Management concept. Human Resource Financial Resource Physical Resource Information Resource

Transcription

1 MANAGEMENT MODULE I

2 Syllabus Introduction Meaning Nature and characteristics of Management Scope and functional areas of Management Management as a Science, Art or Profession, Management & Administration Roles of Management Levels of Management Development of Management Thought- Early Management Approaches-Modern Management Approaches.

3 Management concept What is organization? Group of people working together in a systematic manner to achieve a set of goals Understanding Management from resourcebased perspective: Human Resource Financial Resource Physical Resource Information Resource

4 Resources in organizations 1]Human: managerial talent and labour 2]Financial: capital used to finance both ongoing and long term operations. 3]Physical: raw materials, office, production facilities equipment 4]Information: Usable data needed to make effective decisions

5 HOW DO MANAGERS COMBINE AND COORDINATE THE VARIOUS KINDS OF RESOURCES?

6 Management in organizations Mangers engage in above activities to combine 4 resources efficiently and effectively and to work toward achieving goals of the organization

7 What is management? A set of activities (including planning and decision making, organizing, leading, and controlling) directed at an organization s resources (human, financial, physical, and informational) with the aim of achieving organizational goals in an efficient and effective manner.

8 All sizes of organization top bottom All organizational areas manufacturing Accounting Finance HRM Management is needed in All types of organization Profit--non profit All organizational level Bottom top

9 Efficient Vs Effective Efficient 1. Doing the things right 2. Focuses on the process or means of doing things 3. Using resources wisely in a cost effective way and Getting most output from least amount of inputs 4. Efficiency restricted to the present state 5. Efficiency will look at avoiding mistakes or errors 6. Since efficiency is about doing things right, it demands documentation and repetition of the same steps. Doing the same thing again and again in the same manner will certainly discourage innovation Effective 1. Doing the right things 2. Focuses on achieving the end goal. 3. Making right decisions and successfully implementing them 4. Effectiveness involves thinking long term 5. Effectiveness is about gaining success 6. Effectiveness encourages innovation as it demands people to think, the different ways they can meet the desired goal.

10 Contd..

11 Who is a Manager? One who plans, makes decisions, organizes, leads and controls human, financial, physical and information resources. Helping others to do their work Responsible for getting things done

12 Other Definitions Management is the accomplishment of results through the efforts of other people: Lawrence A Appley Management is the art of getting things done through and with the people in formally organized groups Koontz

13 Nature & Characteristics of Management 1. Multidisciplinary: Because it includes knowledge, information from various disciplines like economics, statistics, psychology, sociology, operations research etc. Management integrates ideas and concepts taken from these disciplines and presents newer concepts which can be put in to practice for managing organizations. 2. Dynamic nature of principles: It tries to visualize problems before they turn in to emergencies & takes suitable steps. It tries to adapt itself to environmental changes quickly. According to Peter Drucker; Managers do not wait for future, they make the future

14 Contd.. 3. Relative not absolute principles: Management principles should be applied according to the need of the organization. A particular management principle has different strengths in different conditions 4. Universality of the management: Basic principles of management can be applied in all managerial situations regardless of size, nature and location of the organization. Universality of managerial tasks and principles also implies that managerial skills can be transferrable and managers can be trained and developed.

15 Contd.. 5.Management science or art: Management is both science as well as art. It s a behavioural science. 6.Management is a system of authority: A manager is supposed to get things done by using authority, rather than doing things himself. Authority means right to give orders and power to obtain objective from subordinates. It s a rule making and rule entering body in an organization.

16 Management Science or Art Art: Art is a systematic application of a skill or knowledge for the accomplishment of results It represents methods or ways of doing specific things to effect change and accomplish results through deliberate efforts.

17 Management as an Art Personal Skill: Manager has to use his skill, knowledge to solve many complimented problems on day to day basis. Practical Knowledge: Management does not merely mean systematic presentation of principles, these principles can be applied in practical to get better results Result Oriented: Management is concerned with accomplishment of objectives, it is result oriented and for that it leads, directs others towards attaining desired goals.

18 Regular Practice: Efficiency and effectiveness can be attained through regular practice. Like an artist manager also practices regularly so that he can work better and can get output in an effective and efficient manner Creativity: Any art work can be considered as a creative work. Like an art, management is one of the most creative arts as it deals with getting things done through others by motivating their efforts in an innovative manner

19 Science Science is a systematic body of knowledge that is developed through observation and experimentation and can be verified Scientific principles establish a cause and effect relationship between various factors Mere knowledge or collection of facts does not qualify as science. It is only when the gathered knowledge is verified in different geographies and over a period of time it becomes science

20 Management as a Science Systematic body of knowledge: Management is an organized body of knowledge built up by management practitioners, philosophers and thinkers by conducting extensive research and verification of the same over the years. Principles of management make use of scientific methods. Taylor applied scientific techniques like time and motion study, work study etc Cause and effect relationship: In management also cause and effect relationship is studied. Poor planning cause low productivity, lack of employee benefits, low salary cause high attrition, poor marketing cause less sales etc

21 Continuous observation: Principles of management have been developed on the basis of continued observations by many theorists and practitioners over a period of years. Validity and predictability: Scientific principles represent basic truth and can be applied at all times to all situations. In management also there are certain fundamental principles which can be universally applied and repeatedly tested to verify its validity and predictability, reliability

22 Management as pure science suffers from following limitations Principles of management don t always have a universal application. Unity of Command, which means reporting to one superior. It does not mean that he should not report to more than one boss, if superiors have better understanding, know how to balance between the advantages and disadvantages of multiple commands, an employee can have more than one superior. Human beings behavior can not be predicted Management lack certainty about the result.

23 Conclusion Science is concerned with knowing why and art is with the how of application management is a mixture of art and science. As an art it demands certain skills from its practitioner and as a science it provides its practitioner with a systematic body of knowledge comprising certain principles laws etc, which have been tested and verified. Management is a crude science because its application varies from person to person and from one situation to another. We can conclude that management is a behavioural science.

24 Is administration and management one and the same? No universally accepted view on this point. American school of thought says Administrators think- Top level function Managers do- Lower level function British School of Thought Management is wider concept than administration Administration is a lower level function of day to day activities Management is rule making and rule enforcing activity There is really no clear cut distinction between management and administration-govt. agencies have administration, Companies have Management

25 Attributes Administration Management Nature of work Concerned about the determination of objectives and major policies of an organisation. Type of function Determinative Executive Puts into action the policies & plans laid down by administration. Level of authority Top level activity Middle level activity Main functions Planning & organising Motivating & controlling Scope Nature of usage Takes major decision of an enterprise as a whole Popular with government, military, educational & religious organisations Takes decisions within framework set by administration Used in business enterprises.

26 Management as a profession Profession means an occupation backed by specialized knowledge, expertise and training. The following criteria identifies the statues of a profession to management: Profession is a body of specialized knowledge. Professional knowledge in systemized and codified form can be learned through formal education system. A profession emphasizes on having a central body to formulate a code of behavior for its members. A profession calls for rendering competent and specialized services to clients. A profession maintains the scientific attitude and commitment for discovering new ideas and upgrading in order to improve quality of service and level of efficiency provided to clients. A profession requires members to exercise restraint and self-discipline. Like a Doctor, Managers [consultants] do charge fees on services rendered.

27 Scope of management The scope defines the boundaries and the realm of a discipline. The scope of management comprises the following activities: Intellectual activities of management: as management involves getting things done through and with others, so most of managerial activities are intellectual activities. This enable the manager to accomplish his/her goals and objectives in an effective and efficient manner. Some of these activities are: planning, organizing, directing, coordinating, reporting, budgeting and controlling. Effective and Efficient utilization of resources: Attainment of productivity in the operations aimed at generating surplus is the key element of management. In other words, management represents an approach that is focused on transformation of inputs into desired outputs in an efficient manner.

28 Creativity and innovation: the key responsibility of management is to look for innovative solutions to the issues or concerns at hand. Management has to adequately balance the need for stability with the desired level of change for regularly aligning the organization with the changing business environment. Beyond Business administration: Management has been mistakenly equated only with the domain of business administration. This wrong perception has proved detrimental for the discipline of management as it has led to the exclusion of trained management professionals from organizations that do not fall under the purview of conventional trade and commerce. Even the institutes, which impart management education, are being increasingly termed as B-schools. Functional activities of management: the domain of management is classified into a number of specialized functions. Some of the select and leading functions of management are: Financial management, marketing, sales and distribution management, human resource management, production management, R&D management, Purchase management, supply chain management, office management etc.

29 Functions/Process of Management

30 These solid lines describe basic logic between activities theoretically. Practically, dotted arrows show that most managers engage in more than one activity at a time and often move back and forth between the activities in unpredictable ways. Manager is likely to be engaged in different activities simultaneously. Functions of management don t usually occur in a tidy, stepby-step fashion. Managers are constantly engaged in many different activities. A manager may be helping a colleague develop goals for the next quarter-planning, discussing a proposed company restructuring- organizing, praising a subordinate for outstanding performance-leading, and checking on last month s sales information- controlling.

31 FUNCTIONAL AREAS OF MANAGEMENT Marketing management : marketing management is management process through which goods and services move from concept to customers. It is based on thinking about business in terms of customers needs and satisfaction. As practice it consist in coordination of four elements a) identification, selection and development of product b) determination of its price c) selection of distribution channel to reach customers place d) development and implementation of promotional strategy. Human resource management : is defined as acquiring, developing, motivating, and maintaining human resources to meet the organizational goals. Human resource function include recruitment, selection, training and development, employee relations, compensation management, employee welfare, career planning etc.

32 Finance management : is planning, directing, monitoring, organizing and controlling of monetary resources in organization. It is concerned with resources allocation, resources management etc. it deals with matters related to money and money markets. Production and operations management : it is management of organizations productive resource or its production system which converts inputs into organizations products and services.

33 LEVELS OF MANAGEMENT Top level management Middle level management Lower level management Cont..

34 Managing at Different Levels of the organization: TOP LEVEL MANAGEMENT Small group of executives who manage the overall organization, the strategic level. It is highest level in managerial hierarchy and ultimate source of authority in organization. Top level managers are accountable to owners and all stake holders of the organization and responsible for overall management of company. Major functions of top level management are : I. To make corporate plans for the entire organization. II. III. IV. To decide upon matters which are vital for survival like profitability and growth of company. To allocate resources for various projects and department. To direct middle and lower level management in company.

35 MIDDLE LEVEL MANAGEMENT [middle level managers ] A large group that implement the strategies developed at the top. Some of managerial positions are created at middle level management in order to fulfill the gap which exist between functional and operational level. Middle level management consist of departmental managers, deputy managers, administrative managers etc. Functions of middle level managers are I. To prepare departmental plans within framework of corporate plans give by top level management. II. To establish departmental goals III. To decide about means of achieving goals IV. To monitor lower level managers by coordinating their activities.

36 LOWER LEVEL MANAGEMENT [First-Line Managers] Lowest point in managerial hierarchy is represented by lower level management. Supervise and coordinate the activities of operating employees. This level consists of supervisors, inspectors, section officers etc. Functions of lower level management are : a) To get things done by core group of workers at operational level. b) To prepare plans for their activities c) To issue orders and instruction d) To guide and assist workers e) To motivate workers.

37 ROLES OF MANAGEMENT Henry Mintzberg a contemporary management thinker has done research on various roles performed by manager. A role according to him is an organized set of behavior belonging to an identifiable office or position. He has classified 10 managerial roles in three broad categories : Interpersonal roles : managers have to work with many people in organization. Because of their formal authority and superior status, managers have to establish good interpersonal contact with subordinates peers and superiors. Informational roles : information is life blood of any organization and every manager is a clearing house of information related to various task on hand. Decisional roles : involve around making choices among available alternatives. Through decisional roles, strategies are formulated and put into action.

38 INTERPERSONAL ROLES a) Figure head role : symbolic head. Need to perform number of routine duties. Greeting visitors, represent company or community events, welcome new staff etc. b) Leader : role to motivate, influence and direct subordinates, staffing, training. All activities of managers involve handling subordinates. c) Liaison : connect people outside and maintaining network of contacts like buyers, suppliers, strategic partners. It involves mail coordinating external board work.

