of manufacture, ensuring that all the drawings, layouts and t ools are returned to their appropriate places. Dispatching may be centralised or decentralised depending upon the size of the e nterprise, nature of the product and the policy of management. In centralised di spatching, detailed orders and instructions are sent from the central dispatch s ection directly to every machine or work-centre. The section has detailed inform ation about the capacity and characteristic of each and every machine. It sends detailed instructions and the foremen are required to. implement them. Under dec entralised dispatching, a work order is issued to the foreman by each work-stati on who determines the relative sequence in which the orders are to be carried ou t and issues detailed instructions to each operator in his department. Centralis ed dispatching ensures coordination and control but provides little scope for in itiative and flexibility on the part of foremen. Decentralised dispatching minim ises red tape and duplication of posting but makes coordination and control diff icult. In practice, usually a centralised-cum-decentralised dispatching system i s used because it avoids delays, eliminates elaborate reporting and is flexible enough to accommodate rush orders. It also provides sufficient discretion to the foreman to carry out the order in the way most appropriate to the particular wo rk-station. Progressing or Expediting or Follow-up Progressing is ensuring that the work is earned out as planned and delivery date s are met. The objective of progress control is to control variation? or deviati ons from the programmed level. It ensures that production is proceeding accordin g tr nlans. Some form of continuous follow-up procedure is created to monitor pr ogress of work and to chase or expedite the work centres falling behind schedule . Progress chasers or expeditors (clerks in charge of follow-up function) are em ployed for this purpose. Their duties are as follows : (a) to determine the causes of deviations from the programrhe; (b) to assist in removing the problems causing the deviations; (c) to maintain liaison with other departments supplying materials and compo nents; (d) to authorise and sign requisitions; and (e) to prepare a list of materials and components which are in short supply. Progressing consists of the following activities : (i) watching progress of work and reporting actual facts and conditions and devi ations, if any; (ii) physical control of work in progress through frequent checking; (iii) expediting corrective action in case of deviations so that bottlenecks a re removed at the earliest possible moment. Need for expediting may arise due to several reasons, e.g., delay in supply of m

aterials, excessive absenteeism on the part of workers, changes in specification s or delivery dates by customers, breakdown of machines or tools, errors in draw ings, etc. Follow up also involves a human relations aspect. Where there is breakdown of a machine, the supervisor is likely to be initiated. If the expeditor contacts the supervisor in this situation he might find the supervisor impatient and non coo perative. Therefore, the expeditor has to adopt a sympathetic and helpful approa ch so that the supervisor feels that the expeditor is there to help him rather t han obstruct. Corrective Action. After the causes of delays and deviations are identified, nec essary action is taken to rectify the problems. This is the keynote of productio n planning and control. It is by corrective action that control over manufacturi ng operations is maintained. Jobs may be shifted to other machines or work stati ons, overtime may be authorised and steps may be taken to work back on the origi nal schedule. Replanning may be necessary to revise routes, loads, schedules, etc., due to cha nges in manufacturing and marketing conditions. When the work schedules are upse t due to indiscipline or p6or performance training, transfer and motivation of s taff may be required. 13.11 BENEFITS OF PRODUCTION PLANNING AND CONTROL Production planning and control is one of the most important phases of productio n management. As a systematic and rational approach towards production, producti on planning and control has several benefits. It serves as the nervous system of a plant and helps to coordinate all phase^of the production system. An efficien t system of production planning and control results in higher quality, lower cos ts, better customer service and lesser investment. It is the focal point of prod uction cycle that regulates the pulse of operations in the plant. It is not a lu xury to be employed only by large plants but an important tool for efficient and economical production in every enterprise. The main benefits of production plan ning and control are described below : 1. Lower investment: Production planning and control helps to minimise capi tal investment in inventories and equipment. It makes for an even flow of work f ree from bottlenecks. Timely supply of inputs and co-ordination of operations en sures best possible utilisation of physical and human resources. Idle stocks and unutilised capacity are reduced because everything is planned well in advance o f operations. 2. Reduced unit cost: An efficient production planning and control-system r esults in minimum wastage of materials, time and other resources. Planning and c oordination avoid work stoppages. As the flow of production is evenly matched with the promised delivery schedules or anticipated demand rusn orders anc overt ime work are minimised. Planned sequence of operations provides the bes: and che apest method of production. Efficient use of resources results in higher product ivity and economy of operations. 3. Customer satisfaction : Proper scheduling and follow up of work helps in meting the promised delivery dates. Goods of proper quality and in right quanti ty are supplied to customers. Timely delivery and right quality customers" confi dence, improves customer relations and secures repeat orders. 4. Employee morale : Avoidance of bottlenecks and even flow of work tends t o improve relations with employees. They know in advance what, when and how the work is to be done and, therefore, their morale is likely to be high. Stability of employment and safety in work result in mutual understanding and cooperation between management and labour. 5. Competitive strength : A sound system of production planning and control enables an enterprise to improve sales turnover, market share and the volume of profits. The enterprise can better face competition and depression on account o f balanced inventories and higher flexibility of the production system. 6. Public relations : Every organisation that keeps its operations in an or derly manner is looked upon favourably by the public. High productivity, suffici ent profit, industrial harmony and customer satisfaction result in a good public image of the enterprise.

13.12 LIMITATIONS OF PRODUCTION PLANNING AND CONTROL Production planning and control is no doubt indispensable for efficient manageme nt of production. But it suffers from the following draw backs: (i) Production planning and control is based on certain assumptions or forec asts about customers' orders, plant capacity, availability of materials and powe r. If these assumptions or forecasts go wrong, production planning and control b ecomes ineffective. (ii) Production planning and control may create rigidity in the working of th e plant. Once the production plans are laid, employees may resist changes. (ii) Production planning is a time consuming process. During urgent delivery of goods and other emergencies it may not be impossible to go through production pl anning process. (iv) Production planning and control is a costly device. Small firms cannot a fford to employ specialists for the efficient performance of routing, scheduling , loading, dispatching and expediting functions. (v) Production planning and control becomes ineffective in a turbulent envir onment. Many external factors beyond the control of the production manager obstr uct effective planning and control of production. Breakdown of power, changes in fashion and technology, natural calamities, government control, etc. are some s uch factors. SUMMARY Production system consists of inputs, transformation process and outputs . Flow, intermittent, job and batch are types of production systems. Estimating, routing, sequencing, scheduling and loading are the elements of production planning. Dispatching, expediting and correcting are the elements of production co ntrol. Lower investment, reduced unit cost, customer satisfaction, competitive strength and public image are the benefits of production planning and control. Assumptions, rigidity, time consuming, expensive and external forces are the limitations of production planning and control. TEST QUESTIONS 13. What are the objectives of production planning and control ? Wha: the co nnection, if any, between production planning and control inventory control ? 14. Distinguish between (a) Despatching and Expediting (b) Master scheduling and Loading 15. Where is a Gantt Chart used in production planning and control " CHAPTER 14 MANAGING SALES AND MARKETING CHAPTER OUTLINE After studying this chapter you should understand : 14.1 Basic Concepts of Marketing 14.1.1 Market 14.1.2 Marketing and Selling 14.1.3 Marketing Mix 14.1.4 Market Segmentation 14.1.5 Marketing Research 14.1.6 Promotion 14.2 Advertising 14.3 Salesmanship 14.3.1 Steps in personal selling 14.3.2 Qualities of a good salesman 14.4 Sales Promotion 14.4.1 Meaning of Sales Promotion 14.4.2 Techniques of Sales Promotion 8 Summary

Test Questions In a free enterprise economy, markets play a very significant role. Market condi tions largely determine what is to be produced and how much. Business firms take various decisions to meet competition in the market. Changes in market conditio ns force business firms to make changes in product design, price policy, distrib ution channels and promotional strategy. 14.1 BASIC CONCEPTS OF MARKETING The basic concepts involved in marketing are given below: 14.1.1 Market In common language, the term market is used to refer to a place where buyers and sellers meet to effect purchases and sales. It is a place where goods are bough t and sold. But i.n real sense, the term market means the sum total of the envir onment in which resources, activities and attitudes of buyers and sellers affect the demand for products and services. Buyers and sellers may make [14.1] transactions on telephone, internet and other means of communication without mee ting each other. Following are some popular definitions of the term 'market' "A market is the set of all actual and potential buyers of a product." Phillip Kotler "Market includes both place and origin in which buyers and sellers are in free e ampetition with one another". Pyle "A market means a body of persons who are in intimate business relations and car ry on extensive transactions in any commodity." Jevons Markets are of several types. On the basis of volume of track, markets are class ified as wholesale market and retail market. According to geographical are. mark ets can be local, regional, national and international. On the basis of subject matter of trade markets can be commodity market, capital market and money market . According to nature of transaction, there can be cash market and futures marke t. On the basis of nature of goods, market can be consumer market and producers" market. 14.1.2 Marketing and Selling Marketing is the proces & discovering and translating consumer needs and wants i nto products and services, creating demand for products and services and then in turm expanding this demand. Some popular definitions of marketing are given bel ow: "Marketing is a social and managerial process by which individuals and groups ob tain what they need and want through creating, offering and freely exchanging pr oducts and services of value with others." -Philip Kotler "Marketing is a total system of interacting business activities designed to plan , price, promote and distribute want satisfying products to target markets to ac hieve organisational objectives." -W.J. Stanton "Marketing is the process of planning and executing the conception, pricing, pro motion and distribution of ideas, goods and services to create exchanges that sa tisfy individual and organisational objectives:" -American Marketing Association Selling involves distribution of goods and services through exchange between buy ers and sellers. It begins after the products are manufactured and causes to an with his transfer to buyers. / Distinction between marketing and Selling 1. Meaning Basis of Distinction Marketing Selling Identifying and satisfying Exchanging goods for wants money 2. Objective 3. Orientation 4. Scope 5. Beginning and end 6. Focus 7. Demand

8. Growth 9. Approach 10. Principle Longterm-ensuring gro- wth and stability of the firm through customer satisfacti on Customer oriented Wider in scope, includes selling Begins before production and continues after sale External, on customer's needs Involves creation and maintenance of demand New and modern concept Integrated and systematic approach to marketing Caveat vendor-let the seller beware Short term, maximise profits through increasing sales volume. Production oriented Lesser scope, part of marketing Begins after production and ends with sale Internal, on seller's needs to convert product into cash Presupposes existence of demand Old and traditional concept Fragmented and ad hoc approach to selling Caveat the emptor-let the buyer beware 14.1.3 Marketing Mix In order to satisfy the needs and wants of its customers, every business firm mu st develop an appropriate marketing mix. Marketing mix refers to the combination of four basic elements which constitute the core of a company's marketing syste m. These four elements are the product, the price structure, the promotional act ivities and the distribution system (place). These four P's are closely interrel ated because decisions in one area influence actions in others. According to Wil liam Stanton, marketing mix is a combination of four elements product, price, di stribution system and promotional activities used to satisfy the needs of an org anisation's target markets and at the same time achieve its marketing objectives . Marketing mix represents the total marketing programme of an enterprise. Differe nt customer groups differ in their income, education, habits and preferences. Th ey may respond to the same marketing mix in different ways. Therefore, marketing mix should be designed to suit a particular market. The basic purpose of market ing mix is to satisfy the needs and wants of customers in the most effective manner. As the needs of the customers change, marketing mix may have to be changed from time to time. Marketing mix is thus a dynamic concept. An appropriate marketing mix helps the enterprise to meet the present and future needs of an identified market and achieve its profit goals. Marketing mix is important due to the following reasons : (a) It is decided keeping in view the needs and desires of a target group of customers. Therefore, it helps the firm in increasing sales and profits. (b) It maintains a balance between various elements which are interrelated. Therefore, marketing mix represents an integrated approach to marketing. (c) It serves as a link between the business firm and its customers. It help s in pursuing customer-oriented marketing. (d) Marketing mix is changed with changes in the requirements of customers. It helps in maintaining an equilibrium between the business firm and its marketi ng environment. As stated earlier, marketing mix is a systematic combination of four elements pr oduct, price, place and promotion. Each of these elements is in itself a combina tion of several sub-factors. Therefpre, each element is also known as a mix. The se four elements of marketing mix are described below : 1. Product Mix : Product mix refers to a combination of various features re