39 INFORMATIONAL ROLES a) Monitor : scan environment and receive wide variety of information from internal and external sources to understand organizational environment. Handling mails, contacts, reading periodicals and reviewing. b) Disseminator : transmitting subordinates information to inform staff about company related matters. The manager passes some of his privileged information directly to his key subordinates who would otherwise have no access to it. c) Spokesperson :deliver information to specific person to individual and groups outside. It comprises of holding board meeting, press conference etc.

40 DECISIONAL ROLES a) Entrepreneur: In this role, the manager proactively looks out for innovation to improve his organization. searches of new opportunity projects, methods, products. Strategy making, new product launch entry into new markets. b) Disturbance handler: in this role addressing unanticipated problems. Handling issues like excess inventory, production breakdown etc. c) Resource allocator: allocating organizational resources like money, materials. Which includes budget allocation, decision like who should get what. d) Negotiation: representing organization for various negotiations like union management negotiation, sales negotiation, purchase negotiation etc.

41 Managerial Skills Conceptual Skills Mental ability to analyze and diagnose complex situations Allow Managers to see how things fit Human Skills Ability to work with, understand, mentor and motivate others Both individually and as a group Many managers fail in this Technical Skills Ability to apply specialized knowledge or expertise

42

43 Evolution of management thought Introduction First known management ideas were recorded in 5000 BC when Sumerian Traders developed written records for government The Egyptians used management functions of planning, organizing, and controlling when they constructed the pyramids. Roman empire and their military hierarchy, public administrative systems.

44 Evolution of Management Thought Evolution of management Thought Early Management Approaches Modern Approaches Early Classical Approaches Neo Classical Approaches Quantitative Approach System Approach Contingency Approach Scientific Management Administrative Mgt Bureaucratic Organization Human Relation Approach Behavioural Science Approach

45 Classical Approach Scientific Management Frederick Winslow Taylor( ) Graduated in science and engineering through evening study joined as worker at Midvale steel works joined Bethlehem steel company as Engineer Acknowledged as Father of scientific Management

46 Steps in Scientific Management

47 Frederick Winslow Taylor is considered to be father of scientific management. During his career span of 26 years, he conducted series of experiment in three companies at this time Taylor made several important contributions which are classified under scientific management : 1. Time and motion study : Taylor focused in time duration required by employees to accomplish given task, in which he timed motion of job with help of a stop watch. Thus through this best way of doing job was found. 2. Differential payment : Taylor introduced payment plan in which employee remuneration is linked to performance of employee in company.

48 3.Drastic reorganization of supervision : Taylor suggested two new concepts in which he was of opinion that work should be planned by foreman and not by worker, secondly as there are special functions involved in doing a job and each of these foreman should give orders to workers based on their specialization. 4.Scientific recruitment and training : Taylor suggested that management should develop and train every worker to get best quality of output, desired behavior from employees in company. 5.Intimate friendly cooperation between management and workers : Taylor was of opinion that organization success depends upon effective cooperation and coordination between management and employee in company.

49 Limitations of scientific management It ignored human touch in an organization and viewed workers as machines Monotonous and boring job Exploitation device Harsh and difficult to perform

50 Administration Management Scientific management deals with improving efficiency and productivity of individual employees Administrative management focuses on managing whole organization. Henry Fayol [ ] is the main contributor to this approach

51 Henry Fayol [ ] A French Industrialist Regarded as Father of Modern Management Theory

52 Suggested conceptual framework for studying management by dividing industrial activities into 6 groups Technical Financial Security Accounting Managerial Commercial

53 Identified 5 managerial functions to carry out these activities; planning, organizing, commanding, coordinating and controlling. Fayol was the 1 st management thinker to recognize need for management teaching Believed that management was an activity common for all organizations including government agencies Published a famous book named General And Industrial Management In his book, he presented 14 principles of management for running an organization efficiently.

54 Fayol s 14 principles of management 1. Division of Work: division of total task lightens the work, specialization[one person does only one thing] increases the efficiency and output. 2.Parity between Authority and responsibility: managers should balance between both. They should have right to give orders and should own accountability for the task 3.Discipline: Respect of authority and following rules. Clarity of rules, built in rewards, punishments help to maintain discipline 4. Unity of Command: One should receive orders from only one superior 5. Unity of Direction: there should be single plan and head for each group of activity with same objective/ direction

55 6. Subordination of Individual interests to general interests Individuals interests should be harmonious with organization s interests. Integrate the both 7. Fair remuneration to workers: Remuneration should be based on cost of living, business condition. Additional works should get incentives. This increases morale and efficiency 8. Centralization: Major decisions should be taken by Top Management, operations level decision making power can be given to lower level. 9. Scalar Chain: Chain of superiors from highest to lowest ranks. Authority should run from top to bottom in proper channel 10. Order: there should be a place for everything and every thing should be in its place

56 11. Equity: managers should be kind and fair to their workers 12. Stability of tenure of personnel: Try to minimize employees turnover, build long term commitment, a sense of belongingness among their subordinates. Provide job security 13. Initiative: Managers should encourage their subordinates to take initiatives. 14. Esprit de corps:[ team spirit] Management should create team spirit among employees for harmony and unity

57 Bureaucratic Management Max Weber ( ) German sociologist Known as Father of Modern Sociology

58 Contd.. Focuses on development and implementation of rational guidelines like organization s structure, hierarchy of authority, rules and procedures, division of roles and responsibilities for managing work in an organization.

59 Weber s Principles of Bureaucracy

60 Neo Classical Approaches Behavioural Science Approach Unlike the classical management perspective, the behavioral management perspective placed more emphasis on individual attitudes and behaviors and on group processes recognized the importance of behavioral processes in the work place.

61 Elton Mayo[ ] and his associates conducted research [Hawthorne studies], a series of experiments that focused on behaviour in the workplace [ Hawthorne plant of Western Electric Company near Chicago.] First Study/Phase: Illumination Study [1924]: Study involved manipulating illumination for one group of workers and comparing their productivity with another group. But both the groups produced the same output

62 II Phase- Relay Assembly Test[1925] The experimental group of employees were given Freedom to fix work schedules Six breaks of five minutes per shift were allowed Work day and week were shortened Work was simplified Financial incentives for increased production Friendly supervision These kinds of special attention and treatment enhanced productivity ( i.e. Hawthorne Effect)

63 III Phase: [1928] Interviewing Program Interviewed employees to find the reasons for increased productivity Informal work groups and their productivity norms were recognized as the main causes for productivity

64 IV Phase: Bank Wiring Observation Room Experiment[1929] Team work and performance based incentives introduced Efficient workers did not pressure the others to work more for benefiting by incentive scheme. They formed group norms to regulate the productivity. Over produced named: rate busters Under produced named: chiselers

65 The group norms were Don t turn out too much work Don t turn out too little work Don t tell supervisors anything that would harm a colleague Don t be too officious-rather follow group norms Implications of Hawthorne studies Suggested managing through good human relations Involves motivating people, team work, group influence etc Consider the human factor as they are social beings

66 Human Relation Approach Proposed that workers respond primarily to the social context of the workplace, including social conditioning, group norms, and interpersonal dynamics. Human behavior in organizations is complex There are two theories on how employees behave; These theories are developed by Douglas McGregor Theory X and Theory Y

67 Theory X Here manager thinks that employees behave like this, they are negative, and scientific management can be applied Employees dislike work. Employees are irresponsible. Employees lack ambition. Employees resist change.

68 Theory Y Here manager thinks that employees behave like this, they are positive, and human relations should can be improved to get more productivity Employees are willing to work. Employees are self directed. They accept responsibility. Employees are creative. They are self-controlled. Douglas suggests that managers should follow Theory Y

69 Limitations of Neo Classical Approaches Focused more on group behaviour Human behaviour is complex in nature, so can t predict the results

70 Modern Approaches Quantitative Approach or Management Science Approach or Operations Research Approach During World War II, military people took some mathematical approaches to deploy its resources efficiently and effectively After war, Companies like DuPont, General Electric began to use some techniques for deploying employees, choosing plant location, planning warehouse etc. Concerned with applying quantitative techniques to management

71 Features Organizational efficiency depends upon quality of managerial decisions A problem can be expressed in the form of a quantitative/ mathematical model containing mathematical symbol and relationships Different variables in management can be quantified, expressed in the form of an equation.

72 Contributions Provided precise tools for decision making in areas like production, finance, costing, transportation and storage It has been widely used in planning and control Limitations Fails wherever human element is involved Most decisions involves human judgment

73 Systems Approach Developed during early 1960s Contributors: Kenneth Boulding, Johnson and Bernard etc System: An interrelated set of elements functioning as a whole Organizations are viewed as a system Basic types of system: Open System: organization that interacts with its environment Closed System: that doesn t interact with its environment

74 The Organization as an Open System Environment reacts to these outputs and provides feedback to the system

75 Sub systems Approach also focuses on sub systems: systems within a broader system Change in one subsystem can affect other subsystem E.g.: if purchase department does not acquire right quality of inputs [ raw material], production department will not be able to do its job efficiently Synergy suggests that organizational units or sub units may become more successful working together than working alone.

76 Example for synergy: Walt Disney Company s movies, theme parks, television programs, other licensed programs all benefit one another Entropy Is a normal process that leads to system decline When an organization does not monitor feedback from its environment and make appropriate adjustments, it may fail

77 Implications As per systems approach management should continuously re-energize the organization to avoid entropy Coordination of the organization s parts is essential for proper functioning of the entire organization. Decisions and actions taken in one area of the organization will have an effect in other areas of the organization. Organizations are not self-contained and, therefore, must adapt to changes in their external environment

78 Contingency Approach/Situational Approach Classical, neo classical and quantitative approaches considered universal perspectives, because they tried to indentify the one best way to manage organizations. Contingency Approach suggests there is no one best way of doing things under all conditions

79 Features Stresses that there is no best way of doing a thing. Conditions of contingency/situation will determine which technique would be most suitable Managers should prepare objectives, policies, procedures, rules and regulations according to situation of business Success in management depends upon the ability to cope with environmental demands Managers should sharpen their diagnostic skills to anticipate and comprehend environment changes

80 Limitations This approach lacks theoretical base Manager is required to think through all possible alternatives, as there is no clear cut principles to act upon.

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82 Module 2 Management & Entrepreneurship Module-2

83 Planning Function- Module 2 Meaning and nature, importance and purpose of planning process Objectives Types of plans Decision Making Steps in planning and planning premises Hierarchy of Plans Management & Entrepreneurship Module-2

84 Planning meaning Basic and important managerial function Thinking in advance A process of chalking out a future course of action for accomplishing a purpose of the enterprise. Bridge the gap between present and the desired future Helps to utilize available time and resources in an efficient and effective manner Management & Entrepreneurship Module-2

85 An exercise which determines in advance; The ends [what is to be done or achieved?] The means [how it is to be done?] The timing [when to do what?] The responsibility and accountability [who should do what?] The reason [why it should be done?] Management & Entrepreneurship Module-2

86 Planning transforms options and alternatives into a blueprint or a road map for future actions through selection and decision making Planning involves defining an organization's goals, establishing an overall strategy for achieving those goals, and developing plans for organizational work activities. Can be done for entire organization corporate planning, business unit- business planning, division- divisional planning, department-departmental planning, at the level of an individual manager or employee -personal planning. Definition by George Terry: Planning is the selecting and relating of facts and the making and using of assumptions regarding the future in the visualization and formulation of proposed activities believed necessary to achieve desired results. Management & Entrepreneurship Module-2

87 Why Is Planning Important? What has to be done A task can not be accomplished if the manager is not aware of: How is it to be done When is it to be done Management & Entrepreneurship Module-2

88 Nature of Planning Planning is base for all management functions: as it is a basic function among all management functions and logically precedes the execution of all other managerial functions. Focus on objectives: a plan must concentrate on accomplishing certain objectives. It lays down the ways and the means to achieve them. It forecast which actions will tend towards the achievement of ultimate objective. Primacy of planning: Planning is the first of the managerial functions to be performed. It is based upon the organisational objectives. It is indispensable in every activity of the management. An intellectual process: involves creative thinking, imagination, foresight, evaluation, sound judgment and decision making. Management & Entrepreneurship Module-2

89 Future oriented and involves forecasting: is always concerned with looking into future. It is forward looking, trying to see, through the uncertain future, what lies ahead. Flexibility : the process of planning should be adaptable to changing environmental conditions. It is a bad plan that admits no modification. A plan must be adjustable, always ready to incorporate internal as well as external changes. Involves choosing among alternatives: it is concerned with selecting the best course of action from among the alternatives. Decision making is an integral part of the planning function of management. Planning and control are inseparable: acts as pre-condition for one another Management & Entrepreneurship Module-2

90 Why Do Managers Plan? Purposes of Planning Provides direction Reduces uncertainty Minimizes waste Sets the standards for controlling Avoids repetition of certain activities. Provides performance standards. Management & Entrepreneurship Module-2

91 IMPORTANCE OF PLANNING Minimises Risk and Uncertainty: In today s increasingly complex organisations, intuition alone can no longer be relied upon as a means for making decisions. This is one reason why planning has become so important. By providing a more rational, fact-based procedure for making decisions, planning allows managers and organisations to minimise risk and uncertainty. Planning does not deal with future decisions, but with the futurity of present decisions. Leads to success: Planning does not guarantee success, but studies have shown that, often things being equal, companies which plan not only outperform the non planners but also outperform their own past results. With the help of a sound plan, management can act proactively and not simply react. It involves an attempt to shape the environment on the belief that business is not just the creation of environment but its creator as well. Management & Entrepreneurship Module-2

92 Focus Attention on the Organisation s Goals: This makes it easier to apply and coordinate the resources of the organisation more economically. The whole organisation is forced to embrace identical goals and collaborate in achieving them. Facilitates Control: In planning, the manager set goals and develops plans to accomplish these goals. These goals and plans then become standards or benchmarks against which performance can be measured. The function of control is to ensure that the activities conform to the plans. Thus, control can be exercised only if there are plans. Train executives: Planning is also an excellent means for training executives. They become involved in the activities of the organisation and the plans arouse their interest in the multifarious aspects of planning. Management & Entrepreneurship Module-2

93 Difference between Strategic and Tactical Planning Strategic Planning It decides the major goals and policies of allocation of resources to achieve these goals. It is done at higher levels of management. Middle managers sometimes are not even aware that strategic planning is being considered. Tactical Planning It decides the detailed use of resources for achieving each goal. It is done at lower levels of management. It is long-term planning. It is generally based on long-term forecasts about technology, political environment, etc. and is more uncertain. It is less detailed because it is not involved with day-to-day operations of the organisation. It is short-term planning. It is generally based on the past performance of the organisation and is less uncertain. It is more detailed because it is involved with day-to-day operations of the organisation. Management & Entrepreneurship Module-2

94 Types of Planning Management & Entrepreneurship Module-2

95 Based on Breadth Strategic Plans Apply to the entire organization. Establish the organization s overall goals. Seek to position the organization in terms of its environment. Cover extended periods of time. Operational Plans Specify the details of how the overall goals are to be achieved. Cover short time period. Different operational plans: policies, procedures, method, rules Management & Entrepreneurship Module-2

96 Based on Time Frame Long-Term Plans Plans with time frames extending beyond three years Short-Term Plans Plans with time frames on one year or less Guides day to day activities Management & Entrepreneurship Module-2

97 Based on Specificity Specific Plans Plans that are clearly defined and leave no room for interpretation Directional Plans Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation. Management & Entrepreneurship Module-2

98 Management & Entrepreneurship Module-2

99 Based on Frequency of Use Single-Use Plan A one-time plan specifically designed to meet the need of a unique situation. Standing Plans Ongoing plans that provide guidance for activities performed repeatedly. Management & Entrepreneurship Module-2

100 Planning Principles Plan should be in written Clearly defined objectives. Objectives should be specific, realistic, time bound. Should be approved by the person who is having authority Review of past performance and its feedback should be considered Should identify main issues Budgetary and other supporting activities should be done well in advance Timelines and milestones for implementation of plan need to be developed Should have contingency plan Should be reviewed periodically Management & Entrepreneurship Module-2

101 Steps in Planning Process Being aware of opportunities: It includes a preliminary look at possible opportunities and the ability to see them clearly and completely, a knowledge of where the organization stands in the light of its strengths and weaknesses, an understanding of why the organization wants to solve uncertainties, and a vision of what it expects to gain. This provides an opportunity to set the objectives in real sense because the organization tries to relate itself with the environment. Setting objective or goals: At this stage, major organisational and unit objectives are set. Objectives specify the results expected and indicate the end points of what is to be done, where the primary emphasis is to be placed, and what is to be accomplished by the various types of plans. Considering planning premises: After determination of organisational goals, the next step is establishing planning premises, that is, the conditions under which planning activities will be undertaken. Planning premises are planning assumptions-the expected environmental and internal conditions. Management & Entrepreneurship Module-2

102 Identifying alternatives: Based on the organizational objectives and planning premises, various alternatives can be identified. The concept of various alternatives suggests that a particular objective can be achieved through various actions. For example: if an organisation has set its objective to grow further, it can be achieved in several ways like expanding in the same field of business or product line, diversifying in other areas, joining hands with other organisations, or taking/over another organisation, and so on. Comparing alternatives in light of goals: Various alternatives which are considered feasible in terms of preliminary criteria may be taken for detailed evaluation. At this stage, an attempt is made to evaluate how each alternative contributes to the organisational objectives in the light of its resources and constraints. Choosing an alternative: After the evaluation of various alternatives, the most fit one is selected. Sometimes, evaluation shows that more than one alternative is equally good. In such case, a planner may choose more than one alternative. There is another reason for choosing more than one alternative because the future is not constant. Therefore, planner must be ready with alternative, normally known as contingency plan, which can be implemented in changed situations. Management & Entrepreneurship Module-2

103 Formulating supporting plans: After formulating the basic plans, various plans are derived so as to support the main plan. In an organisation there can be various derivative plans like planning for buying equipments, buying raw materials, recruiting and training personnel, developing new product etc. These derivative plans are formulated out of the main plan and, therefore, they support it. Quantifying plans by making budgets: Budgets for various periods can be prepared to give plans more concrete meaning for implementation. Implementation of plans: After formulating basic and derivative plans, the sequence of activities is determined so that plans are put into action. Based on plans at various levels, it can be decided who will do what and at what time. Review and revision: Managers need to check the progress of their plans so that they can take whatever remedial action is necessary to make the plan work, or change the original plan if it is unrealistic. Management & Entrepreneurship Module-2

104 Limitations of Planning Lack of accurate information Time consuming process Expensive Environmental constraints Capital invested in Fixed Assets limits planning Planning may create rigidity. Plans cannot be developed for dynamic environments. Formal plans cannot replace intuition and creativity. Formal planning reinforces today s success, which may lead to tomorrow s failure. Management & Entrepreneurship Module-2

105 Decision Making Decision Making a choice from two or more alternatives. Definition by George Terry: Decision making is the election based on some criteria from two or more possible alternatives Koontz & O'Donnel Decision is the selection from among alternatives of a course of actions Management & Entrepreneurship Module-2

106 The Decision-Making Process Identifying a problem and decision criteria and allocating weights to the criteria. Developing, analyzing, and selecting an alternative that can resolve the problem. Implementing the selected alternative. Evaluating the decision s effectiveness. Management & Entrepreneurship Module-2

107 Steps in Decision Making Management & Entrepreneurship Module-2

108 Identifying a Problem: Every decision starts with a problem, a discrepancy between an existing and a desired condition. Here sales manager representative need new laptops because their old ones are outdated and inadequate for doing their job. Identifying decision criteria: Once a manager has identified a problem, he or she must identify the decision criteria that are important or relevant to resolving the problem. Every decision maker has criteria that guide his or her decisions, even if they re not explicitly stated. In our example manager decides after careful consideration that memory and storage capabilities, display quality, battery life, warranty, and carrying weight are the relevant criteria for decision. Management & Entrepreneurship Module-2

109 Allocation weights to the criteria: If the relevant criteria aren t equally important, the decision maker must weight the items in order to give them the correct priority in the decision. A simple way is to give the most important criterion a weight of 10 and then assign weights to the rest using that standard. Developing alternatives: The fourth step in the decision-making process requires the decision maker to list viable alternatives that could resolve the problem. This is the step where a decision maker needs to be creative. Analysing alternatives: Once alternatives have been identified, a decision maker must evaluate each one. There are times when decision maker might not have to do this step. If one alternative scored highest on every criterion, you wouldn t need to consider the weights because that alternative would already be the top choice. Management & Entrepreneurship Module-2

110 Selecting an alternative: The sixth step in the decision-making process is choosing the best alternative or the one that generated the highest total in step 5. Implementing the alternative: In step 7 in the decision-making process, you put the decision into action by conveying it to those affected and getting their commitment to it. Evaluating decision effectiveness: The last step in the decision-making process involves evaluating the outcome or result of the decision to see if the problem was resolved. If the evaluation shows that the problem still exists, then the manager needs to assess what went wrong. The answers might lead you to redo an earlier step or might even require starting the whole process again. Management & Entrepreneurship Module-2

111 Types of Decision 2 Categories: 1. Programmed Vs Non Programmed Decisions [based on nature of decision making] Programmed Decisions Non Programmed Decisions Decisions taken for frequent and repetitive activities Less use of judgement Decisions made by using predefined rules and regulations Decisions taken for non repetitive problems, unique problems More use of judgment Decisions made by using experience, creativity Management & Entrepreneurship Module-2

112 2. Based on Managerial functions Strategic Decision Tactical Decision Operatonal Decision Provides direction to Decision taken in order to organization by establishing implement and support strategic vision, mission and long term decision goals Critical and very important for organization Have long term impact and costly to organization Taken by Top Management Are moderately important to organization Have moderate impact and less costly compare to strategic decisions Taken by middle level management These are every day decisions taken to implement and support tactical decisions Less important compared to tactical and strategic decisions. Have short term impact and involve low cost. But series of poor operational decisions can cause a serious damage to organization Taken by front line management; supervisors, team leaders etc ex: Decision to become a premium player or a mass producer If orgnization decides to become premium player, tactical decision can be whether to select a brand ambassadar or not deciding shift timings to employees Management & Entrepreneurship Module-2

113 Decision Making Conditions The decision maker faces conditions of: Certainty Risk Uncertainty Level of ambiguity and chances of making a bad decision Lower Moderate Higher Management & Entrepreneurship Module-2

114 Rationality Managers make consistent, value-maximizing choices with specified constraints. Assumptions are that decision makers: Are perfectly rational, fully objective, and logical. Have carefully defined the problem and identified all viable alternatives. Have a clear and specific goal Will select the alternative that maximizes outcomes in the organization s interests rather than in their personal interests. Management & Entrepreneurship Module-2

115 Exhibit 6 6 Rationality Assumptions of Management & Entrepreneurship Module-2

116 Bounded Rationality Managers make decisions rationally, but are limited (bounded) by their ability to process information. Assumptions are that decision makers: Will not seek out or have knowledge of all alternatives Will satisfice choose the first alternative encountered that satisfactorily solves the problem rather than maximize the outcome of their decision by considering all alternatives and choosing the best. Influence on decision making Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong. Management & Entrepreneurship Module-2

117 Intuitive decision making Making decisions on the basis of experience, feelings, and accumulated judgment. Management & Entrepreneurship Module-2

118 Various Techniques used for Decision Making Individual Decision Making Techniques 1. Risk Analysis: Involves analyzing the risk involved in each alternative. 2. Decision Trees Various decision alternatives and their outcomes are displayed in the form of branches of a tree. Manager, out of his experience and intuition assigns probabilities to outcomes. Management & Entrepreneurship Module-2