lating to the product or service to be offered for sale. It involves decisions c oncerning the quality, size, range, package, brand name, label, warranty and ser vices, etc. These product related activities are directed usually at a specific group of consumers (called target market) rather than at consumers at large. Con sumers consider a product as 'a bundle of satisfaction' rather than as a physica l item. For example, the buyer of a washing machine wants speed, comfort and tro uble- free operation rather than just a box of metal, plastic and electrical com ponents. 2. Price Mix : Price mix involves decisions regarding the basic price of th e product, discount, allowances, credit and terms of payment, etc. Price means t he money value that the customer has to pay in exchange for the product. Price m ix should be decided keeping in view the cost of producing and marketing the pro duct, purchasing power of the target group of customers^ degree of competition i n the market, the profit margin desired by the seller, discounts and allowances to be offered to dealers and customers as incentives, etc. 3. Place or Physical Distribution Mix : Place or distribution mix consists of]all the activities involved in transferring ownership and physical possession of/the product to consumers. Its purpose is to make the product or service avai lable to customers at the right time and at the right place. Distribution mix in clude^ (a) Channels of distribution, and (b) Physical distribution. Physical distribution includes all those activiti es which are involved in moving products or services from manufacturers to consumers. It consists of transportat ion and storage of goods. Channels of distribution are the routes through which goods move from the producer to consumers. A firm has to decide whether to sell directly or to sell through middlemen. The number and type of middlemen have als o to be decided. Fig. 14.1 Marketing Mix MANAGING SALES AND MARKETING 14 5 4. Promotion Mix : Promotion mix consists of all the activities aimed at persuad ing customers to buy the product. The various elements of promotion mix are as u nder: (a) Advertising : It includes activities concerned with providing product in formation to customers through newspapers, radio, television, and other non-pers onal media. It is paid for by the seller. (b) Personal Selling : It refers to face-to-face communication between a sel ler or his representative and the buyer. Salespersons of an enterprise assist an d persuade the prospective buyers to buy the product. (c) Sales Promotion : It means increasing sales through short-tjsrm promotio nal activities such as displays, demonstrations, fashion shows, exhibitions, pri ze contests, coupons, etc. These are aimed at supporting advertising and persona l selling. (d) Publicity : It means the mention of a company, a brand or product in new spapers, journals, radio, etc. A favourable report, by the news'media, on a comp any or product has a significant impact on customersVPublicity is not paid by th e seller. It is relatively a minor form of promotion because the seller has no c ontrol over what the media will mention. Marketing Mix at a Glance 1, Product Mix : (a) product range, (b) quality of the product, (c) brand name of the product, (d) packaging and labelling of the product, (e) after-sale service, 00 warranty against defects. 2. Price Mix : (a) price to be charged, (b) discounts and allowances to be offered.

3.

4.

(c) terms of credit. Place Mix : (a) channels of distribution, (b) distribution policy, (c) transportation, (d) warehousing, (e) inventory control. Promotion Mix : (a) advertising, (b) personal selling, (c) sales promotion, (d) publicity, (e) public relations.

Branding : Branding is the process of assigning a distinctive name to the produc t by whichjtjs to" be known and remembered. It is the process by whicha_groducLi s branded. It is a general term covering various activities such as .giving a-br and name trTajm35tf4-ftegriing a b7gMlQarOnd~pc^larisjngjit. A brand is a name, t erm, symbol or design or a combination thereof used to identify the goods or ser vices of a seller and to differentiate them from those of competitors. A brand n ame consists of (a) words, numbers or letters which can be pronounced, and (b) s ymbols, designs, marks, etc. which can only be seen but not pronounced. A trade mark is a legal term and refers to the brand which is registered under the Trade and Mercantile Marks Act, 1958. After registration, a brand enjoys legal protec tion and becomes the exclusive property of the owner. Sometimes, repeated use ca uses a brand name to become a generic term, synonymous with all types of brands of the product. For example, Dalda is often used to refer to all types of vanasp ati. Brands may be producers' brand or middlemen's brand, multiple or single brand. A family brand means selling a number of allied products under the same name, e.g . Usha machines and fans. Business firms generally use three types of brands: (a ) symbols and marks like Rath vanaspati, Ship brand match box. Fountain biddies, etc. (b) special names like Pears soap, India Kings cigarettes, Mohan ghee, etc . (c) name of the producer such as Godrej refrigerator, Escorts tractor,/ MANAGING SALES AND MARKETING Modi carpets, etc. Labelling : The_term 'labelling' means putting labels onthe packagejarjhe produc t. A labeTisTa small slip placed on or near anything~(product) to denote its fia tnrercoritents, ownership, destination, etc. The function of standardisation is made perfect and known to the users through labels. Packages afford a place wher e the labels could be affixed. It is a medium through which the manufacturer giv es necessary information to the user or consumer. It is defined as a part of a p roduct which carries a verbal information about the product of the seller. A lab el plays an important role in making the packaging and branding functions meanin gful. Hence these three functions are closely related. Furthermore, any legal re striction imposed is evidenced through labelling. The recently passed Packaged C ommodities (Regulation) Order 1975, makes it obligatory on the part of manufactu rers to show details about the identity of the commodity, its weight, date of ma nufacture, etc. The provision of this enactment is carried out with the labellin g. Packing and packaging :ackingrefers to covering, wrapping, crating, filling or co mpressing of goods to protecTthem from spoilage, pilferage, breakage, leakage, e tc7^ari"orts~kTnds--of goods ars~~pTace~d or packed into appropriate containers for protection and convenient handling. Bulky-materials like cotton and jute are compressed into bales. Liquid materials like oil and wine are put into bottles, barrels and cans. Heavy goods are crated and fragile products are placed in box es, tins or special containers. Thus, packing implies placing products in suitab le packages for delivery of the product to customer or for the purpose of storag e and transport. On the other hand, packaging involves designing and producing appropriate packag es for products. It is concerned with the determination of convenient size-lots in which the product is to be put in the market, and the creation of proper pack

ages for different lot sizes. A package is a case, container, wrapper or other r eceptacle used in packing products. A package is more than simply the carrier of a product. It is not simply a protective device but performs several functions as a selling tool. In recent years packaging has in itself become an industry an d various types of containers have been devised to secure better results. 14.1.4 Market Segmentation Market segmentation is the process of dividingJhe_totaUTeterogenceous market for a product or service into _several segments^each of whjclIJ_IeIatjv5ty--^ omogene ousin-a41-signiScant respects. For example, the total market for toothpaste may be divided into kids, teenagers, adults and senior citizens. Market segmentation is necessary because the needs and expectations of different segments are quite different and a different marketing mix is needed for each segment. 14.1.5 Marketing Research 14.7 jN4arkgting research refers to a systematic investigation of facts, relevant to the various aspects of m^ketingnnFtte~procesTof systematically gathering and ana lysing facts relating to any problem in marketing. It invoIvelfcoTTection, analy sis and supply of information to managers to facilitate decision making in the field of marketing. Marketing research may be conducted on any problem of marketing, e.g. product, price, channels of distribution, advertising, consumer preferences , etc. It is helpful in understanding and satisfying the wants of customers with the right product, at the right price and at the right time and place. In marke ting research, data is collected from both primary sources (customers, salesmen and dealers) and secondary sources (pressreports, trade directories, government publications, etc.). 14.1.6 Promotion Once a product is developed, its price is decided and its distribution channel i s selected, the prospective customers must be informed of its availability and t hey need to be persuaded to buy it. All the activities involved in informing and persuading the customers are collectively known as promotion in marketing. Sale s promotion, advertising, personal selling and publicity are used for promotion. Promotion is the process of communication with the potential buyers involving i nformation, persuasion and influence. It includes atfl7pes"T5fT3CTSPnaTand imper sonal communication with customers. According to the American Marketing Associat ion, "Promotion is the personal or impersonal process of assisting and/ or persu ading a prospective customer to buy a commodity or to act favourably upon an ide a that has commercial significance to the seller." Promotion is a vital element of the marketing mix. No business firm can sell its product or service without informingthe people about its availability and witho ut creating in them the desire to buy it. The need for promotion has increased d ue to increasing competition, changing tastes and preferences of consumers, wide ning markets, and growing distance between manufacturers and consumers. There ar e three main techniques of promotion adrajisings_sa^^ or personal selling, and sales promotion. - * 14.2 Advertising According to the American marketing association, advertising is any paid form of non-personal presentationj)ijyomotiojTj)fjd^ by an identified sponsor^'. Advertising includes all thej tiyitf.s^i'nVftfvcid' in presentingto cu stciiBjers 'a~non-personal and openly sponsored message regarding a^product or, service. TlTiTme'ssage, calleg^a^advertisemexiLis.-CQmmjjiiicated throughjmejar. more media and is paid for by the identified sponsor. Newspapers, magazines, radio, television, cinema, direct, mail, and outdoor medi a are used to carry advertisements. Advertising brings the message to the notice of a larger number of people. It is therefore a popular method of creating dema nd. * " \ ' ' 14.3 SELESMANSHIP OR PERSONAL SELLING Personal selling or salesmanship is the oldest and most common method of selling

. It involves direct and personal contact of the seller or his representative wi th the prospective buyer. It is face-to-face and oral communication with the pot ential customers for the purpose of persuading them to buy certain goods and ser vices which will provide them lasting satisfaction. Salsmanship has been defined as "the process whereby the seller ascertains and activates the needs or wants of the buyer and satisfies the needs or wants to mutual continuous advantage of both the buyer and the seller. It is persuasive and personal in nature. The real purpose of personal selling is not to induce or trap people to buy goods which they may not need or cannot afford. It is rather to buiia up permanent demand an d goodwill by helping them to improve their standard of living. In words of Garf ield Blake, "Salesmanship consists of winning the buyer's confidence for the sel ler's house and goods, thereby winning ax regular and permanent customer". It is "the art of so presenting an offering that the prospect, appreciates the need f or it ancUhat a mutually satisfactory sale follows." (c^-Distinction between Advertising and Personal Selling Basis of Advertising Personal Selling -Distinction 1. Nature A mass selling method One to one selling method 2. Contact Imf>ersonal-no face-to Personal face-to-face -face contact contact 3. Cost Less costly More costly 4. Flexibility Less flexible More flexible 5. Sale Cannot result in imm Can result in immediate sale. ediate sale. 6. Customer Cannot remove doubts Can remove doubts of satisfaction of customers. customers 14.3.1 Steps in Personal Selling The process of personal selling consists of the following stps : 1. Pre-sale Preparation : The first step in personal seljing is the selecti on, training and motivation of sales persons. The sales persons must be fully fa miliar with the product, the firm, the market and the selling techniques. They s hould be well-informed about the competitor's products and the degree of competi tion. They should also be acquainted with the motives and behaviour of prospecti ve buyers. 2. Prospecting : It refers to locating or searching out prospective buyers who have the need for the product and the ability to buy it. Potential customers may be spotted through observation,, enquiry and analysis of records of existin g customers. Social contacts,! business associations and dealers can be helpful in the identification of potential buyers. 3. Approaching : Before calling on the prospects, the sales person should fully learn their number, needs, habits, spending capacity, motives, etc. Such k nowledge helps in selecting the right sales appeal. After such learning, the sal es person should approach the customer in a polite and dignified way. He should introduce himself and his product to the customer. He should greet the customer with a smile and make him feel at home. In case he is busy with some other custo mer, he should assure the new customer that he would be attended very soon. The sales person has to be very careful in his approach as the first impression is t he last impression. Presentation : The next step is to gain customer's attention. For this purpose, the sales person has to present the product and describe its features in brief. The presentation should be matched with the attitude of the prospect so that the salesman can continuously hold his attention and create interest in the product . Demonstration : In order to maintain customer's interest and to arouse his desir e, the sales person must display and demonstrate the product. He has to explain the utility and distinctive qualities of the product so that the prospect realis es the need for the product to satisfy his wants. He should not be in a hurry to impress the customer and should avoid controversy. He may suggest uses of the p roduct and may create an impulsive urge to possess the article, by appealing to

human instincts. Handling Objections : A sale cannot be achieved simply by creat ing interest and desire. Every customer wants to make a best bargain for the mon ey he is' spending. Presentation and demonstration of the product are likely to create doubts and questions in his mind. The salesman should clear all doubts an d objections without entering into a controversy and without losing his temper. Testimonials, money back guarantee, tact and patience are popular means of winni ng over hesitant buyers. The salesman should convince the customer that he is ma king the best use of his money by purchasing the product. For this purpose, the salesman should prove the superiority of his product over the competitive product s. He should not lose patience if the prospect puts too many querries and takes time in arriving at any decision. If the customer does not buy even after meetin g all objections, the salesman should let him go without showing temper. 'The cu stomer is always right' should be his motto. Closing the Sale : This is the climax or critical point in the personal selling process. Completing the sale seems to be an easy task but inappropriate handling of the customer can result in loss of sale. The salesman should not force the deal but let the customer feel that he has made th e final decision. He should guide the customer in making the choice without impo sing his own view. He should assure the customer that he has made the right choi ce. Some adjustment in price or other concession may sometimes be necessary for a successful closing. The salesman should show the same interest in the customer which he exhibited during approach stage. Sales should be closed in a cordial m anner so that the customer feels inclined to visit the shop again. In closing th e sale, the article should be packed properly and handed over to the customer wi th speed and accuracy. Once the customer has purchased the article, the salesman should show and sugges t an allied product. For instance, he may suggest socks, ties, handkerchiefs, ve sts, etc., to a customer purchasing a shirt. This is known as additional sales a nd requires great skill and tact. 8. Post-sale Follow Up : It refers to the acti vities undertaken to ensure that the customer is satisfied with the article and the firm. These activities include installation of the product, checking and ens uring its smooth performance, maintenance and after-sale service. It helps to se cure repeat sales, to identify additional prospects and to evaluate salesman's e ffectiveness. The foregoing steps in personal selling may be summed up in the phrase A1DCAM in which A stands for gain attention, I for create interest, D for arouse desire, C for convince customer, A for obtain action and M for more sales. 14.3.2 Qualities of a Successful Salesman To be successful, a salesman must possess several qualities of head and heart. H owever, it is difficult to give a universal or exhaustive list of such qualities or traits because different situations require different qualities. A person ma y make a good salesman in one line of business and may fail in another line. Nev ertheless, the qualities which are commonly found among effective salesmen are d escribed under the following heads : 1. Physical Attributes: A successful salesman must have sound health and pleasin g personality. His job is arduous and his physique should be sturdy, free from d isease and disability of all types. He should have capacity for hardwork, a good stamina and sufficient tolerance. Good personality consists of several attribut es such as neat appearance, refined tastes, good habits, clear voice, etc, A ple asing and charming personality boosts self-confidence and morale. Only a well-gr oomed and cheerful salesman can create good impression on the customers. The Chi nese proverb "one who runs a store must have a smiling face" indicates the significance of personality for a successful salesman. 2. Mental Attributes: A good salesman must have a high degree of intelligen ce, initiative and foresight. He needs to be intelligent and imaginative enough to understand the customer quickly and to read his mind accurately. Balanced jud gement, self-confidence, poise, tact and patience are needed to handle the custo mer according to the requirements of the situation. An effective salesman also n eeds to have presence of mind and good common sense. He requires initiative to m ake additional sale and to win permanent customers. Sharp memory is necessary to

recognise the customer and to recollect his needs and wants. 3. Social Attributes : A salesman has to deal with different types of custo mers and should, therefore, have the ability to get along with people of all typ es. Sociability implies a cheerful attitude, a liking for people, sense of humou r and conversational ability, A good salesman needs to be polite, self-disciplin ed and courteous. He should not be shy or reserved but an extrovert and a good l istener. He needs to be man of sound character, honest, loyal and dependable. He should be cooperative and helpful enough to assist customers in the selection o f goods. A good salesman must be sincere in his work and true to his words. 4. Vocational Attributes : Salesmanship is a highly skilled vocation and re quires ambition, aptitude and enthusiasm. A good salesman needs to have creative ability, leadership qualities, urge for excellence, optimism, and a specific be nt of mind. Success in salesmanship requires sound education, wide knowledge and specialised training. A good salesman should be fully familiar with tbe^product , customers, firm and selling techniques. 14,4 SALES PROMOTK5N 14.4.1 Meaning of Sales Promotion Sales promotion consists of all promotional activities other than advertising, p ersonal selling and publicity that help to increase sales through non-repetitive and one time communication. According to the American Marketing Association, sa les promotion includes "those marketing activities other than_personal selling, advertising_^ind_pubJ4^ty-tliat stimu 1 ate-xofretmre^-puix^ dealer effectiveness, such as point of purchase displays, shows and exhibitions, demons trations and various non-recurring selling efforts not in the ordinary routine." The ultimate aim of sales promotion is increasing the sales and profits but it i s different from advertising and personal selling in approach and techniques, Pe rsonal selling involves face to face contact with specific individuals while adv ertising is directed at a large number of potential customers. Sales promotion s erves as a link between the two by focussing selling effort on selected small gr oups of people. Sales promotion usually involves non-recurring and non-routine'm ethods, in contrast to the routine and recurring nature of advertising and perso nal selling. Under advertising, the media is not owned and controlled by the adv ertiser except in direct mail advertisements but sales promotion methods are con trolled by the advertiser. Advertising and personal selling are essential or bas ic ingredients of promotion mix while sales promotion is a supporting or facilit ating element of promotional strategy. Sales promotion bridges the gap between a dvertising and personal selling. It supplements and reinforces the personal sell ing and advertising efforts of the firm. Sales promotion covers miscellaneous st imulants directed to the consumers and dealers. It may stimulate consumer buying at the point of sale or improve dealer effectiveness at the retail outlets. Sales promotion is of two kinds consumer sales promotion and dealer sales promotio n. Consumer sales promotion includes activities designed to informaricr educate the consumer and to stimulate demand. Examples of consumer sales promotion are s amples, (demonstrations, gift coupons, premium and price offers, fashion shows o r parades, bonus stamps, contests, exhibition-cum-sale, etc. Dealer sales promot ion is used to help dealers and to improve dealer effectiveness. It includes fre e display material, free window display services, free demonstrations and trials , trade deals offering discounts and gifts, sales contests for dealers or salesm en, trade show, dealers' conference, house organs, training of dealers' sales fo rce, advertising display allowances, etc. Sales promotion activities are designed to achieve the following objectives: (a) To introduce new products; (b) To attract new customers; (c) To increase sales during slack periods; (d) To encourage dealers to carry large stocks; (e) To improve the public image of the firm. 5. Wastage of National Resources : In order to make use of advertising, producer s create trivial differences in their products. Valuable resources that can be u sed to create new industries are wasted in the production of needless varieties and designs. Vance Packard, in his book "The Waste Makers", gives several intere

sting examples of how producers in America coax consumers to replace their cars, radios etc., much before their useful life comes to an end. Appearance, design and style have become more important than the physical utility of the product. M anipulative and combative advertising leads to criminal wastage of resources. "T he natural resources, capital equipment and labour energy which go into the prod uction of new items to take the place of the discarded ones amount to waste when measured in terms of social well-being."1 Valuable stationery, time and energy used in advertisements go waste as most of the advertisements either escape the attention of the people or are ignored by them. I.C. H. Sandage, Advertising - Theory and Practice, p. 32. Sales Proration Advertising Point of Distinction 1. Meaning Any paid form of impersonal presentation and promotion of a product, service or i dea by an identified sponsor. Marketing activities which stimulate consumer buying and dealer effectiveness. 6. Undermines Social Values : Modern advertising exerts such a corrupting influe nce on cultural and social life that it is not only wasteful but immoral. It deg rades ethical and aesthetic values through nude photographs and indecent languag e. Many advertisements are highly objectionable and socially undesirable as they encourage social evils like drinking and smoking. To some extent advertisements may really be in poor taste but majority of them help to improve social standar ds. The improved attitude towards hygiene is attributable in no small measure to the extensive advertising of detergents. Despite its limitations, advertising i s an essential marketing function in modern business. If advertising were wastef ul and unnecessary, it must have been discarded long ago. It becomes wasteful an d objectionable only when it is used dishonestly for anti-social ends. In fact, advertising is the cheapest selling tool and its abolition will require use of m ore expensive selling techniques. "As long as we insist on maintaining competiti on as the core of our economic system, the elimination of advertising would incr ease rather than reduce economic waste." Money spent on advertising is not waste ful or unnecessary provided it is spent in a scientific and responsible manner. The drawbacks of advertising can be removed through concerted action on the part of advertisers, public and the Government. Businessman should avoid wasteful an d excessive advertising, Trade associations and chambers of commerce should set up Better Business Bureaus to exercise self-regulation and control over obscene and deceptive advertising. A. suitable code of conduct may be formulated to ensu re that all advertisers follow ethical standards in their advertisements. Newspa pers, radio and television authorities should not accept undesirable advertiseme nts. Consumers' associations can act as a countervailing force against manipulat ing and misleading advertising. Consumers should not get carried away by such ad vertisements. They should verify the claims made in advertisements before purcha sing a product. Customers' reactions to advertisements should be invited. Writin gs on walls and public buildings and noisy advertisements should be banned. An a gency like the Federal Trade Commission of U.S.A. may. be constituted to check d eceptive and obscene advertising. "The maintenance of acceptable ethical standar ds in all forms of advertising is essential if advertising is to fulfil its prop er function as a marketing tool." COMPARISON BETWEEN SALES PROMOTION AND ADVERTISING 2. Time horizon Short-term perspective. Long-term perspective. 3. Aim To increase immediate sales. To build image of producer and h is product. 4. Scope Free samples, coupons, contests, premium offers, displays, exhib itions, etc. Newspapers, magazines, TV, radio, posters, films and other media . 5. Regularity Limited period, nonrecurring. Regular and recurring. 6. Emphasis Supplement to advertising and personal selling; pushes p

roduct towards buyers. Informs, persuades and reminds buyers, attracts customer s towards the product. 14.4.2 Techniques of Sales Promotion At present a wide variety of devices are available for sales promotion. Some of the important sales promotion methods are described below: 1. Distribution of Free Samples : Many a times free samples of low priced a nd repeat sales items are distributed to selected people to gain consumer accept ance and to popularise the product. The sample may be distributed in the shop or door-to-door. This is an effective device of sales promotion as consumers can t est the product before buying it. It is particularly useful in the introduction of new products. Explanatory literature stating the features and uses of the prod uct can be added to the sample. However, this device is costly and can be used b y big firms. It is not suitable for products which are very expensive or do not give repeated sales. 2. Coupons : Some firms issue coupons to prospective buyers through newspap ers, direct mail, dealers, package and door-to-door salesman. A coupon is a cert ificate that entitles its holder to a specified saving or discount on the purcha se of a particular product. The holders of coupons present their coupons to reta ilers and get the product at a reduced price. The manufacturer reimburses the re tailers for the value of coupon redeemed by them in addition to some commission to cover handling costs. Coupons induce the retailers to stock the product and c onsumers are stimulated to buy the product. 3. Premiums : A sales premium or bonus offer is the offer of an article fre e of cost or at a nominal price on the purchase of a specified^product. For inst ance, one 'Lux' toilet soap may be given free on the purchase of an economy pack of 'Surf detergent powder. A premium is also known as a combination offer, it i s a practical persuasion to buy that helps to increase immediate sales. Premiums are used in case of convenience goods like detergents, toothpaste, toilet prepa rations which are bought frequently. Success of the premium offer depends upon j udicious choice of the bonus item which should be useful and in good taste. Prem iums can be of following types : (a) With pack Premium : In which the bonus item is included either inside or outside the package, e.g., one spoon free in the packet of Horlicks. (b) Price off Premium : Which implies a reduction in price on the purchase o f a large or economy pack. (c) Money-refund Premium : Wherein the cost of the article is fully or parti ally refunded on the presentation of the proof of purchase, e.g., wrapper, cash memo, etc. (d) Extra-quantity Premium : Under which a customer can get one unit of the product free on the purchase of specified units, e.g., one tooth brush free on t he purchase of six tooth brushes. 4. Trading Stamps : Trading or bonus stamps are issued by retailers to cust omers who buy goods from them. The number of stamps given to a buyer depends upo n the amount of purchases made by him. For instance, in India Ramon Bonus Stamps are issued at the rate of 2.5 percent of the purchase amount. These stamps are given free of charge and the customer can redeem them to obtain products out of the specified list. This technique induces customers to buy their requirements f rom the retailers who offer such stamps. The purpose is to increase customer loy alty. 5. Point of Purchase Materials : Such materials include banners, signs, pho tos, posters, strips, price cards, racks and other instore promotional tools. Th ey are demonstrated or displayed at the place where the customer makes actual pu rchases. Almost every general retail shop displays posters and signs promoting s oft-drinks, cigarettes, confectionery and other consumer products. The popularity of point of purchase display is increasing due to the proliferation of brands a nd expansion of self-service stores with large inventories. Such materials are a n effective device of sales promotion as they remind customers about the brand n ame and promote impulsive buying. They should be attractive and self-explanatory . They are also called dealer aids.