119 Group Decision Making Techniques Brainstorming: A group of people are encouraged to develop creative ideas or solutions to problem. This can reduce fear of criticism by other members Nominal Group Technique: Encourages interaction among group members in a structured manner. Problem will be stated to group. Every member will work independently on problem, later all will discuss the solutions developed by each of the member. Each solution will get votes from all the members. A solution with highest votes will be adopted Management & Entrepreneurship Module-2

120 Delphi Group: Problem will be submitted to a panel of experts. The panel members never meet face to face, they don t even know other members. Experts contribute individually and their opinions will be combined and in effect averaged to get the best solution. Management & Entrepreneurship Module-2

121 Objectives Broad aims what an organization wants to achieve Derived from mission statement Shows what we want to accomplish, where we want to be, how we want to do. Objective example: To increase profitability To increase market share Enhance productivity Achieve innovation Management & Entrepreneurship Module-2

122 Setting Objectives It s a process of converting vision and mission into performance outcomes Objectives can be set following areas; Customer Service Employee Welfare Social Responsibility Management & Entrepreneurship Module-2

123 Traditional Objective Setting Management & Entrepreneurship Module-2

124 Points to remember while setting objectives: SMART Objectives S: specific what to achieve M: Measurable results should be measurable [ improving sales by 25% by next year] A: Achievable should not be too difficult to achieve the goal R: Realistic- Should be practical and reasonable T: Time bound- should be achieved in a time limit Objectives should be developed for both short term and long term period Management & Entrepreneurship Module-2

125 Planning Premises Assumptions about environment which affect planning activity George Terry: Planning premises are the assumptions providing a background against which the estimated events affecting the planning will take place Management & Entrepreneurship Module-2

126 Classification Internal & External Planning Premises Tangible & Intangible Planning Premises Controllable & Uncontrollable Planning Premises Management & Entrepreneurship Module-2

127 Planning premises: A] Internal and external premises: Internal- sales forecasts, policies, capital investment, skill of the labour force. External business environment, factors influencing product demand, factors influencing resource availability. General & economic environment Technological changes Government policies & regulations Population growth Political stability Sociological factors Demand for the product Management & Entrepreneurship Module-2

128 B] Tangible & Intangible premises: Tangible premises are those which can be quantitatively measured, population growth, industry demand, capital & resources invested in the organization. Intangible premises are those which are qualitative in nature and can not be measured, political factors, employee attitudes, business and economic environment etc. Management & Entrepreneurship Module-2

129 C] Controllable and non controllable premises: Non Controllable factors- strikes, wars, natural calamities, emergency, legislation, government rules Controllable factors- company policy, skill of managers, labour force, availability of capital Management & Entrepreneurship Module-2

130 Developing effective planning premises Identifying the premises Developing the alternative premises Verifying the consistency of the premises Communicating the premises Management & Entrepreneurship Module-2

131 Hierarchy Of Plans Top-Level Management Middle-Level Management Strategic Plans Tactical Plans Lower-Level Management Operational Plans Management & Entrepreneurship Module-2

132 Strategic Plans Long Range Plan. Time Frame:3 or more years. Top Management responsibility. Concerned with broad objectives of the organisation. Focus on planning and forecasting. Tactical / Intermediate Plans Intermediate Plan. Time Frame:2-3 years. Performed by managers at middle level. Concerned with integrating the work of various departments in the organisation. Focus on Coordination. Operational Plans Short range plan. Time Frame: one year. Done usually at lower levels. Covers day-today operations; implements internal goals. Focus on control, primarily. Management & Entrepreneurship Module-2

133 Management & Entrepreneurship Module-2

134 ORGANIZING AND STAFFING MODULE 3

135 SYLLABUS Nature and purpose of organisation Principles of organisation Types of organisation Departmentation Committees Centralisation Vs Decentralisation of authority and responsibility Span of control MBO and MBE(Meaning only) Nature and importance of staffing Process of selection and recruitment

136 ORGANIZING - MEANING The process of defining and grouping the activities of the enterprise and establishing authority relationship amongst them. Process of determining the activities to be performed, arranging these activities to administrative units, as well as assigning managerial authority and responsibilities to people employed in the organization. Deciding how best to group organizational activities and resources

137 Organizing involves: The identification and classification of required activities The Grouping of activities necessary to attain objectives The assignment of each group to a manager with the authority necessary to supervise it The provision for coordination horizontally [on the same or a similar organizational level] and vertically [ between various departments which are not on a similar organizational level] in the organization structure

138 DEFINITION Heney, Organization is a harmonious adjustment of specialized parts for the accomplishment of some common purpose or purposes Mc Farland, An identified group of people contributing their efforts towards the attainment of goals is called an organization George Terry, Organizing is the establishing of effective behavioural relationships among persons so that they may work together effectively and gain personal satisfaction in doing selected tasks under given environmental conditions for the purpose of achieving some goal or objective

139 NATURE/ CHARACTERISTICS OF ORGANIZATION Two or more persons: Organisation is a form of human association for achieving common goals. The human association consists of two or more persons. Common goals: The organisation exists to achieve some common goals. Structure ensures the smooth achievement of goals. Cooperative efforts: Structure permits members to work in a cooperative way, without any friction. The members combine their efforts with a view to achieve goals. Division of work: The work is divided into small parts and assigned to people working at various levels. This ensures speedy execution of work.

140 Communication : People communicate along specified routes. Mainly downward communication takes place in the form of superiors issuing commands, orders, directives, etc. Rules and regulations: Rules and regulations define the territorial jurisdiction of members. Members have to observe and implement these rules consistently. Pyramidal shape: Organisation structure takes a pyramidal shape, generally. Each superior will have a limited number of people reporting to him, at any point of time.

141 IMPORTANCE/PURPOSE OF ORGANIZATION Focus on and facilitate the attaining of objectives. Arrangement of positions and jobs within the hierarchy. Define responsibilities and line of authority of all levels. Creating relationships that will minimize friction. Effective managerial control of work and workers. Greater scope for adaptation, innovation and diversification in the face of any change in business environment. Smooth direction. Easy communication. Reduction in work-load of top management.

142 PRINCIPLES OF ORGANISATION Principle of objective: A common objective should be laid down for business as a whole and an organisation should be set up to achieve that goal. Principle of specialisation: Every individual should be assigned a duty according to his skill, education and qualification. Principle of co-ordination: To achieve the ultimate aim, there should be co-ordination of different activities of various departments.

143 Principle of authority and responsibility: the authority may be delegated but responsibility lies within the man, who has been allotted the work. The authority flows downward. Span of control: the span of control means number of subordinates to which an officer can supervise effectively. The number of subordinates should be such that supervisor should be able to control their work effectively. Scalar principle: this means the vertical placement of superiors starting from top and going to the lower level. The scalar chain is a pre-requisite. Sometimes known as the chain of command. Principle of unity of command: for making the organisation sound and clear, there should be a unity of command from top to bottom, i.e. a person should be answerable to one boss only. Each subordinate should have only one superior whose command he has to obey. Multiple subordination must be avoided, for it causes uneasiness, disorder, indiscipline and undermining of authority.

144 Principle of exception: this states that top management should interfere only when something goes wrong. If the things are done according to plans then there is no need for the interference of top management. Principle of simplicity: Organisation should be simple to be easily understood by every person. The authority, responsibility and position of every person should be made clear to avoid confusion. Principle of Efficiency: Objectives of the enterprise should be achieved at a minimum cost. The organisation should also provide job satisfaction to various employees.

145 TYPES OF ORGANISATION Business organisation and non profit service organisation: Business organisations: are organisations which are formed with the objective of earning profits. These organisations undertake different types of business activities with sole objective of creating surplus in the form of profit. They cannot survive and grow without making profits. Firms engaged in manufacturing, trading, services etc are examples of business organisations. Non profit service organisations: these organisations do not have primary motive of making profits, and they are formed to serve a specific community or a segment of a society. Thus they are formed for charitable purpose to serve the society. Rotary club, lions club, orphanages, charitable hospitals, schools etc are examples of non profit organisations.

146 Formal and informal organisation: Formal Organization According to Bernard, Formal Organization is a system of consciously coordinated activities of two or more persons towards a common objective. These are officially formed with definite structure, which describes authority and responsibility and behaviors of organisational members are governed by well laid down policies, rules and regulations. Nature of Formal Organization Deliberately created by top management Based on division of labour or specialization Defines clearly authority and responsibility of every individual Has written rules and regulations Specifies communication channels Depicted on the organization chart of the company Focuses on the jobs and not the individuals who perform the jobs

147 FORMAL ORGANIZATION STRUCTURE CEO VP Production VP HR VP Maktg VP Finance Productio n Manager HR Manager Marketin g Manager Finance Manager Quality Manager Training Manager Sales Manager Cost Manager

148 Merits As definite boundaries of each worker are clearly defined, it reduces the conflict among the employees Overlapping of responsibility is avoided Motivates employees as standards of performance are well established Sense of job satisfaction, security arises from the classification of the task Favouritism in evaluation and appraisal is avoided DEMERITS o May reduce spirit of initiative o Does not consider sentiments and values of social groups o Does not consider individual goals o May create coordination problem

149 INFORMAL ORGANIZATION A network of personal and social relationships that arise spontaneously as people associate in a work environment. Consists of all the informal groupings of people within a formal organization Nature of informal organization: Unplanned and arises spontaneously Reflects human and social relationships among people Based on common taste, language, religion, culture etc The membership of informal organization is voluntary Has no written rule and regulations

150 INFORMAL ORGANIZATION STRUCTURE CEO VP Production VP HR VP Maktg VP Finance Productio n Manager HR Manager Marketin g Manager Finance Manager Quality Manager Training Manager Sales Manager Cost Manager Quality Manager, HR Manager, Sales Manager and Cost Manager form a group for Cricket as they have common interest in Cricket

151 MERITS Helps to satisfy social and psychological needs of employees to inspire them to work efficiently and effectively Improves sense of belongingness, security and loyalty among employees Recreation Demerits o Resistance to change o Rumor- grapevine

152 Characteristics Formal Organization Structure Informal Organization Structure Formation Purpose Structure Deliberately formed, planned and created by Top Management To achieve planned goals of organization0 Well defined tasks and relationships Emerges spontaneously as a result of social interaction among organizational members To provide social satisfaction to members No clear cut structure, complex network of relations Flexibility Rigid, stable and predictable Flexible, unstable and unpredictable Standards of behaviour Standards of behaviour and performance are prescribed by management Standards of behaviour and performance are evolved by mutual consent among members Leadership Communication Organization Chart Rules and regulations Managers act as leaders as they have authority Formally established line of communication, official communication Official structure can be shown in the form of chart Written and fixed Members voluntarily select their leader Communicate according to convenience Can not be shown Oral norms

153 Line organisation: The basis of line organisation is authority and responsibility. Line organisation is also called as scalar or military organisation. It depicts clear line of authority. The authority and responsibility are highest at the top and go on reducing successively with each level. Scalar chain is strictly followed. It is simplest and oldest type of organisation and it is found in most of the small organisation. Merits Quick decision making Strict discipline can be maintained Clear authority and responsibility Scalar chain and unity of command are followed. Demerits No scope for specialisation Key persons are overloaded with work Less efficiency due to lack of specialisation

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155 Functional organisation: Functional organisation is based on specialisation. Specialists are available for each function and this idea was originated by FW Taylor and hence it is also known as Taylor s functional organisation. Merits Scope of high specialisation Tasks are handled by experts and quality of work and efficiency is high Area of work is narrow and key persons are not overloaded Better decisions are made Demerits Delay in decision making Scalar chain and unity of command are not followed Maintaining discipline is difficult Coordination among foremen is difficult

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157 Line and staff organisation: It consists of two types of organisational members called line members and staff members. Line members have authority where as staff members do not have authority. Line members are known as Doers and staff members are known as Advisors. The function of staff members, who are experts is only advising and they do not have any authority in decision making. Line members can accept or reject the advice and they are responsible for the tasks. Merits Availability of specialist advise from staff members Single line authority and accountability is involved Expert advise can improve effectiveness Experts can reduce load of line members Demerits Staff members who have expertise do not have authority Coordination between line and staff members is difficult Personality clashes may result between line and staff members

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159 Committee organisation: Committee is a group of people who meet discuss and decide about actions to be taken for organisational issues which cannot be solved by individuals. When an organisation consists of different committees it is called committee organisation. Types/ Classification of Committees Advisory Committees and Executive Committees Committees vested with staff authority are known as advisory committees. Advisory committees have only a recommendatory role and cannot enforce implementation of their advice or recommendation. Eg. Works committees, Sales committees, finance committees etc. Executive Committees Committees vested with line authority are known as executive committees. Executive committees not only take decisions but also enforce decisions and thus perform a double role of taking a decision and ordering its execution. Eg. The Board of directors of a company.