6. Prize Contests : Under this device, consumers are given rewards for anal ytical or creative thinking about the product in the form ,of slogan writing, se ntence completion, problem solving quiz, etc. Rewards are given to successful pa rticipants in the form of cash prizes, merchandise or free travel. Such contests help to create consumers' interest in the product, provide new ideas for advert ising and may reveal buying motives. Contests are generally held through newspap ers, magazines and radio. Such contests may also be organised for salesmen and d ealers to induce them to devote greater effort or to obtain new sales ideas. To be successful sales contests should be properly planned and objectively executed . The date, time and period of the contest should be such that all people have e qual opportunity. Entries should be judged by competent people in a fair manner and rewards should be given promptly. 7. Fairs and Exhibitions : Trade shows, fashion shows, or parades, fairs an d exhibitions are an important technique of sales promotion. They provide a foru m for the exhibition or demonstration of the product. Free literature can be dis tributed to introduce the firm and its products to the public. Fairs and exhibit ions are organised usually by big firms or trade associations. At these fairs an d exhibitions, business firms are allotted stalls wherein they display their pro ducts. Fairs and exhibitions have wide appeal as several people visit them. Cust omers can be attracted through free gifts, special concessions and free demonstr ations of technical and speciality products. They provide an opportunity to the visitors to observe the competing products and help to promote sales. For instan ce, the Trade Fair Authority of India organises trade fairs of various types in New Delhi. The National Book Trust organises after every two years a World Book Fair at New Delhi where publishers all over the world are invited to display the ir publications. Sometimes, sales conventions or conferences of dealers are held . Producers of garments often organise fashion shows to promote their products. 8. Merchandising Aids : These refer to the services provided to induce comm ercial buyers to purchase goods in large quantity. Such aids include training in stores layout and inventory control, advertising, product demonstrations, etc. 9. Clearance Sale : Sales at reduced prices may be organised at important f estivals or other occasions. Such sales attract a large number of customers and help to clear accumulated stocks. For instance, the Khadi Gramodyog Bhavan in Ne w Delhi offers special discount on Khadi goods on Gandhi Jayanti. 10. Public Relations : Public relations activities include greetings or than ks in newspapers, donating space for noble causes, ete. Their purpose is not to create immediate demand or to increase sales. They are designed to create a good image of the firm in the society. SUMMARY 1. Promotion is the process of communication and persuasion with consumers. 2. To provide information, to stimulate demand, to differentiate the produc t, to highlight utility of the product and to stabilize sales are the objectives of promotion. r 3. Promotion mix comprises advertising, personal selling, publicity and sal es promotion. 4. Nature of product, nature of market, stage in product life cycle, availa bility of funds are the factors influencing the promotion mix of a firm. 5. Determination of promotion mix requires a proper combination of various promotional tools. 6. Personal selling is the process of influencing the buyer in a face to fa ce situation. It is focused, flexible, effective and provides feedback, Presale preperation, prospecting, approaching, presentation, demonstration, objection han dling, closing and follow up are steps is personal selling. A successful man sal esman requires physical, mental, social and vocational qualities. 7. Advertising is any paid form of non personal promotion. It is different from publicity and personal selling. It serves several purposes. It is beneficia l to producers, consumers and society. But it is accused of causing social waste . 8. Sales promotion are non routine and non recurring promotional activities like free samples, coupons, premiums, bonus stamps, points of purchase displays

, prize contests, etc. TEST QUESTIONS 1. What is 'promotion' in marketing? Explain the objectives of promotion? 2. What is Promotion mix ? Explain its elements. 3. Explain the factors which you would consider while deciding the promotio n mix for; your product or service. 4. Discuss the relative significance of various elements of promotion mix i n promoting the sale of a new consumer product. 5. What are the various objectives of promotion of goods and services? Disc uss briefly the factors influencing promotion mix. 6. Explain 'Promotion Mix' of a firm and discuss briefly the various factor as influencing promotion mix. 7. What is promotion? Explain the advantages of personal selling over other forms of promotion. 8. What is Personal Selling? Discuss its significance as a promotional tool . 9. Define personal selling and describe briefly various steps in the person al selling process. 10. Explain the qualities of a successful salesman. 11. Define advertising. Distinguish between advertising and personal selling . 12. Define Personal Selling. How is it different from advertising? Why shoul d a manufacturer make use of Personal Selling for promoting his product. 13. 'Advertising is salesmanship in print'. Do you agree? Discuss the role p layed by advertising, salesmanship and sales promotion in successful marketing. 14. What is sales promotion? Explain the main techniques of sales promotion. o McmKei^-vj Xh a ^coki pyo(m hu tjjJULIU WcllviAual <s>\OICUM JUAASJ -if^u y uod ^h-yOUC^ tM afcncj c^l^YVJ , ^ic-Ua^ ^ CL\y\d( MY\/{(M JJXJX. V ^TW CHAPTER 15 CASE STUDIES Case study method has become quite popular in management. This is because manage ment is an applied science and an action-oriented activity. A person cannot expe ct to become a successful manager just by studying books on management. Practice is required. In educational programmes on organisation and management, students can practise to some extent through the case study method. Moreover, case quest ions are being asked in the BBA and other examinations. Therefore, several cases are given in this appendix. Students are advised to learn the art of analysing and discussing cases. Guidelines for case analysis and case discussion are given here for the benefit of students. What is a Case ? A case is a description of a situation (real or hypothetical) involving some pro blems to be solved. It sets forth in a factual manner the circumstances surround ing a particular managerial situation or series of events in an organisation. It may not contain complete information and, therefore, the case analyst has to ma ke reasonable assumptions. Moreover, a case contains information of varying sign ificance, some may be very useful, some partially useful and some of no use. A case may be presented either in structured form or in unstructured form. In a structured case, leading questions are given at the end. These questions indicat e the direction in which the discussion will go. The main value of a structured case is that the discussion can start quickly. But there is always the danger of oversimplification of problems involved and pet solutions may be presented. The discussion in the classroom may degenerate into a question-answer session betwee n the instructor and the students. In an unstructured case only facts are given without any leading questions. The participants search and select the problems o n which they will focus. This helps them to learn how to get on with the real pr oblems in a given situation. Objectives of Case Method

Unlike textbooks and lecture notes, managerial cases do not provide definite ans wers. Rather the pros and cons of issue involved in a case are discussed. Variou s alternatives and approaches are evaluated. The purpose of case analysis is not to learn authoritative answers to specific managerial problems. Rather it is to develop skills in the process of designing workable plan of action through eval uation of the prevailing situation. Students should understand that it is the [15.1] managerial exercise of identifying, diagnosing and deciding that counts in case analysis. Guessing what the instructor is thinking or finding out what the organ isation did is irrelevant. The objective should be to develop the ability of thi nking managerially and exercising responsible judgement. One should be able to d iagnose and appraise the situation from a managerial perspective, develop workab le plan of action, and defend his analysis and plan of action. Thus, the cases s tudy method is aimed at : (a) providing exposure to real business/managerial situations; (b) helping participants to acquire the skills of applying concepts and prin ciples of management (textbook knowledge) to actual situations (practice); (c) developing the ability of diagnosing problems, analysing and evaluating alternatives and formulating workable plans of action (problem-solving and decis ion-making skills); and (d) training the participants to work out answers and solutions themselves i nstead of relying upon the professor or a textbook. Case study method is based on the principle of 'learning by doing'. Guidelines for Case Analysis There is no proven procedure or formulae that can be recommended for case analys is. Each case is a unique situation and requires judgement accordingly. However, case analysis typically involves the following steps : 1. Identification and Diagnosis : Every case contains a problem or number o f problems which reflects the gap between desired and actual situations. In orde r to identify the problem, it is necessary to read and reread the case carefully and thoroughly. Important points/events may be underlined or jotted down during the course of reading the case. First reading will help to make the situation f amiliar and help in preliminary analysis. During second reading key issues and r elevant facts can be obtained. Once the problem is identified, diagnosis of the causes behind it and strategic issues involved in the case is done. For this purpose, one has to read the case between the lines. Put yourself in the position of the manager/ managerial group portrayed in the case. Interrelate facts and events so as to evaluate the organ isation and its surroundings. 2. Analysis and Evaluation : In the second stage, the tables, exhibits and financial statements given in the case are analysed and summarised carefully. Ra tios or percentages may be calculated. The key factors underlying the organisati on's successes and failures are evaluated. Its competitive position is judged. T he alternative solutions to the problem are then identified and compared. Releva nt information is separated7 from the irrelevant. A reasonable and objective int erpretation of facts is necessary. The alternative considered appropriate in the given situation is selected after weighing"all pros and cons. Recommendations : A plan of action is recommended which is workable. It is neces sary to support your views or judgement by necessary evidence. Recommendations s hould be stated in sufficient detail so as to be meaningful. These should be so organised and written that they communicate particularly what you want to say. While analysing a case, answers to the following questions should be sought : (a) What are the real problems involved in the case ? (b) What are the pertinent facts ? (c) What are the key unknown facts ? (d) What are the critical questions bearing on each specific event ? (e) What individual and organisational factors caused the problem? (J) In what ways, can logic and reasoning be used to determine crucial inference , and interrelationships ? (g) In what way, contradictory facts and arguments can be weighed in making

decisions ? (h) In what manner can decisions be implemented ? (/) Does the organisation possess the competencies required for successful imple mentation ? Guidelines for Case Discussion Case analysis provides learning to the analyst. But case discussion in a group p rovides a useful learning experience to the participants. In order to make group case discussion meaningful and successful, the following guidelines are helpful : 1. Each and every participant should be fully familiar with the facts and f igures of the case. This requires preparation before hand through careful readin g of the case and its analysis. 2. While initiating the case discussion, present the situational framework of the case. 3. Allow every participant an opportunity to express his/her point of view. 4. Various points raised during the discussion should be analysed and discu ssed carefully. 5. A participant may take his stand and defend his position. But he/she sho uld be prepared to revise his original stand where necessary in the light of the discussion. 6. Avoid the tendency to over simplify the problem and to give vague statem ents. Be specific and precise in your approach relating to the ideas of concrete facts. 7. Too much emphasis should not be placed on arriving at a single solution to the problem because a particular problem can be solved in many ways with almo st similar consequences. 8. The instructor should work as a coordinator and guide. He should solicit part icipation and assist the participants focus on the real problem. He should avoid interfering in the discussion as well as his personal feelings in the situation . The approach which the instructor should use (directive or non- directive) wil l depend on the type of the case, level of maturity of participants and time ava ilable for discussion. The instructor should emphasise learning of participants rather than on the suitabi lity of a particular solution to the problem. While e valuating the performance of participants in case discussion, ability to state t he problem and key issues clearly, use of facts and analytical technique, eviden ce of sound logic and judgment, consistency between analysis and recommendations , ability to formulate reasonable and feasible recommendations should be conside red. CASE 1 : BRITE WAY COMPANY Monica is the Managing Director of Brite-Way Company, a small business that manu factures a household cleaner. The company was founded by Monica' father, a chemi st. He discovered the formula for Brite-Way 50 years ago. Since Brite- Way came on the market, it has been a household favourite for cleaning windows, mirrors a nd other hard surfaces. The product is sold in five Northern States of India. After her father died, Monica became the Managing Director of Brite-Way Company. She has made many improvements in the organization, and sales have more than do ubled. Over the years profits have been good. The rising cost of doing business, however, is making it harder and harder to earn a rate of profit equal to that of the "old days". "Our main problem at Brite-Way," Monica said to a news reporter, "is too much go vernment. During many years my father ran this business, he had a free hand. He could hire, promote, and fire whomever he pleased. He alone decided how much to pay the workers and how many hours they would work. He wrote his advertising to suit himself, designed the. containers for Brite-Way, and decided what informati on to put on the labels. In other words, he managed the company without any help from outsiders. "Today, however," she continued, "there is no such thing as free enterprise. All levels of government centre, state, and local tax us to death. We are told what kin d of container we can use for our cleaner and how the label should read. There i s a minimum hourly wage that we must pay to employees, and we are in trouble if

we don't. People in New Delhi check our advertising and raise objections when th ey think it's not truthful. We get visits from government people who tell us who m to hire and promote and how to treat our employees. Others tell us to do this and t^hat to keep employees from getting hurt. And you should see the paper work ! I fear that I spend about half of every week-day working for the government." QUESTIONS 1. What arguments can you offer in favour of Monica's point of view ? 2. Can you think of reasons why each of the government requirements mention ed by Monica might be necessary or desirable ? 3. Is, as Monica suggests, free enterprise really dead ? 4. What do you think Monica meant when she said that all levels of governme nt "tax us to death" ? 5. "The government is responsible for our company' having to increase its p rices so often," said Monica. "And who pays in the long run ? The people who buy our products, that's who." What do you think Monica meant when she made that st atement ? 6. Why do you think there is an increasing amount of government involvement in business ? Is there too much involvement or too little ? CASE 2 : FINEWOOD INDUSTRIES Rangpur is a small town of about 80,000 people. The area is very beautiful tall pi ne and oak trees, green hills, mountain streams, and a clear, blue lake from whi ch the town gets its name. For over 50 years, the town has attracted many visito rs. They come to relax, enjoy the quiet beauty of the area, and fish and swim in the lakes and streams. There are several small hotels, rental cottages, and cam p grounds. In fact, most of the income that comes into the community are brought in by tourists. In recent years, however, Rangpur has lost much of its appeal. The hotels can no longer be considered modern, and few new cottages have been built for rent. So the tourist business has slacked off a good deal, and the town is suffering. In fact, the unemployment rate is nearly 20 per cent. A number of retired people ha ve settled in the area, and it is mainly their few rupees that flow into local b usiness firms. The working-age population has decreased sharply. Finewood Industries, a paper manufacturing firm, is considering building a new p lant in the Rangpur area. Rangpur is conveniently located near a huge pine fores t that the company owns; transportation to and from Rangpur is first rate; there is plenty of electrical power available; id the community is an excellent sourc e of workers. Finewood Industries expects to employ nearly 1,000 people at the b eginning. The firm believes that eventually it will need at least twice that num ber. The Rangpur Chamber of Commerce is very excited about Finewood's plans and has o ffered the company an excellent building site next to the lake at a very good pr ice. A large paper-making plant seems to be the ideal solution to the area's eco nomic problems. All business firms would benefit. And by means of additional tax revenues from the factory, the, schools, hospitals, roads and various other com munity services might be greatly improved. But there is one big problem not all the residents of Rangpur are in favour of hav ing a factory in the area. A committee of concerned citizens has been formed the Save Rangpur Committee. Its intention is to block the plans for a manufacturing plant. The chairperson, Ramesh Kaul, is most vocal. "A smelly, smoky factory nex t to beautiful lake would be a disgrace !" He maintains, "It would destroy every thing that we all love about this area. The factory would ruin the air and water . We don't want to see Rangpur turned into just another factory town." Ramesh Ka ul has a great deal of support. Nearly 500 people, mostly retired, have joined w ith him to fight the plans: Assurances from Finewood executives and outside cons ultants that the factory will be clean and that there will be virtually no pollu tion have fallen on deaf ears. So for the moment, plans have been halted. Finewo od Industries is seriously considering locating its new plant in another town th at is anxious to have it. QUESTIONS 1. If they are successful in blocking the new plant, Ramesh Kaul and the Sa

ve Rangpur Committee will deprive the community of badly needed jobs and money. Do you think these people should have that right ? 2. What arguments can you offer in favour of Finewood and in favour of the Save Rangpur Committee ?. 3. Suppose that the issue concerned plans to build a huge resort hotel, a f ranchised family camp ground, a big restaurant, and several fast-food franchises in the Rangpur area. Would your attitude be different ? 4. Recently a group of people in a northern state were able to prevent the construction of an electrical power plant in their community. The main reason th ey gave was that the tall towers of the plant would spoil the view that resident s have of the nearby mountains. Is this a good reason to prevent a much needed p ower plant from being built ? 5. Some people oppose nuclear plants, saying that they are dangerous. Other s believe that the danger is minimal and that nuclear power is a good solution t o our energy problems. What do you think ? 6. Is there any good answer to the argument between those who want to keep India beautiful and those who want to create jobs and help the local economy? CASE 3 : CAREERS IN CONFLICT Both Rita and Thomas have good jobs. For the past ten years, Thomas has worked i n the main office of Chem-Plastics, a company based in Kolkata that has several manufacturing plants scattered throughout the country. Rita is art director at A dvertising Associates, in Kolkata. In the ten years that Thomas has been with Chem-Plastics, he has steadily moved up in his job from junior technician to senior design engineer. Rita has also done well. Starting out as a media research assistant, she is now art director of th e agency. The couple has two children Roshan (14) and Tina (12). Like many large c ompanies, Chem-plastics requires its senior managers to have wide experience. Th e company has a policy of assigning each of its bright, young engineers to one o f its plant operations for "field" experience. At the end of this time, the engi neer is usually brought back to the home office for a top executive position. On Tuesday, Jacobs, Director for manufacturing, called Thomas to his office. "Th omas," Jacobs said, "I've got some good news for you. The position of manufactur ing manager in the plant at Burdwan is open, and we want you to take it. It will be wonderful experience for you. You know how much we think of you here. But yo u also know how important it is for you to have field experience all our top peopl e have." Thomas instantly realized that this transfer could be the first step towards a b ig promotion. He beamed, "That sounds very exciting, Burdwan. Would you let me t hink about it for a couple of days ?" "Sure," said Jacobs, "But I know you won't want to pass up this opportunity." Wh en Thomas discussed the transfer to Burdwan with Rita, she was not as happy abou t it as he thought she might be. "I agree that it's a fine opportunity for you, Thomas . If you don't take this job, you'll probably go no higher in Chem- Plast ics than you are now. Yet I've got my career to think about too. This art direct or's job is just about perfect, and several times the president has hinted that I might become a Director when Chaudhary retires. If we go to Burdwan, I'll have to give up this wonderful job and smaller towns like Burdwan can't offer the sa me opportunities in my field. "And what about Roshan and Tina?" she continued, "All their friends are here. Bo th of them like school and are doing well in their studies." "1 know," said Thom as, "This is why I asked for some time to think this thing over. While there's a great opportunity for me, it would be a big sacrifice for you and the children. What should we do ?" QUESTIONS Why do you think a company wants its up-and-coming employees to have fie ld experience ? Do you think Rita should be willing to give up her position so that Thom as can advance in his career ? Suppose it was the other way around that Rita is the one about to be trans ferred. Would your answer be the same ? Why or Why not ?

Should Thomas turn down this opportunity for the children's sake ? Is there any way in which this problem can be solved so that the sacrifi ce is shared ? Explain. CASE 4 : THE BATTLE OF THE BOTTLES Tasty Drinks Co. manufactures no-return bottles for various consumer products. M ost of the firm's bottles are sold to producers of soft drinks. Over the years, the company's business increased greatly as more and more soft-drink producers s witched to disposable bottles. Today the company employs 2,500 people. The company makes three claims about no-return bottles (1) They are more sanitary than returnable bottles because they are used only once. (2) They save time for shoppers and super markets. (3) People like them because they can simply be tos sed away when they are empty. Recently, the state in which the company is located completed a study on litteri ng. Many citizens were shocked to read in the papers, that the cost of cleaning up litter along the highways and in recreational areas much of its soft-drink bott les and beer bottles is more than Rs. 3 lakhs a year. The study also pointed out t hat no-return bottles account for a large percentage of garbage collection and d isposal costs in cities throughout the state. School groups, clubs and civic organizations in various cities began a campaign to cut down littering. They asked their city governments to install litter barre ls in more places, to put large antilittering posters in store windows and other public places, and to place notices on billboards on major roads warning people about fines for littering. Television and radio stations got behind the campaig n. They frequently aired 1-minute commercials in prime time urging people to hel p keep their state clean. Ram Lai, an MLA, introduced a bill in the state legislature that would ban the s ale of drinks in no-deposit bottles. "If people have to pay a deposit on bottles ," he said, "they probably will not toss the bottles along the roads or in the p arks. They'll take them back to the store for a refund. Requiring a deposit on b ottles is a sure way to control littering. We will save lakhs of rupees a year." The company is, of course, strongly opposed to the bill. "If the bill is passed, " said the Chief Executive of the company, "we'll be out of business. Not only w ill 2,500 people lose their jobs; but the economy of the entire state will be cr ippled. Besides, people will throw away bottles they put a deposit on just as qu ickly as they would throw away the no-return bottles. QUESTIONS 1. Do you think that banning no-deposit bottles will as Ram Lai suggests, h elp solve the litter problem ? Why or why not ? 2. What are the company's responsibilities, if any, in this situation ? 3. Some people think that a tax on no-return bottles will help pay for clea ning up litter. What do you think about this idea ? 4. Some people say that the biggest argument against no-return bottles is t he waste of energy and materials. Is this a good reason for the state legislatur e to pass the bill ? 5. What do you think of the statement made by the Chief Executive of the co mpany about the effect on workers and the economy of the state if no-return bott les are banned ? 6. What about non-returnable cans ? ff no-return bottles are banned, should n't the sale of drinks in throwaway cans also be prohibited ? CASE 5 : KHAN ENTERPRISES Khan Enterprises, a builder of supertankers, faced critical personnel problems i n 1989. Labour turnover was running at about 50 per cent a year, and productivit y was down. The firm's management first turned to efficiency experts who pushed for greater worker output, which angered the company's production workers. Finally in desperation, Ahmad Khan, the firm's chief executive, took a unique ac tion. He turned the problem over to the union and asked union officials to deter mine the solution. They agreed to tackle the problem and produced a public repor t that was highly critical of the company's management. They also asked for spec ific changes in working conditions. Ahmed Khan again startled observers by implementing the union report. Wages base