160 Standing Committees and ad hoc task forces Standing or permanent committees are formed to deal with recurrent (problems which take place very often) organisational problems. Eg. Finanace committee in a company, loan approval committee in a bank or the admission committee in a college. Ad hoc task forces have a short duration. They are dissolved after the task is over, or the problem is solved. Their members are chosen for their skills and experience.

161 Principles of committees: Number of members in a committee should be optimum minimum Committee objectives should be well defined Committee meetings should have an agenda and it should be circulated in advance so that members can come prepared. The role, authority and responsibility of committee members should be well defined. Committees should not discuss any other matter other than the subject. Meetings should start and end on time. Problems which can be solved by individuals should not be referred to a committee. Committee recommendations should be published. A committee should be dissolved if its purpose is over.

162 Merits Committee consists of experts and can be effectively used for solving complex issues. Encourages team work. Better decisions are made. Brings in coordination among different functional areas. By serving in different committees managers acquire valuable experience and hence committees help in management development. Demerits Slow in decision making. Coordination is very difficult. No individual accountability. Very costly. Few members may dominate.

163 Virtual organisation: The essential feature of this type of organisation is connectivity i.e. its ability to network a large number of service-providers and contractors whom it outsources its burden of getting infrastructural support, retaining for itself only a few areas of core competence. The organisation has no office as such because its executives with mobile phones and laptop computers can work at any place and at any time. Collateral Organisation: This concept says that a manager should develop a collateral mode of functioning to which he should shift, to operate in tandem with the problem, without displacing the existing classical [tall organisation] or behavioural[flat organisation] formal structure. It should be remembered that the change involved is only in the mode of functioning, and not in the structure. Thus, if the existing structure is classical[tall organisation], the collateral mode developed for solving a non-routine problem may result in creating only a special kind of task force, that cuts across the usual kind of functional barriers, builds cross-communication channels and finds new ways of seeing old ideas.

164 Matrix Organisation: Combines two organization structures; functional and project structures [based on projects organizational activities are grouped] Functional departments create vertical chain of command Project or product types form horizontal chain This type used to efficiently execute multiple project operations of enterprise Project managers coordinate teams of employees drawn from different functional departments Matrix organization relies on multiple command structure

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166 MERITS Where large number of small projects have to be executed or completed, matrix organization works out better Suitable to industries like building and construction, highly technology oriented industries etc DEMERITS Violates principle of unity of command Costly and expensive Delay in decision making

167 Network Organisation: Company keeps core business and through contacts with external agencies runs business [outsourcing] Distribution Agency Manpower Consultancy Accounting Firm Supplier Agency Core Business: Manufacturing shoes Promotion/ Ad Firm Marketing Firm

168 MERITS DEMERITS Focus on core business Cost saving o No control over external agencies o Failure in one network may affect entire network

169 DEPARTMENTATION Departmentation is the process of splitting an organisation into smaller manageable subunits. Division is based on either similarities in functions or products or any other close relationships. This dividing process results in creation of departments, divisions or sections. A department may be defined as a workgroup which is brought together for performing certain functions, which are similar in nature.

170 Functional Departmentation The process of dividing organisation into smaller units is on the basis of organisation s major activities or functions. Hence it is called functional organisation. Each function like Marketing, Human Resource, Finance, R&D, etc is assigned as a department and it specialises on those related activities. Each major function of the enterprise is grouped into a department. For eg. There may be production, finance and marketing departments in a manufacturing company or underwriting and claims departments in an insurance company. A sales manager in this kind of Departmentation is responsible for the sale of all products manufactured by the company. CEO HR Marketing Finance Production

171 Advantages : Efficiencies from putting together similar specialties and people with common skills, knowledge and orientation. In-depth specialization Co-ordination within functional area. Disadvantages: Poor communication across functional areas. Limited view of organisational goals.

172 PRODUCT-BASED DEPARTMENTATION This form is eminently suited for a large organization manufacturing a variety of products. Under this method, for each major product, a separate semi-autonomous department is created and is put under the charge of a manager. Several companies in India, such as Hindustan Unilever (manufacturing detergents, toiletries, chemicals and agro-based products), and Johnson and Johnson (manufacturing a range of products for children and surgical sutures) have product-based departments. CEO Hair Care Health care General Manager Maruti 800 Maruti Alto Maruti Wagon R Maruti SX4

173 Advantages: Allows specialization in particular products and services Managers can become experts in their industry. Closer to customers. Disadvantages: Duplication of functions Limited view of organisational goals.

174 GEOGRAPHICAL BASED DEPARTMENTATION [REGIONS OR TERRITORY BASED] When several production or marketing units of an organisation are geographically dispersed in various locations, it is logical to departmentalize those units on a geographical basis. The Indian Railways are departmentalized on this basis. Northern Railways, Western Railways, Southern Railways, Eastern Railways, Central Railways, etc. are departments in this sense. Advantages: More effective and efficient handling of specific regional issues that arise. Serve needs of unique geographic markets better.. Disadvantages: Duplication of functions Can feel isolated from other organisational areas. General Manager Northern Railways Western Railways Central Railways Southern Railways Eastern Railways

175 CUSTOMER-BASED DEPARTMENTATION An enterprise may be divided into a number of departments on the basis of the customers that it services. For eg. An electronics firm may have separate departments for military, industrial and consumer customers. An educational institution may have separate departments for day, evening and correspondence courses to impart education to full-time students, locally employed students and outstation students, respectively. Advantages: Customers needs and problems can be met by specialists Disadvantages: Duplication of functions Limited view of organisational goals. General Manager of a Private bank Students Customers Agriculturist Customers Industrial Customers

176 Process Based Departmentation Departmentation here is done on basis of several discrete stages in the process or technologies involved in manufacture of a product. Advantages: More efficient flow of work activities. Disadvantages: Can only be used with certain types of products. Cotton textile mill Spinning packing weaving Dyeing Printing Sales

177 Time Based Departmentation In Departmentation by time, activities are grouped on the basis of timing of their performance. For eg. As a small machine shop grows in size, its owner has the choice of adding extra shifts (thus separating identical sub-groups by time). Generally, Departmentation by time is found in the production function of the enterprise. GENERAL MANAGER Day Shift Night Shift

178 Authority : Is a form of power Right to command Right to give orders and power to extract obedience Right to make decisions and allocate resources. o Responsibility: Is the obligation or the duty of an individual to perform Ensures people are committed to perform Acts as a means for establishing relationships between a superior and a subordinate.

179 CENTRALIZATION & DECENTRALIZATION CENTRALIZATION Centralization of power to make decision at the higher levels of management Hence employees can t act independently This results in Tall Structure Merits Taking emergency or quick decisions without any delay Standardized policy or procedures Demerits No individual initiative Top management will be over burdened Widens gap between managers and employees

180 DECENTRALIZATION Dispersal of decision making authority Delegating power or authority to middle and lower level managers Degree to which lower level employees provide input increases or actually they make decisions Results in Flat Structure Merits Reduces burden Increases flexibility and involvement from employees Demerits Increases administrative cost Difficult in controlling

181 Centralisation It refers to retention of decision-making authority by top management. All the business decisions must be approved or preapproved by top level management. Low level employees in this type of organisation are expected to do as told & may contribute very little to the pool of knowledge used by organisation informing strategy and decision making. Employee morale is low Decentralisation It refers to vesting decision making authority in low level managers or managers. All local and actual situation decision are taken by low level management. Reduces workload of top management and thus develop manager at lower level. Employee morale is high.

182 A variety of factors can influence the extent to which a firm is centralized or decentralized. The following is a list of possible determinants: The external environment in which the firm operates. The more complex and unpredictable this environment, the more likely it is that top management will let low-level managers make important decisions. After all, low-level managers are closer to the problems because they are more likely to have direct contact with customers and workers. Therefore, they are in a better position to determine problems and concerns. The nature of the decision itself. The riskier or the more important the decision, the greater the tendency to centralize decision making.

183 The abilities of low-level managers. If these managers do not have strong decision-making skills, top managers will be reluctant to decentralize. Strong low-level decision-making skills encourage decentralization. The organization's tradition of management. An organization that has traditionally practiced centralization or decentralization is likely to maintain that posture in the future. In principle, neither philosophy is right or wrong. What works for one organization may or may not work for another. Kmart Corporation and McDonald's have both been very successful both practice centralization. By the same token, decentralization has worked very well for General Electric and Sears. Every organization must assess its own situation and then choose the level of centralization or decentralization that works best.

184 SPAN OF CONTROL Determining how many people will report to each manager The number of employees a manager can efficiently and effectively manage A manager must deal with 3 kinds of interactions with and among subordinates; Direct: manager s one to one relationship with each subordinate Cross: among subordinates Group: between groups of subordinates

185 SPAN OF CONTROL CONTD.. No of possible interactions of all types between manager and subordinates can be determined as follow: I= total no of possible interactions N= no of subordinates I N = N ( 2 / 2 + N I = N ( 2 N / 2 + N 1) Ex: if N [ no of subordinates] = 2, the no of possible interactions are 6. If N= 5, I or no of possible interactions are 100. Manager has to determine optimal span of control. This is nothing but deciding whether it should be narrow or wide span of management/ control 1)

186 NARROW SPAN OF CONTROL Few subordinates per manager More managers are required in this type. This results in Tall structure of the Organization Merits Personal contact between managers and subordinates Effective control and close supervision Develops good human relations in organization Demerits Expensive as larger no of managers are involved Creates communication problems; because of increased no of people through whom information must pass

187 WIDE SPAN OF CONTROL Many subordinates per manager Less supervisors are requires Results in Flat organization structure This is preferable if workers are well trained and competitive Merits Reduces cost of supervision as few managers are required Easy communication process Better coordination between manager and subordinates as few managers supervise them Demerits More administration and supervisory responsibility of managers Effective control can not be assured Requires talented managers Managers won t have time to provide support and leadership

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189 FACTORS INFLUENCING SPAN OF CONTROL Manager s capability: Experienced and capable managers can supervise more number of subordinates than inexperienced and less capable managers. Subordinate s capability: experienced and skilled subordinates need not require close supervision and they are capable of working on their own. A manager can have wider span for such workers. But if subordinates are less skilled and if they need close supervision, then span has to be narrow. Complexity of work: if the task of subordinates is complex and they need more assistance then narrow span is used. If tasks are simple, then wide span is used.

190 Similarity of tasks: repetitive jobs may not require close supervise and thus wider span can be used. For non-routine tasks narrow span is used. Time required for non supervisory activities: if a manager or a supervisor needs to attend more non supervisory activities then he may have little time to attend subordinates then narrow span is needed. When non supervisory activities are less wider span is used. Technology used: organisations employing modern technology with tasks automated may use wider span as automation reduces manual labour and thus close supervision is not needed.

191 MBO ( MANAGEMENT BY OBJECTIVES) MBO is a process whereby subordinate and superiors of an organisation jointly define common goals, define each individual s major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing contribution of each of its members. In simple terms MBO is concerned with joint participation of subordinate and superior in the establishment of clear and specific objectives for each individual and unit of the organisation. It consists of the following steps: 1. Set the Organization's Goals Establish an organisation wise plan for next year and set goals by the top level management. 2. Set Departmental Goals In this step departmental heads and their superiors jointly set goals for their departments. 3. Discuss Departmental goals Departmental heads discuss the department s goals with all the subordinates in the department and ask them to develop their own individual goals.