d on the number of units produced were replaced by hourly rates that now average Rs. 36 per hour. Additional medical staff was hired. Safety standards were upgr aded. Saunas were provided. Social workers were made available to deal with a wo rker's personal problems. The company has also tried to give production workers more responsibility. Joint management-labour committees now schedule the construction of the six or so sup er tankers built annually. The firm acknowledged that jobs that are basically "d irty" cannot be changed. But management has worked to improve nearly everything around these jobs. The company's employees have enthusiastically supported these reforms. Workers o utput is up and turnover is now under 20 per cent a year. The company's personne l director puts it this way, "People like to work when they know why they are wo rking." QUESTIONS 1. Do you think the company's approach would work in-a large Indian manufac turing firm ? Why or why not ? 2. In your opinion, why did Ahmed's strategy prove effective ? CASE 6 : NUTRITIOUS FOODS LTD. Nutritious Foods Ltd., sells Rs. 50 lakhs worth of pickles, peppers, relishes, a nd sauerkrauts each year. The firm began as a pickle distributorto the local com munity during the 1980's. It expanded into other products when it bought a sauer kraut plant in 1959. The company now has plants in Lucknow, Hydrabad and Allahab ad. The company produces two types of pickles. The first type, the processed dil l, is really a cucumber cured in barrels of salt and spices. After curing, the d ill is then either sweetened or soured on the basis of its use and size. The sec ond variety is a fresh-packed pickle. This product is a cucumber that is pickled in its own bottle. QUESTIONS 1. What type of production problems might be encountered at Nutritious Food s ? 2. Draw a diagram for a processed dill. CASE 7 : COORS COMPANY There are few products that dominate their markets as does Coors Banquet Beer, w hich had a compounded volume growth rate of 12 per cent annually. Many famous pe ople including important political figures have gone to great trouble to ensure that their refrigerators were stocked with Coors Beer. Coors Banquet Beer is the only brand produced by the Coors of India. The product is marketed only in elev en southwestern states, but is one of the nation's four best selling beers. It h as 41 per cent of the market, compared with only 18 per cent for Coor. Coors has achieved an amazing 68 per cent of the Indian market. Company sources attribute Coors' success to product quality, boasting that it "i s the most expensively brewed beer in the world." Many beer experts regard Coors as the best beer. The firm is constantly attempting to develop improved strains of barley for malting. Most hops used at Coors are imported from Germany. Coors is not pasteurized and contains no preservatives or chemical additives to haste n aging. The Coors brewing process takes considerably longer than that of most o ther major brewers. But the firm's distribution system is so efficient that a bo ttle of Coors Banquet Beer is shipped cold to prevent deterioration over an aver age of 900 miles. QUESTIONS 1. How would you classify Coors Banquet Beer ? Why ? 2. Should Coors expand its market beyond its eleven-state service area ? 3. In addition to product quality, what other factors are evident in Coors' success ? CASE 8 : GIFT WORLD Gift World was called "the most successful innovation in retail merchandising si nce the introduction of the supermarket" when it was introduced in 1983. The com pany sold a seventeen-item line of gifts (with an average retail price of Rs. 25 ) via 4,500 retailers spread throughout the country". The company's start-up cos t for the new operation were estimated to Rs. 25 lakhs. The company was intended

to tap the annual Rs. 5 crore market in gifts of Rs.12 or more shipped intercit y by persons with household incomes exceeding Rs. 10,000. Management believed so me Rs. 5,000,000 to Rs. 10,000,000 of these sales were "'last minute" purchases requiring immediate delivery. Consumers were told that they could select gifts i llustrated in ads, telephone a central toll-free number, and have the gift wrapp ed and delivered virtually overnight. Use of the system provided efficient distr ibution, and heavy advertising expenditures built strong brand recognitions for the firm. Yet in the first twelve months of operations, Gift World achieved only about 9 p er cent of its unit forecast. Action had to be taken. So on September 1, 1994, t he management approved plans to restructure GiftWorld's marketing concept. The r evised strategy was to leave the retailing to others, broaden the product line, and allow the otherwise profitable company to retreat into its own area of compe tence. GiftWorld's executives hoped to sign two or three major retail chains, se veral promotion-minded national advertisers, plus a couple of catalogue mail-ord er firms as participants in the subsidiary. Retailers in the system were to offe r a wider selection than the original seventeen items from their regular retail lines to customers as part of GiftWorld's "National Gift Service." Meanwhile, na tional advertisers were to promote selected items as Gift selections, which, upo n customer order, could be sent immediately anywhere in the nation. QUESTIONS 1. IsGiftWorld a viable retailing opportunity ? 2. What marketing problem do you see in the Gift World operation ? Discuss. 3. Do you think management's revised retailing plan is adequate ? Why or wh y not? 4. What would you have done if you were the chief executive at the firm ? CASE 9 : EVERSHINE CORPORATION Improved sales productivity has always been an objective of sales managers. It i s a particularly important goal during times of rising sales costs. One of the b est ways to improve sales force productivity is to direct calls to people who ha ve a high likelihood of buying. This strategy requires that much of the original prospecting effort be done by others. As a result, some firms have set up speci al prospecting forces of part-time employees like housewives and students. These people give an initial, standardized sales presentation and try to assess prosp ect interest. If the interviewee appears to be interested, a follow-up call is m ade by one of the company's sales representatives. Evershine Corporation has adopted an interesting modification of this prospectin g strategy. Ennis uses a miniature robot to spot prospects. These robots are twe lve inches high and are mailed to sales leads in attache cases. They are equippe d with a recorded message, a brochure, printing samples, and request cards to be sent back to Evershine Corporation. Real "live" sales representatives follow up with interested prospects. But Evershine Corporation is not the only firm employing a robot sales force. Th e All Steel Pipe and Tube Company uses a force of eighteen-inch robots named "AC E" to present a seven-minute recorded sales message. "ACE" has proven so success ful that the robots are currently closing about 25 per cent of "calls to key cus tomers." QUESTIONS 1. Assume you are the purchasing director for a company that might use the products of either Evershine Corporation or The All Steel Pipe and Tool Company. How would you react to receiving a robot in the mail ? 2. Will ACE ever completely replace "flesh and blood" sales people in your opinion ? Discuss. 3. Comment on the advantages and disadvantages of using a special prospecti ng force rather than regular sales people. CASE 10 : SADHNA DISTRIBUTORS It is interesting to note that the rate of fire hazards in India is almost doubl e than the rate of robberies, loot, theft, etc. People are quite conscious of th e need against burglary. They have 24 hours security guards for the building, he avy iron grills, special night locks on their doors and many locks in their hous

es. But they have very less investment made to protect themselves against the po tential dangers of a fire. Perhaps, a fire extinguisher which is small, handy an d easy to use by the households should satisfy this need. The above thought process may be taken as the genesis of the portable Halon base d fire extinguishers currently available in the country like the Ceasefire and o n Guard brands. These fire extinguishers contain Halon 1211 gas in the liquefied form and at low pressure. It is internationally proven to be the safest and mos t effective way to extinguish a fire. Halon extinguishers can extinguish almost all kinds of fire, can fight fire from a good range, are easy to use, ready to use, leave no damages to the articles b urnt, require no maintenance and have low level of toxicity. The current brands of Halon fire extinguishers are priced around Rs. 360 to the consumers. They wer e first introduced in India during 1989. Ceasefire was the first brand of Halon fire extinguishers launched in the countr y. In 1990, it had sold about 1,00,000 units for about Rs. 30 crores nationally. The company has a sales force of about 2,000 and a market share of 90%. Though the market exists in industries, commercial establishments, institutions and hou seholds, Ceasefire appears to have not concentrated upon industrial segment. Sadhna Distributors, a local distributor of consumer non-durables in Delhi, see an opportunity in this product. They believe that time has come for more brands to cash in the increasing awareness and rising demand for the product. They inte nd to start with the Delhi market and then expand slowly after achieving reasona ble penetration there. While they do not anticipate any production or financial problems to carry on the business, they have yet to decide about some of the mar keting aspects of the business. QUESTIONS 1. Should they focus on certain segment(s) ? If yes, then which one(s) ? 2. Should they charge the same or lower price compared to the leading brand s? 3. Should they sell the product directly through their own sales force or a ppoint distributors ? 4. Should they spend heavily on the brand image of their product or sell it as just another Halon fire extinguisher ? Please give your answer to the above questions and suggest a plan of action to M /s Sadhna Distributors for marketing their product. CASE U : KENTUCKY FRIED CHICKEN Consider the plight of Kentucky Fried Chicken (KFC) in Indian. In 1995, a New De lhi court ordered the city's KFC outlet closed for health code violations. Were those opposed to KFC's presence using the law to impose their own desires? The f ight against KFC appears to have emerged as one of the major battlegrounds in de termining whether India's future will be with the freewheeling global economy or in the Gandhian tradition of self-reliance. India has over one million citizens and is the leading vegetarian culture in the world. The cow is sacred and 70 percent of the population is employed in agricu lture (compare to 3 percent in the United States). A coalition of health activis ts, farmers, doctors, environmentalists, and consumers do not want Western produ ction methods and foods in their land. QUESTIONS 1. Identify the problems facing KFC and then take the company through the r ational decision making process to determine whether it should maintain its inve stment in India. 2. Use the case to explain why the cultural context is important in decisio n making. CASE 12 : BHUSHAN RUBBER Like most smaii scale industrial goods companies Bhushan Rubber suffered hard ti mes in the decade of 1990s. At a 1997 executive meeting, a number of frustrated middle managers argued that repeated pay reductions had reduced morale levels 15-12 in the company. President Srikanth replied that he didn't care and that it was their problem, not his. As a result the executives left the meeting discontented. Srik

anth had been a financial specialist, and the board of directors assigned him mt er' the top job because they thought his financial expertise could turn the firm around. But At first, the move seemed a good one. Srikanth used his know-how to arra nge The. creative financing for company's debt, but that didn't deeper problems. Srikanth was a numbers man with few people skills, and he proved to be a poor pl anner. His efforts to diversify came too late. Attempts at reorganisation met re sistance from the cooperation's entrenched centralised structure. Always uncomfo rtable with face-to-face communications, he issued periodic memos exhorting empl oyees to increase productivity. Internal strife increased as blue- collar and wh ite-collar employees alienated, and the top management team beacame ineffective. QUESTIONS 1. Which of the management functions (planning, organising, leading, and co ntrolling) does Srikanth perform well ? Which of the management functions does h e perform poorly ? 2. What do you think Srikanth should have done ? It 'AC succ cust th a] ir tt d u 1 I CHAPTER 16 OBJECTIVE TYPE QUESTIONS Q. 1 State whether the following statements are True or galse justifying your an swer. All economic activities are aimed at earning one's living. The term industry always means manufacturing of products. The entire society constitutes the environment of a business firm. A business that does not earn profits would have to be wound up sooner o r later. Earning profits is the sole objective of business. (/) Both industrial and commercial activities are parts of business. (g) Entrepot trade involves both importers and exports. (h) Different components of business system function independently. a (/) No business enterprise can earn profits without creating customers. Q. 2 Select the correct answer in each of the following statements : (i) Business consists of : (a) Industry (b) commerce (c) trade {d) all the above. (ii) A poultry farm is : {a) Extractive industry (b) Manufacturing industry (c) Genetic industry (d) Cons truction industry. (iii) Business System is : (a) complex (b) creative (c) dynamic (d) all the above. Q. 3 Answer in'Yes'or'No': (a) A person growing vegetables in his kitchen garden for his family is a bu siness. (b) A housewife buying garments from a wholesale market and selling them to her neighbours is not in a business. (c) Only graduates can carry on business. (d) A fresh commerce graduate can start practice as a chartered accountant. Q. 4 State whether the following statements are True or False : (a) Taking photographs of mountains as a hobby is an economic activity. [16.1] (b) (c) (,d) (e) (J) Teaching in a school is a non-economic activity. Service or employment is an economic activity. Business involves buying and selling of goods and services. Running a hair-cutting saloon is a business. Occupations of doctors, lawyers and chartered accountants are

called professions, (g) Economic activities are undertaken for earning a living. Q. 5 Answer the following in Yes or No : (a) A business activity can be carried out without sale or exchange. (b) Business involves the creation of utilities. (c) A business activity may be without a profit motive. (d) Risk is an essential element of every business'activity. (e) Earning profits is the sole objective of business. (/) Business is an e conomic activity. (g) Profession involves greater risk than business. Q. 6 Name the following : (a) The industry in which useful products are obtained from the earth and th e sea. (b) The trade in which goods are imported and exported to some other country . (c) The branch of commerce which removes the hindrance of time. (d) Buying and selling of goods in small quantities. Q. 7 Fill in the blanks : (,a) Business = Industry + (b) means the production of goods and services. (c) Commerce includes trade and (d) Conversion of raw materials and component parts into finished industry. industry. products is known as (e) Agriculture is an if) Transport removes the hindrance of Q. 8 State whether the following statements are True of False : (.a) Industry and Commerce are interchangeable terms. (,b) Commerce is a wider term than trade, (c) Trade between two countries is known as internal trade. (</) Conversion of cotton into cloth is an example of genetic industry. (e) Business includes trade, commerce and industry but not services. (f) Business is non-economic activity. (g) Industry, trade and commerce are not interrelated. (h) A system is a set of sub-systems associated in a way that forms a coordi nated whole. (i) Marketing Mix includes product, price, place and process. (j) Working ca pital includes the current asset's and fixed assets. (k) Marketing involves activities concerned with transferring goods already produced to the customer. (I) Process layout is also known as line layou t. (m) Motivation is one of the most important managerial functions of a human r esource management. Q. 9 Match the following terms : A B Trade Warehousing Time utility Transport Banking Risk Insurance Buying and selling Place utility Financing Q. 10 Select the correct answer in each of the following statements : (a) Working capital means : Current Assets minus Current Liabilities Fixed Assets minus Fixed Liabilities Fixed Assets minus Current Assets Capital minus Current Liabilities (b) Shares can be transferred easily in case of : Public Limited Company