192 4. Define Expected Results (Set Individual Goals) In this step, department heads and their subordinates set short term performance targets. 5. Performance reviews : Measure the Results Department Heads compare the performance of each employee with expected results. 6. Provide Feed Back Department heads hold periodic performance review meetings with subordinates to discuss and evaluate the latter s progress in achieving expected results. MBO approach leads to greater satisfaction, greater agreement, greater comfort and less tension and hostility between the workers and the management.

193 MBE (MANAGEMENT BY EXCEPTION) Management by exception is a management style wherein managers intervene only when their employees fail to meet their performance standards. If the employees are performing as expected, the manager will take no action. It is an organisational system in which managers delegate as much responsibility as possible to those below them, stepping in only when it is absolutely necessary. MBE policy is to focus on only those issues or events in which there is a deviation from the established standard. The idea is that management should spend its valuable time concentrating on important strategic issues. Attention is given to other issues only when there is a deviation which requires some investigation. Examples: cost of an operation exceeding standard cost, delay in completion of project, delay in supply of materials, decrease in productivity etc.

194 STAFFING Process of planning, employing and developing human resources at different levels of an organization for carrying out the various functions in the organization Includes activities as human resource planning, recruitment, selection, placement, T&D, remuneration, performance appraisal, promotion, transfer etc. Koontz & O'Donnell, the managerial function of staffing involves managing the organization structure through proper and effective selection, appraisal and development of personnel to fill the roles designed in to the structure

195 STAFFING Staffing is defined as : Filling and keeping the positions provided for by the organization structure filled with the right people. It includes several sub-function: Recruitment, or getting applicants for the jobs as they open up. Selection of the best qualified from those who seek the jobs. Training those who need further instructions to perform their work effectively or to qualify for promotions. Performance appraisal, since it serves as the basis for job change or promotion, and Administration of compensation plans, since it is an important factor in both getting and holding qualified people.

196 IMPORTANCE AND NEED FOR PROPER STAFFING It helps in discovering talented and competent workers and developing them to move up the corporate ladder. It ensures greater production by putting the right man in the right job. It helps to avoid a sudden disruption of an enterprise s production run by indicating shortages of personnel, if any, in advance. It helps to prevent under-utilisation of personnel through overmanning and the resultant high labour cost and low profit margins. It provides information to management for the internal succession of managerial personnel in the event of an unanticipated turnover.

197 STEPS OF STAFFING I. Manpower planning is the process by which a firm ensures that it has the right number of people and the right kind of people at the right places at the right time, doing work for which they are economically most useful. It can be either short-term manpower planning (done to find a temporary match between the existing individuals and the existing jobs.) or long-term manpower planning (done to find a proper match between the future jobs and their future incumbents.) II. Recruitment It can be defined as the process of identifying the sources for prospective candidates and to stimulate them to apply for the jobs. It is the process of attracting potential employees to the company.

198 SOURCES OF RECRUITMENT Sources of recruitment can be broadly classified into two broad categories: internal and external. Internal sources refer to the present working force of a company. Vacancies other than at the lowest level may be filled by selecting individuals from amongst the existing employees of the company. External sources of Recruitment: Re-employing former employees Former employees who have been laid-off or have left for personal reasons may be re-employed. Friends and relatives of present employees Some industries with a record of good personnel relations encourage their employees to recommend their friends and relatives for appointment in the concern where they are employed.

199 Applicants at the gate Unemployed persons who call at the gates of the factories are interviewed by the factory representative and those who are found suitable for the existing vacancies are selected. College and technical institutions Many big companies remain in touch with the colleges and technical institutions from where young and talented persons may be recruited. Employment exchanges An employment exchange is an office set up by the government for bringing together those men who are in search of employment and those employers who are looking for men. Employee exchanges register unemployed people and maintain the records of their names, qualifications etc. The employers on their part intimate the exchange about the vacancies which occur in their factories and types of employees they require for filling up these vacancies. Advertising the vacancy Advertising the vacancy in leading papers may be used in case the company requires the services of persons possessing certain special skills or if there is an acute shortage of labour force.

200 INTERNAL SOURCES OF RECRUITMENT Promotions Existing employees are promoted to higher levels to fill up the vacancies. Internal Transfers Employees working in one location are transferred to other location to fill up the vacancies. This generally happens if one location is having excessive of employees and other location is having shortage.

201 RECRUITMENT PROCESS Identify the vacancy Prepare job description Advertise the vacancy Manage the responses Shortlist applications Arrange for interviews Conduct interview and make decision

202 In different departments of the organisation. The vacancies arise due to retirement or resignation of employees, death, transfer of employees, business expansion etc. job description is a statement of what the job holders does, under what conditions it is done and how it is done. It gives details of job title, job summary, job activities and working conditions. From the job description qualification, skills and experience required for candidate can be listed. After identifying job holder requirements, an advertisement is given to attract potential candidates. Applications are received till the last date and they are screened to shortlist the candidates who can be called for an interview. Written tests and interviews are conducted to select suitable candidates.

203 III. Selection Comparison of the qualifications of the candidate with the requirements of a job and eliminates all those who do not stand up to this comparison. As the employees are placed in the jobs for which they are best suited, they derive maximum job satisfaction and reap maximum wages. Labour turnover is reduced and the overall efficiency of the concern is increased. A good relationship develops between the employer and his workers. Steps in the Selection Procedure Job Analysis is the process by means of which a description is developed of the present methods and procedures of doing a job, physical conditions in which the job is done, relation of the job to other jobs and other conditions of employment. Job Analysis is intended to reveal what is actually done as opposed to what should be done. Job Description The lower level job descriptions are generally written by the personnel department but managerial job descriptions are written by the incumbent executive himself or by his superior. Job Specification is a statement of the minimum acceptable human qualities necessary to perform a job satisfactorily.

204 STEPS FOLLOWED IN SELECTION Application blank In this form, the applicant gives relevant personal data such as his qualification, specialisation, experience, firms in which he has worked etc. Initial interview of the candidate Means of evaluating the appearance of the candidate. It is also used for establishing a friendly relationship between the candidate and the company and for obtaining additional information. Employment tests Certain tests such as Aptitude test, Personality test, Interest test, Intelligence test by which a candidate s particular traits or abilities, his likes or dislikes, his intelligence, his capacity to learn etc can be estimated.

205 Checking references The employer would like to get some important personal details about the candidate, such as his character, past history, background etc. verified from the people mentioned in the application. Physical or medical examination The objective is to check the physical fitness of the applicant for the job applied for. Final interview In this interview, the selected candidates are given an idea about their future prospects within the organization.

206 IV. Placement Process of placing the right man on the right job. A worker should be placed on a position where there is a full use of his strengths and all his weaknesses become irrelevant. A misplaced person is always a frustrated individual. V. Induction (Orientation) Process of acclimatising a new employee to the new social setting of his work. This should take into account two major objects: i) familiarising the new employee with his new surroundings, and company rules and regulations; and ii) developing in him a favourable attitude towards the company.

207

208 DIRECTING AND CONTROLLING Module 4

209 Topics to be covered Directing and Controlling : Meaning and nature of directing, leadership styles, Motivation theories Communication Meaning and importance, Co-ordination Meaning and importance, techniques of co-ordination Meaning and steps in controlling, essentials of a sound control system, methods of establishing control.

210 Meaning of Directing Direction means issuance of orders and leading and motivating subordinates as they go about executing orders. According to Haimann, Directing consists of the process and techniques utilized in issuing instructions and making certain that operations are carried on as originally planned. According to Koontz and O Donnell, Direction is the interpersonal aspect of managing by which subordinates are led to understand and contribute effectively and efficiently to the attainment of enterprise objectives. Directing function consists of issuing orders and instructions, guiding and helping subordinates to perform tasks assigned to them, motivating them by designing a good work environment and providing rewards in line with their expectation and performance.

211 Functions of Direction Giving orders to employees. Leading and motivating them. The three important components of directing function are: Communicating Leading Motivating

212 Requirements/ Nature of effective Direction Harmony of Objectives An organisation functions best when the goals of its members are in complete harmony with and complementary to the goals of the organisation. Unity of Command This principle implies that the subordinates should receive orders and instructions from one superior only. The violation of this principle may lead to conflicting orders, divided loyalties and decreased personal responsibility for results. Direct Supervision Every superior must maintain direct face-to-face contact with his subordinates. Direct supervision boosts the morale of employees, increases their loyalty and provides them with immediate feedback on how well they are doing.

213 Efficient Communication It is through communication that the superior gives orders, allocates jobs, explains duties and ensures performance. Efficient communication not only enables the superior to know how his subordinates feel but also helps the subordinates to know how the company feels on a number of issues concerning them. Follow-through The manager should follow through the whole performance of his subordinates not merely to keep a check on their activities but to help them in their act, to show them where their deficiency, if any, lies and to revise their direction if it needs revision, and so on.

214 Leadership According to Peter Drucker, Leadership is the lifting of man s visions to higher sights, the raising of man s performance to a higher standard, the building of man s personality beyond its normal limitations. Leadership is the ability to persuade others to seek defined objectives enthusiastically. Leadership is defined as the ability to influence people towards accomplishment of goals. It is the ability to influence behavior of others and direct them towards achievement of group behavior of others and direct them towards achievement of group or organisational goals.

215 Characteristics of Leadership Leadership possess great influential power. Leaders have followers and they influence the behavior of followers. Leaders have a great vision for future. There is a reciprocal relationship between leaders and followers. Leaders create a shared vision among followers and direct them to work towards the achievement of common goals. Leadership is situational and effectiveness of leaders is influenced by situational variables like environment, interpersonal relationship, job content, group relations, size of group, group norms etc.

216 Importance of Leadership Leaders guide and inspire subordinates: leaders motivate their followers and guide them towards accomplishment of group goals which in turn contributes to the accomplishment of organisational goals. Leaders build good work environment: leaders create a work environment in which employees can contribute by performing to the best of their abilities. The environment creates a relationship based on trust. Leaders build confidence in followers: leaders recognise abilities of their followers and encourage them to develop to their potential by building confidence in them.

217 Leaders secure cooperation from the group: leaders influences the group-members in such a way that all the members work collectively towards group objectives and thus in still cooperation among all members. Leaders act as change agents: organisations operate in an environment which is subjected to continuous changes, and if the organisations do not respond to these changes, then survival of the organisation may be difficult. But organisational members resist any changes, as they are accustomed to particular methods of work. It requires great leadership to reduce the resistance to change and convince the employees to accept the change. Thus leaders act as change agents of the organisation and helps in implementing successful positive changes in the organisation.

218 Leaders are representatives of the followers: on one hand leaders direct the employees of the organisation, but on the other hand they are also representatives of their followers. They always take personal interest in helping their followers. They always take personal interest in helping their followers and protect the interest of the followers while taking any major organisational decisions. Leaders develop great vision: leaders are known for their great vision and they develop the vision for building great organisations.

219 Difference between managers and leaders Managers Managers position is based on formal authority defined by organisational structure. Managers gets the things done by subordinated by exercising their authority. Managers are rationale in their decisions. Managers execute plans, implement them and produce results. Managers exercise positional power. Leaders Leaders position is based on their personality and is not formally defined. Leaders inspire their followers and make them work towards common shared objectives. Leaders are visionary Leaders inspire followers, articulate vision and motivates them to achieve common objectives. Leaders exercise personal power.

220 Leadership Styles Autocratic Leadership In this type of leadership, the leader alone determines policies and makes plans. He tells orders what to do and how to do it. He demands strict obedience and relies on power. The formula used by him is Do what I say or else meaning thereby that an employee will be punished if he does not follow orders. This style of leadership is also called as dictatorship. Advantages: Quick and consistent decisions are made. Leaders enforce strict discipline among followers and get the work done by making use of fear of punishment and rewarding power. Suitable when subordinates are inexperienced and need direction from leaders. Disadvantages: Low motivation among subordinates. One way communication may result in misunderstanding. Too much dependence on leadership.