Private Limited Company Partnership Firm Proprietary Firm Q. II State whether the following statements are True or False : (a) Human being s undertake only economic-activities. (,b) Non economic activities are performed to earn money. (c) An employee is paid in the form of wages or salary. (d) A profession has to follow a code of conduct. (e) Risk is present only in large business. (/) Business activities involve production and exchange of goods and services fo r value. Q. 12 Fill in the blanks: (a) Business consists of Cb) (c) (J) (e) (/) trade. (b) Commerce includes trade and removes the hindrance of risk. Hindrance of time is removed by removes the hindrance of distance. and commerce. External trade comprises import, export and ... Q. 13 State whether the following statements are True or False: (a) A sole proprietorship firm is owned by one person only. (b) There is no sharing of profit/loss in sole proprietorship. (c) The members of a joint Hindu family business are known as coparceners. Q. 14 Match the following: (a) Single ownership (b) Membership by birth (c) One person one vote (d) Maximum 10 persons (0 Partnership (ii) Sole proprietorship (Hi) Joint Hindu family business (z'v) Cooperative society Q. 15 State with reasons whether the following statements are True or False: (a) Technical skills are equally important for all managers. (b) Conceptual skill implies ability to use tools, procedures and techniques . (c) Unity of command means that a manager must issue the same instructions t o all his subordinates. (d) Each managerial function is a step towards coordination. (e) Analytical skills imply breaking down a problem in soluble components. (f) Lower level management is also called strategic management. (g) Coordination is best achieved by order and force only. (h) Human skill is required only at the lower level of management. CHAPTER 17 COMMERCIAL ABBREVIATIONS A B/E Bill ofExchange X A b/f Brought Forward

A1 First Class Bxs. Boxes @ At the rate of B/L Bill of Lading a.a.r., a.r. Against all risks (Insurance) B/O Branch Office ab init. ab initio (from the beginning) B/R Bill Reeivable abt. About B/P Bill Payble A/S Account Sales Bros. Brothers A/C Account Current B/S Balance Sheet ale Account Br. Bought Ad/A.D. After date; ack, due B/C Bill of Collection Agt. Agent Bona fide In good faith Amt. Amount bdl. Bale Arr. Arrival B. ofT. Board of Trade A. P. Additional Premium Ad. val. Ad valorem (According to c value) A.M. Ante Meridiem (Before Copyright Noon) C.A. Chartered Accoun ads., advts. Advertisements cap(s) Capital Letter(s) A.I.A. Associate of the Institute of C.B. Cash Book Actuaries cert., certif. Certificate anon. Anonymous Cat. Catalouge Ans. Answer Chq. Cheque a/o Account of C.O.D. Cash on Delivery a/or And / or C.I.F., cif Cost, Insurance ar appor. approbation; approval Freight a/s After Sight C/F. Cost and Freight av. Average C.H. Clearing House; & And Customs House C.N. Credit Note o Co. Company bal. Balance Com. Commission B.Com. Bachelor of Commerce C.W.O. Cash with order b/d Brought down C.P. Charter Party B/D Bank Draft Cs. Cases C/D Cash Order Cr. Credit c.d. Cum Dividend c/d Carried down c/f Carried forward Con. Inv. Consumer Invoice C/o Care of Cent. Centum Carr. Carriage con. Contra; against, in opposition to contd. Continued C.T.D. Cumulative Time Deposit ctge Cartage C.W.S. Co-operative Wholesale Society cr. Credit cur Current Cwt. A hundred weight (11 LBS.) D D/A Document against acceptance D/B Day Book D/D Demand Draft D/d Days after date

Dft. Draft D.L.O. Dead Letter Office D/N Debit Note; Delivery Note D/O Delivery Order D/S Days after sight do Ditto (the same) doz. Dozen D/P Documents against Payment Dr. Debtor; Doctor D.V. Deo volente; God willing d/y; delay Delivery Dept. Department Div. Dividend Del Cre Del Credere Dis. Discount D/R Dwt. D.W. Deposit Receipt Penny Weight Dead Weight: Dock Warrant D.F. Dead Freight D.C. Deviation clause E ea. Each E.C.G.D Export Credits Guarantee Department ed. Edition ED. P. Electronic Data Process E.E. Errors excepted E.E.C. European Economy Community (known as the 'Common Market') E.F.T.A. European Free Trade Association Ends. Enclosures E.&.O.E. Errors and Omisions Excepted Etc. Et cetera (and others; and so on) e.g. exempli gratia; for example ent. entd. Entered Esq. Esquire ex div., e.d. Exclusive of dividend exd. Examined exor. Executor ex. Expenses E.I. Endorsement Irregular F Fol. Folio f.o.b. Free on Board Fr. France Frt. Freight F.O. Firm Offer F.P. Fire Policy f.a.a. Free of all average F.A.O. Food and Agricultureal Organisation I F.A.S. Free Alongside Ship I.O.U. 1 Owe You F.I.I.M Fellow of the Indian i.e. Id est (that is) Institute of Management Int. Interest

F.I.A. Fellow of the Institute of LB. Invoice Book Actuaries I.A.T.A. International Air F.I.R. First Information Report Transport Association F.O.B Free on Board ib., ibid. ibidem; in the same place F.O.R. Free on Rail I/c Incharge f.o.s Free on steamer I.C.I. Imperial Chemical Industries f.o.t. Free on truck Id. or idem The same as that last f.p.a Free of particular average mentioned ft. Feet; foot inc., incorp. Incorporated fwd. Forward insce. Insurance F.S.S. Fellow of the Statistical Inst. Instant, i.e. this month Society intr. Interest G inv. Invoice ital. Italic Govt. Government J G.M.Q Goods of Merchantable Quality Jr., Junr. Junior G P.O. General Post Office J/A Joint Account Gr. Gross. J. P. Justice of Peace G.A. General Average (Insurance) June. Junction G.A.T.T. General Agreement on Tariffs and Trade K G.A.V. Gross Annual Value Gen. General kg.,kilo Kilogram G.T. Goods Train km. kw. Kilometer Kilowfatt (1,000 watts) H L H.O. Head Office H.P. h. & c. H.Q. hr. h.w.m. Horse Power lb. Pound hot and cold (water) L/C Letter of Credit Headquarters Ltd. Limited Hour L/A Letter of Authoriiy High water mark lit. Litre l.w.m. Low water mark. M

O.P Open Policy o/a On account (of) M/S Messieurs O.A.P. Old Age Pension Memo. Memorandum o/c Overcharge M/D Months after date o/d On demand Mfg. Manufacturing O.E.C.D. Organisation for Economic Mss. Manuscripts Cooperation and M.O. Money Order development M/R Mates' Receipt O.K. All Correct Mme.. Madam 0. & M. Organisation and Methods m. Meter; million; minutes o/o Order of max. Maximum OR. Owner's Risk M.Com. Master of Commerce 6rd. Ordinary M.B.A. Master of Business O.S. Old Style Administration P med. Medium m.p.h. Miles per hour P. A. Power of Attorney m.p.g. Miles per gallon p.a. Per annum Mr.. Mrs. Mister; Mistress P/C Prices Current; Petty Cash M/s Months after sight Pkg. Package

P.C. Pesonal Computer P/S Post-script N.B. Nota bene (take note) Pel Parcel No. Number Pd. Paid N/R No Risk p.c. percent; psot card N/A New Account pd. paid N/E No Effects P.N. Promissory Note N/F No Funds P.O. Postal Order N.S. Not Sufficient p.m. Post meridien. i.e. afternoor N.O. Not Order pp. Parcei Post N.P. Notary Public prox. proximo (next month) Net Wt. Net Weight P.A. Personal Assistant n.d. No date; not dated p.p.i. Policy profit of interest N.E.D.C. National Economic Development par. Paragraph Council PEP Political and Economic N.P.C. National Productivity Council Planning N.R. No Risk (insurance) PIN P.M.G. Postal Index Number Post Master General o P.P.F. P.S. Public Provident Fund Post Script O/d On Demand P.T.O. Please Turn Over Oz. Ounce Pro.tern. Pro tempore, i.e.. for the time being Pro forma As a matter of form P/N Promissory Note Prem. Premium Q Q.E.D. Quod erat demonstrandum (which was to be proved) Qlty. Quality Q.E.F. Quod erat faciendum; which was to be done Q.M.G. Quartermaster-General qr. quater R Re. with regard to Regd. Registered Reed. Received Rect. Receipt Rly. Railway Retd. Returned; retired Ref Reference R.P. Reply Paid Rs. Rupees R.M.S ^ Railway Mail Service RSVP Reply if you please * R/D Refer to Drawer rm. Ream s Sh. Shilling Sd. Signed Sec.,Secy. Section; Secretary Senr., Sr. Senior Sq. Square Sch. Schedule S.L. Salvage Loss (Insurance) Stk. Stock S.O. Seller's Option, Section S.S. Steam Ship Stg. Sterling T T.T. Telegraphic Transfer T.M.O. Telegraphic Money Order Tel. Telegram T.B. Trial Balance

T.L.O. Total Loss Only Tr. Trustee T.U.C. Trade Union Congress u Ult. Ultimo (past month) u.c. upper class U.N.O. United Nations Organisatic u/w Underwriter V Via By way of Vide . See Vol. Volume Viz. Viddelicet (namely) vs. Versus (against) V. versus; against VIP Very Important Person V.P. Vice-President V.V. Vice versa w Wt. Weight W.W. Warehouse Warrant W/B Way-bill Wd. Warranted WHO World Health Organisation wk. Week W.P.B. Waste Paper Basket w.p.m. Words per minute

Officer X Y Yard x.c. ex (without) coupon Yd. x.d. ex (without) dividend Yr. Year; your x.i. ex (without) interest SIGNS AND SYMBOLS Pound sterling $ Dollar 4to Quarto 8vo Octavo % Percent % Per mile; per thousand Beacause; since Therefo re 0 Degree x by APPENDIX Question Papers End-term Examination GGSIP University, Delhi First Semester BCA] December-2002 Paper Code: BCA/BIS-103 Time : 3 Hours Subject : Business Organisation & Management Max. Marks : 75 Note : Q.l is compulsory. Attempt Any Finve questions from the rest. Q. 1 Write short notes on Any Ten of the following: (i) Variables of legal Environment (ii) Merits of partnership form of Business Organization. (iii) Operative Employee, Manager and a leader.