221 Democratic Leadership In this type of leadership (also known as participative or person-oriented leadership), the entire group is involved in and accepts responsibility for goal setting and achievement. Subordinates have considerable freedom of action. The leader shows greater concern for his people than for high production. A part of the leader s task is to encourage and reinforce constructive inter-relationships among members and to reduce intra-group conflict and tensions. Advantages: Better decisions are made. Provides opportunity for managerial development. Interests of followers are protected. Disadvantages: Very slow decision making and timely decisions are not made. Maintaining discipline is very difficult. Requires high maturity in followers.

222 Free Rein In this type of leadership, the leader exercises absolutely no control. He only provides information, materials and facilities to his men to enable them to accomplish group objectives. This type can be a disaster if the leader does not know well the competence and integrity of his people and their ability to handle this kind of freedom. Hence this style of leadership may not be suitable in all the situations and it requires subordinates who are knowledgeable, well trained and highly self motivated. Advantages: Brings in innovation and creativity. Can bring high motivation among subordinates and thus develop managerial skills among subordinates. Highly flexible. Disadvantages: Lack of control May result in confusion and chaos. Needs highly matured and knowledgeable subordinates.

223 Motivation Motivation is the process of stimulating people to action to accomplish desired goals. Motivation represents inner drive within an individual which directs him to behave in specific way. Motivation is the process of challenging a person s inner drives so that he wants to accomplish the goals of the organisation. The three key elements of motivation are: Energy Direction Persistence

224 Relation between motivation and needs Unsatisfied Need Reward Need Satisfaction Or Dissatisfaction Tension Drives Performance Behaviour Reduction in tension or increase in tension

225 Maslow s Theory of Motivation Maslow s Hierarchy of Needs Theory

226 Maslow s Hierarchy of needs According to Abraham Maslow, motivation of individual depends on his or her individual needs. These needs operate along a hierarchy and once a lower need is satisfied, individuals would like to satisfy next higher level need in the hierarchy. Need Description Job Related factors which can satisfy the need Physiological Needs Security Needs Social Needs Esteem Needs Self actualisation Needs Food, shelter, clothing, water, air etc. Security from physical and emotional threats Love, affection, belongingness etc Status, prestige, recognition etc. Realization of life time ambitions Job with pay Job security, insurance, retirement benefits. Good colleagues, informal work groups, good quality supervision etc. Job title, designation, recognition, responsibility Reaching a position one is capable of.

227 Physiological needs are those which arise out of the basic physiology of life, for example, the need for food, water, air etc. Security needs are the needs to feel free from economic threat and physical harm. Social needs are needs to associate with other people and be accepted by them: to love and be loved. Esteem needs are those which relate to respect and prestige. A need for dominance may be thought of as one of the egoistic needs. Self-fulfillment needs are needs for realising one s potential. These include the need for realising one s capabilities to the fullest-for accomplishing what one is capable of accomplishing, a musician must make music, a poet must write if he is to be ultimately happy.

228 Abraham Maslow sought to explain why people are driven by particular needs at particular times. According to Maslow, human needs are arranged in a hierarchy, from the most pressing to the least pressing. In their order of importance, they are physiological needs, safety needs, social needs, esteem needs and self actualization needs. People will try to satisfy their most important needs first. When a person succeeds in satisfying an important need, that need will cease being a current motivator, and the person will try to satisfy the nextmost important need. For example, a starving man (need 1) will not take an interest in Yoga, Meditation (need 5), nor in how he is viewed by others (need 3 or 4), nor even in whether he is breathing clean air (need 2), But when he has enough food and water, the next most important need will become salient.

229 Limitations It has been found that needs not be along the hierarchy as proposed by Maslow. For example individuals who are not able to satisfy their lower level needs, may be already operating on higher level needs. It is also found that needs priority vary from country to country. For example it is found that esteem needs are more important for workers in Spain and Belgium than security needs. Individual behaviours may be directed at multiplicity of motives and thus Maslow s argument that one need is satisfied at a time is not valid.

230 Herzberg s Two-Factor Theory According to Herzberg, the absence of certain job factors tend to make workers dissatisfied. However, the presence of these same factors in themselves does not produce high levels of motivation. They merely help avoid dissatisfaction and the problems it creates, such as absenteeism, turnover and grievances. Herzberg called these factors maintenance or hygiene factors since they are necessary to maintain a reasonable level of satisfaction. Ten maintenance factors, namely: Fair company policies and administration. A supervisor who knows the work. A good relationship with one s supervisor. A good relationship with one s peers. A good relationship with one s subordinates. A fair salary. Job security Personal life Good working conditions Status

231 To build high levels of motivation, a different set of factors is necessary. However, if these factors are not present, they do not in themselves lead to strong dissatisfaction. Herzberg called these the motivators or satisfiers. These are six in number: Opportunity to accomplish something significant Recognition for significant accomplishments. Chance for advancement. Opportunity to grow and develop on the job. Chance for increased responsibility. The job itself. In the absence of maintenance factors, workers may feel dissatisfied. There may be more absences, more quits and more grievances in union organisations. But the presence of these factors does not motivate them. Similarly, in the presence of motivators, workers may feel motivated but their absence does not make them dissatisfied.

232 Theory X and Theory Y According to Douglas McGregor managers hold two sets of assumptions about their subordinates. Mangers assume that their subordinates belong to either of two categories called category X and category Y. Theory X assumptions 1. Employees inherently dislike work and will try to avoid it. 2. Since employees dislike work and try to avoid it, they must be threatened with punishment to get the work done and they must be closely monitored and controlled. 3. Employees do not like to take responsibilities and always like to seek formal direction. 4. Employees place job security above all and display very little ambition. TheoryY assumptions 1. Employees like work just like play and rest. 2. People are capable of exercising self direction and self control if they are committed to work. 3. Employees at all levels are capable of taking up any responsibility. 4. Decision making ability is widely spread across population and people at lower level are capable of making creative decisions.

233 McGregor proposed that theory X and theory Y are important tools in understanding human behaviour at work and designing work environment. Neither the two sets of assumptions are applicable in all situations. But theory X is more applicable to unskilled and uneducated lower level employees who may be working for satisfaction of lower level needs. Theory Y is applicable to educated, skilled and professional employees who are capable of taking up responsibility. However they can be exceptions.

234 McClelland s Need for Achievement Theory According to McClelland, the three important needs are the need for affiliation, the need for power and the need for achievement. The need for affiliation reflects a desire to interact socially with people. A person with a high need for affiliation is concerned about the quality of an important personal relationship. Thus, social relationships take precedence over task accomplishment for such a person. A person who has a high need for power concentrates on obtaining and exercising power and authority. The person is concerned with influencing others and winning arguments.

235 A person who has a high need for achievement has three distinct characteristics. These are: 1. Preference for setting moderately difficult but potentially achievable goals. 2. Doing most things himself rather than getting them done by others. He wants to take personal responsibility for his success or failure and does not want to hold others or chance responsible for it. 3. Seeking situations where concrete feedback is possible. If the needs of employees can be accurately measured, organisations can improve the selection and placement processes. For eg. An employee or recruit with a high need for achievement could be placed in a position that would enable the person to achieve.

236 Definition - Communication Communication Latin word communis means common. According to Allen Louis-Communication is the sum of all the things, a person does when he wants to create an understanding in the mind of another. It involves a systematic and continuous process of telling, listening and understanding. According to George Terry -Communication is an exchange of facts, ideas, opinions or emotions, by two or more persons. Communication is the process of transmission of information or message from one person to another. It involves exchange of information, facts, ideas, feelings etc between two or more individuals.

237 Example of Two way communication Ideation An organization s policy to be circulated among all employees through news bulletin. Encoder The editor/person who writes the policy. Message Channel The content (policy details) and the words/pictures used to convey the policy to the employees. The medium in this case the news bulletin. Receiver The audience of the message for whom the policy is intended and who read the bulletin. Feedback Employee s reaction to the policy communicated.

238 Importance of communication in Management Sense of unity of purpose and commitment to a single organisational goal can be developed only through the inspiring and persuasive power of communication. Training and development programmes can be conducted through effective communication. In order to appraise employees, performance standards must be properly and clearly communicated. In order to increase employee s job performance and effectiveness by updating their knowledge. To promote employees sense of belonging and commitment. To effect changes smoothly. To inform and convince employees about decisions and the reasons behind those decisions. To develop employees clear understanding of their roles and future growth opportunities in the organization. Resolving disputes in organizations, which lead to huge losses of time, money and good human relations.

239 Communication according to organisational structure Formal Channel of Communication Means of communication that is formally controlled by managers or people occupying positions in an organization.this ensures that the information flows orderly, in a timely and accurate manner. Any information, decision, memo or reminder etc. will also follow this path. Informal Channel of communication- Side by side with the formal channel of communication every organization has an equally effective channel of communication namely that is the informal channel. Given the name grapevine precisely because it runs in horizontal, vertical and diagonal directions. It flows around water coolers, down hallways, through lunch rooms and wherever people get together in groups.

240 Communication according to Direction/ Dimension of expression Communication is multidimensional or multidirectional. There are various directions in which it flows. Vertical Communication: Downward Communication: Communication which flows from supervisor to the subordinate is known as downward communication. They include orders, rules, instructions etc. their nature is directive. Upward Communication: this is just reverse of the downward communication. It flows from subordinate to supervisor. Each communication includes reactions and suggestions from workers, their grievances etc. the contents of the upward communication are reports, suggestions, reaction, statements and proposals prepared for submissions to the supervisor.

241 Vertical Communication MARKETING MANAGER UPWARD COMMUNICATION DOWNWARD COMMUNICATIO N MARKETING SUPERVISOR

242 Lateral or horizontal communication When communication takes place between two or more persons who are subordinates working under the same person, or those who are working at the same level, it is called lateral or horizontal communication. A good example of this kind of communication is that between functional managers. They are serving the organisation in different capacities but their goals are common and their interaction is necessary to maintain co-ordination. The best example of lateral communication can be seen in the interaction of production and marketing departments. Strategies of marketing cannot be fruitful unless plans are communicated to the production department. The Marketing Manager has to be in constant touch with the Production Manager, in order to meet customer orders as per schedule. Marketing Manager Production Manager

243 Communication according to the way of expression Oral communication: in this type of communication both parties to the process of communication exchange their ideas orally either face to face or through devices like phone, intercoms etc, meetings, conference, lecturers, interviews etc. Written communication: in this type of communication, written words, graphs, diagrams, pictures etc are used. They may take forms of circulars, rules, manuals, reports, memos etc.

244 Barriers to communication Individual barriers Conflicting signals: difference in what one says and what he does Lack of reliable information sources Lack of interest to communicate Poor listening skills Overcoming Individual Barriers Develop good listening skill Encourage two way communication

245 Organizational Barriers Semantics : Misinterpretation of words, same word having different meaning Noise Language differences Overcoming Organizational Barriers Have proper follow up Reduce factors which causes noise Regulate information flow Be aware of language and meaning

246 Coordination Coordination is the management of interdependence in work situations. Coordination can be defined as the orderly synchronization or fitting together of the interdependent efforts of individuals, in order to attain a common goal. Coordination deals with the task of blending efforts in order to ensure the successful attainment of an objective. It is accomplished by means of planning, organizing and controlling.

247 Importance of Coordination Unity in diversity: organisations are made up of people and people do have their own individual interests. Hence good coordination ensures that people works towards common goal rather than their own personal interests. Specialization: the splitting of work into smaller and smaller units through division of work creates the need for coordination among many individuals who need to complete the full task. Teamwork: employees work in form of teams to complete a project or activity undertaken by the organisation. Hence individual efforts has to be synchronized to obtain overall outcome of the team. This in turn creates a sense of shared vision among the team.

248 Communication: effective communication is very much essential for coordination. Communication ensures harmonious relations among the individuals and different departments. Recognition of goals: defining clear objectives ensures clarity of role and responsibility among individuals resulting in better coordination. Interdependency: organisation are made up of various units and departments, which are interdependent. For example, Marketing department depends on production department for timely supply of products and services to customers. Coordination function ensures that this interdependence needs are met by ensuring good relations among all departments.