(iv) Authority and power (v) Motive, Motivation and Motivators. (vi) Permanent and variable working capital. (vii) Debt v/s equity Capital (viii) Intermittent Manufacturing (ix) Job enlargement and Job enrichment (x) Sales promotion, promotion and advertising (xf) Career planning (xii) Compensation Management (xiii) Marketing Research Q. 2 "Business is an open system." Elucidating this statement define and discuss the nature of the 'Business system'. Also bring about relationship with its env ironment. 3,3,4 2.5x10 Q. 3 Enumerate and explain the Fayols 14 principles of management. Briefly also analyze the extent to which these are now found applicable to a contemporarty or ganization. 7,3 Q. 4 Define the phrase "Production Planning and Control". Describe the major ele ments involved in organizing production activities. 4,6 Q. 5 Describe the process of 'Manpower Planning'. 10 Q. 6 Critically examine the different models of organizational Behaviour. 10 Q. 7 (a) In What way "Training and development efforts of an organization" ensur es its effective functioning? 5 (b) Of the two "Over-capitalisation' and under-capitalisation. Which is a greate r evil? And how? 5 Q. 8 (a) Examine the role of 'advertising' in accomplishing warranted results fo r an organization within reference to current scenario. 5 (b) Briefly mention the merits and demerits of the vital sources of funds. 5 End-term Examination GGSIP University, Delhi First Semester [BCA/BIS) December-2003 Paper ID : BCA/BI S-103 Subject : Business Organisation of Management Time : 3 Hours Max. Mar ks : 75 Note: Attempt Any Five questions. AH questions carry equal marks. Q. 1 Identify and contrast the three general management roles. Q. 2 "Organisatio nal behaviour is an applied behavioural science that is built upon contributions from disciplines of psychology, sociology, anthropology and political science". Elucidate the statement. Q. 3 What can organizations do to help employee develo p their careers? What can individuals do to foster their own career development? Q. 4/What are the different types of budgets? Explain how budget can be used for control? Q. 5 Describe the role of PERT and CPM inproject management. Q. 6 Describe the various methods of consumer promotions. Give suitable illustrations of consumer promotions. Q. 7 Discuss how management functions of p lanning and control are correlated. Differentiate between operational control and strategic control. Q. 8 Explain th e following:- (Any Three) (a) Contingency model of organizational behaviour. (b) Taylor's scientific management (c) _ _HrfzSefg two factor theory (d) Just in time inventory system (e) Working capital management. A.2 End-term Examination GGSIP University, Delhi First Semester BCA/B1S(H) December-2004 Paper ID: BCA/BIS-103

Time : 3 Hours Subject : Business Organisation & Management Max. Marks : 75 Note: Attempt Any Five questions. All questions carry equal marks. Q. 1 Explain the concept and features of business system. Discuss the legal and economic environment of Indian business. Q. 2 Explain the need of management principles and describe the functions of man agement. Q. 3 What is meant by Organisational Behaviour? Explain the need of studying Org anisational Behaviour. Also highlight the contribution of psychology and sociolo gy to the field of Organisational Behaviour. Q. 4 State the objectives of Production Planning and control and explain the ele ments of Production and Control. Q. 5 "The activites involved in HRM pervade the entire Organisation, they are no t performed solely by those in the Personnel Dept." Elaborate this statement and explain the steps in man power planning. Q.6 Define the. terms 'marketing concept' and 'sales promotion' Discuss any four methods of sales promotion giving suitable examples. Q.7 Distinguish between any two of the following: (a) Fixed capital and working capital Jh).Pa'rtnership and Company Training and Development "Budgeting is a tool of planning and control". Comment (b) "Motivation is the co re of management" Comment Q.9 Write notes on any three of the following:(a) Autocratic model of Behaviour (b) Uses of job analysis. (c) Steps in Organisation. (d) Career plahning. (e) Marketing mix. End-term Examination GGSIP University, Delhi First Semester BCA/BIS(H) December-2004 Paper ID: BCA/BIS-103 Time : 3 Hours Subject : Business Organisation & Management Max. Marks : 75 Note: Attempt Any Five questions. All questions carry equal marks. Q. 1 Explain the concept and features of business system. Discuss the legal and economic environment of Indian business. Q. 2 Explain the need of management principles and describe the functions of man agement. Q. 3 What is meant by Organisational Behaviour? Explain the need of studying Org anisational Behaviour. Also highlight the contribution of psychology and sociolo gy to the field of Organisational Behaviour. Q. 4 State the objectives of Production Planning and control and explain the ele ments of Production and Control. Q. 5 "The activites involved in HRM pervade the entire Organisation, they are no t performed solely by those in the Personnel Dept." Elaborate this statement and explain the steps in man power planning. Q.6 Define the. terms 'marketing concept' and 'sales promotion' Discuss any four methods of sales promotion giving suitable examples. Q.7 Distinguish between any two of the following: (a) Fixed capital and working capital ^JbJPa'rtnership and Company Training and Development

"Budgeting is a tool of planning and control". Comment (b) "Motivation is the co re of management" Comment Q.9 Write notes on any three of the following:(a) Autocratic model of Behaviour (b) Uses of job analysis. (c) Steps in Organisation. (d) Career plahning. (e) Marketing mix. End-term Examination GGSIP University, Delhi First Semester [BCA] December-2005 Paper ID: BCA 103 Subject : Business Organisation & Management Time : 3 Hours Max. Marks : 75 Note: Attempt Any Five questions. All questions carry equal marks. Q. 1 Define Business. Distinguish between Industry, Commerce and Trade. Q. 2 Des cribe Henry Fayol's Principles of Management along with functions of Management: Q. 3 Explain need of understanding human behaviour in organization. Distinguish between formal and informal organization, sociology to the field of Organisation al Behaviour. Q. 4 Explain Principles of Scientific Management as defined by F.W . Taylor. Also mention contribution of frank Gilreth in this regard. Q. 5 "Management Planning seeks to achieve a co-ordinated structure of operation" Comment. What are characteristics of goodplanning? Q.6 How will you motivate you r employee? Explain Maslow's Theory of Motivation. Q.7 What are various sources of finance for raising capital for longterm requirements of a company? Q.8 Define Marketing Concepts. Describe its main components. Q.9 Define Salesmanship. What are requisites of an effective Salesmanship?

BUSINESS ORGANISATION AND MANAGEMENT End-term Examination Time : 3 Hours GGSIP University, Delhi First Semester BCA] May-June-2006 Paper ID: 20104 Subject : Business Organisation & Management Max. Marks : 75 Note : Attempt Any Five questions. Question no. 1 is compulsory Q. 1 Answer any fine in short: (5*5=25) (a) What is business? (b) What are Henry Fayol's principles of management? (c) What are the different types of budgets?(d) Line and staff functions? (e) Why is there a need to understand human behaviour in organizations? (f) Define fixed & working capital. Q. 2 How important is the manager of a particular organization? What is his role ? (12.5) OR Discuss Taylor's Scientific Management in detail. Q. 3 What are the different fo rms of business organization? (12.5) OR Define environment. What are legal and economic environments? Q. 4 What are the different sources of finance? Which according to you, is the easiest to secure? (12.5) ^ OR ^TDefine job analysis and design. How are the two related to each other? Q. 5 Di scuss the various elements of production in detail. (12.5) OR

What are the few concepts of marketing? Which is the most important one? Note :Attempt All Five Questions concepts? Subject : Business Organisation & Management End-term Examination Second Semester [BCA April-May 2009 Paper Code: BCA-104 Q. 1 (a) "Budgeting is a tool of planning". Comment. (5x5=25) (b) What are line & staff functions? (c) What are the elements of production planning & Control? (d) "Business as a' system?". Comment. (e) Define Environment. Explain business, legal & economic environment. Q) 2 Define fixed and Working Capital. How do they differ from business to busin ess with their types? (12.5) OR What do you understand by HRM? What role does it play in day-to-day working of any business organization? (12.5) / / Q. Y What are the different roles of a manager? (12.5) OR ^^iow^<ryoy^define motivation? How does theory of Maslow & Herzberg differ from each other?(12.5) Q. 4 What is the need of training & development for the staff of any business or ganization? (12.5) OR How are Henery fayol's principles of management differ from Taylor's Scientific management? (12.5) Q. 5 What do you mean by Organizational behaviour? What are its main goals? OR fis the difference between sales & Marketing? What are their basic Max. Marks : 75 (12.5) 1. There are four main forms of business organisation. 2. Sole Proprietorship is one man business. Ease of formation, motivation, direct control, quick decisions, secrecy, flexibility, personal touch are its ma in advantages. Its disadvantages are limited funds, limited ability, unlimited l iability and uncertain life. 3. Partnership is a voluntary association of two or more persons who join t ogether to carry on a business. Its merits are : easy formation, large funds, di vision of work, flexibility, secrecy and personal supervision. Its 5.5 LEVELS OF MANAGEMENT In every company, there is a managerial hierarchy or chain of command which cons ists of several levels of authority. The number of management levels may differ from company to company. In. a big company, the management levels may be classif ied as follows : 1. Top management, 2. Middle management, and 3. Supervisory or operating management. In a very large enterprise the middle level management may he sub-divided into u pper-middle management and lower-middle management as shown in Fig. 5.3. CONCEPT AND NATURE OF MANAGEMENT 2. To assign jobs to workers and to make arrangements for their training and dev elopment. -3. To issue orders and instructions. 4. To supervise and control workers' operations and to maintain personal co ntacts with them. 5. To arrange materials and tools and to maintain machinery. 6. To advise and assist workers by explaining work procedures, solving thei

r problems, etc. 7. To maintain discipline and good human relations among workers. 8. To report feedback information and workers' problems to the higher autho rities. 5.6 SKILLS OF A MANAGER The job of a manager has become very challenging. Several skills are, therefore, required in order to be a successful manager. The skills of an effective manage r may be classified into four categories as given below : 1. Technical skills. Technical skills refer to the ability and knowledge in using the equipment, techniques and .proceduresinvolved in performing specific tasks. These skills require specialised knowledge and proficiency m the mechanic s of a particular job. Ability in programming and operating computer is, for ins tance, a technical skill. There are two things a manager should understand about technical skills, in the first place, he must know which skills should be emplo yed in his particular, enterprise and be familiar enough with their potentiality to ask discerning questions of his technical advisers. Secondly, a manager must understand both the role of each skill employed and the inter relationships bet ween the skills. 2. Human skills. Human skills consist of the ability to work effectively wi th other peopTe bo'th as individuais and as members of a group. These Tfre' required"'to''winXD-operatiorrofl^'efrand to build effective work teams. S uch skills require a sense of feeling for others and capacity to look at things from others' point of view. Human skills are reflected in the way a manager' per ceives his superiors, subordinates and peers. An awareness of the importance of human skills should be part of a manager's orientation and such skills should be developed throughout the career. While technical skills involve mastery of 'thi ngs', human skills are concerned with understanding of ^people'. 3. Conceptual skills. Conceptual skills comprise the ability to see the \vh ole organisation^<t^.dhterJiselationshTps between its parts. These skills Management is a process consisting of several interrelated elements. 6.1 NATURE OF MANAGEMENT PROCESS 1. Continuity: Management is a continuous or ongoing process. The cycle of management is never ending. It is repeated over again and again. 2. Circular: The elements of management process are interactive in nature. This means they are contained within one another. For example, planning, organis ing, staffing, directing and controlling all may occur within the planning proce ss. In a way, all functions may be considered as sub-functions of each other. A prec eding element of the management process influences all the succeeding elements a nd is in turn influenced by them. Therefore, management is a circular and not a linear process. This is shown in Fig. 6.5. Coordination at a Glance 1. Meaning. Creating unity of action in the efforts of different parts of t he organisation. 2. Nature. Essence of management; wider man cooperation. 3. Need. Large size, specialisation, and human nature. 4. Principles. Early start, direct contact, reciprocity, and continuity. 5. Techniques. Clear goals, unified programmes, clear lines of authority, s ound communication, effective leadership, voluntary cooperation. 3. Michael .1. Jucius, Op. cit., p. 25. 1 E.S.Buffa : Modern Production Management, p. 37. Intermittent system is much more complex than continuous production because ever y product h&s to be treated differently under the constraint of limited resource s. Intermittent system can be effective in situations which satisfy the followin g conditions: I M.K. Stair: Production Management Systems and Synthesis, p. I. I. Alford and Beatty : Principles of Industrial Management, p. 374. 1. What is production system? Explain its elements. 2. What is continuous/flow production? Explain its merits and demerits. Und er what conditions is it suitable?

3. What is intermittent production? In what conditions it is suitable? 4. What is job production? Explain its merits and demerits. 5. What is batch production? State its merits and demerits. 6. How will you organise the production function? State the responsibilitie s of a production manager. 7. Explain the relationship between production and marketing functions. 8. Explain the nature and scope of production management. 9. What do you understand by production planning and control ? Discuss its main elements or functions. 10. What are the four basic functions which constitute Production Planning ' and Control ? 11. State the activities involved in production planning and control functio n under ten convenient points. 12. What do you mean by loading of a production set up ? List five steps in carrying out loading over a sequence of operations.