249 Techniques of Coordination Rules, Procedures, and Policies Common device to coordinate sub-units in the performance of their repetitive activities. Standard policies, procedures and rules are laid down to cover all possible situations. Planning Under planning targets of each department, coordinate with the targets of all other departments. For eg. By fixing the target of units of additional production and sales for the production and sales departments respectively, the head of the organization can be fairly sure that the work of the two departments would be coordinated since their target so demand. Hierarchy By putting interdependent units under one boss, some coordination among their activities is ensured. Direct Contact - In order to prevent top executives from becoming overloaded with problems, as many problems as possible are resolved by the affected employees at lower levels. Task force This is a temporary group made up of representatives from those departments which are facing a problem. It exists only as long as the problem lasts.

250 Incentives- incentives like profit sharing ensures that people work towards common objectives and they motivate them to work with each other for timely completion of tasks. Committees As certain decisions consistently arise the task forces become permanent. These groups are labeled committees. This device greatly eases the rigidity of the hierarchical structure, promotes effective communication and understanding of ideas, encourages the acceptance of the commitment to policies and makes their implementation more effective. Induction The device familiarizes the new employee with the organization's rules and regulations, its dominant norms of behavior, values and beliefs, and integrates his personal goals with the organisational goals. Liaison Departments In some cases where there is a large volume of contact between two departments, a liaison department evolves to handle the transactions. This typically occurs between sales and production departments. Workflow A workflow is the sequence of steps by which the organization acquires inputs and transforms them into outputs and exports these to the environment. It helps in coordination.

251 Control Control is checking current performance against predetermined standards contained in the plans, with a view to ensuring adequate progress and satisfactory performance. George Terry: controlling is determining what is being accomplished that is evaluating the performance, and if necessary, applying correct measures so that the performance takes place according to plans

252 Purpose of control Adapt to environmental change Limit the accumulation of error Control helps the organization Cope with organizational complexity Minimize costs

253 Steps in a Control Process

254 Step 1. Establishing standards Control standard is a target against which subsequent performance will be compared Some key areas in all business organizations are: profitability, market position, productivity and personnel development. 1. It should be defined as far as possible in quantitative terms. For eg. overheads must be reduced by 12%. 2. Standards need to be flexible in order to adapt to changing conditions. 3. It should be consistent with organizational goals.

255 Step 2: Measuring performance Performance measurement is a constant and ongoing activity Performance measures must be valid. Daily, weekly and monthly sales numbers measure sales performance Product quality or units produced or unit cost measure production performance Quality or quantity of output measure employees performance

256 Step 3: Comparing performance against standards Measured performance will be compared against established standards Performance may be higher than, lower than or identical [equal] to the standard If performance is lower than expected manager has to decide how much deviation from standard can be allowed before taking remedial action Comparison is mainly based on the importance and complexity of the activity

257 Step 4: Corrective action Courses of Action Doing nothing maintaining status quo Only if deviation is judged to be insignificant. Correcting actual (current) performance or deviation Immediate corrective action to correct the problem at once. Basic corrective action to locate and to correct the source of the deviation. Corrective Actions Change strategy, structure, compensation scheme, or training programs; redesign jobs; or fire employees

258 Contd.. Revising or change the standard Examining the standard to ascertain whether or not the standard is realistic, fair, and achievable. Upholding the validity of the standard. Resetting goals that were initially set too low or too high

259 Essentials of effective Control System Suitable - The control system should be appropriate to the nature and needs of the activity. Controls used in the sales department will be different from those used in finance and personnel. Timely and forward Looking The control system should be such as to enable the subordinates to inform their superiors expeditiously about the threatened deviations and failures.the feedback system should be as short and quick as possible. Objective and Comprehensible Objective controls specify the expected results in clear and definite terms and leave little room for argument by the employees. Flexible The control system should be flexible so that it can be adjusted to suit the needs of any change in the environment.

260 Economical The benefit derived from a control system should be more than the cost involved in implementing it. Prescriptive and Operational A control system in order to be effective and adequate must not only detect deviations from the standards but should also provide for solutions to the problems that cause deviations. Acceptable to Organization Members Motivate people to High Performance Since most people respond to a challenge, successfully meeting a tough standard may well provide a greater sense of accomplishment than meeting an easy standard. Should not lead to less attention to other Aspects.

261 Types of Control Managers can implement controls before an activity begins, during the activity is going on, and after the activity has been completed

262 Comparison of past-oriented and futureoriented controls Input Process Outputs Information Future-oriented control Feedback Feedforward Past-oriented control

263 Types of Control Methods Past-oriented Control These are also known as post-action controls and measure results after the process. They examine what has happened in a particular period in the past. Examples of such controls are most accounting records, inspection of goods and services and school grade reports. These controls can be used to plan future behavior in the light of past errors or successes. Concurrent Control-Takes place while an activity is in progress. Best known form of this type is DIRECT SUPERVISION. When managers use management by walking around, where they visit floor and contact employees directly, they are using concurrent control. Ex: while typing in a word document, miss spelt words or grammar errors are highlighted in a green or red color. Though delay in managerial response to problem is there, it is minimal. One can reduce the wastage because of damages, as you are preventing major damages

264 Future-oriented control These are also known as steering controls or feed forward controls and are designed to measure results during the process so that action can be taken before the job is done or the period is over. They serve as warning-posts principally to direct attention rather than to evaluate. Examples of such controls are cash flow and funds flow analysis, network planning etc. which enable managers to see that they will have problems in such areas as cash or on-time delivery.

265 Control Techniques Budgeting A budget is a statement of anticipated results during a designated time period expressed in financial and non-financial terms. Standard costing One of the techniques of control and it is being increasingly used by modern business concerns for the purpose of cost reduction and cost control. Financial Statement and Ratio analysis The trading profit and Loss Account and the Balance Sheet of a company are the usual financial statements which are prepared ex-post to indicate what financial events occurred since the last statements.

266 Break-even analysis It involves the use of a chart to depict the overall volume of sales necessary to cover costs. It is that point at which the cost and revenue of the enterprise are exactly equal. Internal and External Audit Internal Audit is conducted by an internal auditor who is an employee of the organisation. He makes an independent appraisal of financial and other operations. External Audit is an independent appraisal of the organisation s financial accounts and statements. Reports Preparing Reports to provide information to the management for purposes of control and planning.

267 THANK YOU

268 ENTREPRENEUR

269

270 MEANING 1. Entrepreneur is an organizer of a business firm central to its distributive and productive function. 2. Entrepreneur are specialized group of persons who bear risk and deal with uncertainties. 3. Entrepreneur is an economic man who tries to maximize his profits by innovations. Innovation involves problem solving and entrepreneur gets satisfaction from using capabilities in attacking problems. 4. Entrepreneurs are people who have the ability to see and evaluate business opportunities; together with the necessary resources to take advantage of them, and to intimate appropriate action to ensure success. 5. Entrepreneur is one who innovates, and introduces something new in the economy.

271 EVOLUTION OF ENTREPRENEURSHIP

272 Evolution of entrepreneurship 1. Earliest period : Marco polo is an early example of an entrepreneur who attempted to establish trade route to far east. Marco polo would sign contract with money person to sell his goods. A common contract for taking loan stated that trader had to pay interest of 22.5 % for the loan. Which includes insurance. When the merchant adventurer would successfully sell the goods and complete the trip profit were divided into two parts of which capitalist would gain 75% of profit and trader would end up getting 25 % of income. 2. Middle ages : in middle ages entrepreneur were more described as actor, person, manager. His job was to manage large production projects. He was merely managing the business while the risk was borne by the government of the country and not the entrepreneur. A typical entrepreneur in middle ages were the clerk in charge of great architecture.

273 3. 17 th century manager : emerging connection of risk with entrepreneurship developed with 17 th century. In this stage entrepreneur entered in contract with government were payment to be made to capitalist was fixed and after fixed payment, profit or loss incurred through the business had to be borne by entrepreneur.

274 4. 18 th century: During this period entrepreneur were divided into two persons a. Person with capital b. Person who needed capital Major reason for such differentiation was due to the industrialization occurring throughout the world. Many inventions developed during the period were reactions to the changing world. E.g. Edison raised capital from private sources to develop and experiment in the field of electricity and chemistry. Similarly Whitney had to finance his invention of cotton gin from expropriated British crown property. Therefore both were entrepreneur looking for venture capitalist to finance their inventions. J B Say broadened the concept of entrepreneur and included the concept of combining the factors of production.

275 5. 19 and 20 century : during this period entrepreneur were not distinguished from mangers and were viewed mostly from managers and from economic perspective in following manner : a. He organizes and operates the enterprise for his personal gains. b. He pays current prices for the materials consumed in the business. c. He contributes his own initiative, skill, in planning, organizing and administering things in company. d. He assumes the chance of loss and gain consequent to uncontrollable factors.

276 During the period of 20 th century: entrepreneur was seen as innovator in the economy. He was the one who came up the unique concept in the market. He performed following functions as entrepreneur : a. To revolutionize the pattern of production by exploiting inventions. b. To perform pattern of production by exploiting technological method of producing new commodity or old commodity in new pattern. c. Opening new source of supply of raw materials or new change outlet of products. d. Performing these functions by organizing new industry. Cont...

277 Concept of innovation and newness is the integral part of entrepreneur which not only requires the ability to create and conceptualize but ability to understand forces at work environment. The newness in the concept can be in the following ways : a. Introduction of new or quality goods b. Introducing new method of production c. Utilization of new source of raw material d. Carrying out new organizational form of industry.

278 6. 21 st century : during the present century two characteristics are associated with the entrepreneur they are innovation and creativity. Creativity is the ability to bring some thing new into existence. While innovators are practical people and create from the opportunities available in reality. Following principles of innovation have emerged leading to success of entrepreneur : a. Action oriented and searching for new ideas b. Making the product service simple and understandable c. Trying, testing and revising d. Learning from failures e. Hard work is the key to success

279 Supervise and control Risk taking Innovate Direct activities of firm Develop venture Functions of entrepreneur Analyze opportunity Strategies to start venture Start venture Acquire resources Develop business plan

280 FUNCTIONS OF ENTREPRENEUR 1. Risk measurement and risk taking : risk taking and risk measurement is the primary function of entrepreneur. Risk are not only related to success or failure of business but also involve personal and professional career forgone for the sake of opportunity. 2. Innovate/ create/ discover : entrepreneurship is innovativeness of individual and does not involve ownership. Principal function of the entrepreneur is to carry out new combinations of means of production. 3. Analyze opportunities : entrepreneur has to have opportunity seeking style where he has to evaluate credibility of various alternatives and choose suitable alternative which will prove to be profitable in future.

281 4. Strategies for venture : entrepreneur has to strategize long term plan for starting venture. He has to analyze the market and devise effective strategies to face present and future competition. 5. Develop business plan : business plan is written document containing details about every aspect of proposed business venture. It provides roadmap to employees working in company to attain objectives and is capable of convincing potential customers they are share holders and investors of company. 6. Acquire resources : entrepreneur has to acquire various types of resources such as men, money, material, machinery to start venture. Entrepreneur has to have suitable skills to line up required resources for the company.

282 7. Organize and start venture : entrepreneur should be a good organizer, he should deploy suitable resources at right place in right time required to for the company to ensure effective working of organization. 8. Develop and grow venture : it is not only important to start a venture but also company should be able to respond to changes happening in the business market which is crucial factor deciding existence of company. 9. Delegate, direct and lead the plan : during the growth stage of the company entrepreneur should provide required resources for the company and during later stage entrepreneur should come up with effective strategies to face competition and guide employees in company performing role of leader. 10. Supervise and control : for success of business it is important to have suitable mechanism in place so that entrepreneur can track overall success of the company.

283 CHARACTERISTICS OF ENTREPRENEURS Motivated Hard work Creative Visionary Independent Entrepreneur/ enterprising person Goaloriented Optimistic Risk - taker Leadership Desire to succeed

284 CHARACTERISTICS/ FEATURES OF ENTREPRENEUR Vision entrepreneur works hard to fulfil his dream in process to achieve his objective, he visualizes market scenario, socio economic, and technological environment based on these information he predicts future situation and accordingly plans his vision and ways to achieve desired objective. Knowledge as entrepreneur is soul of organization he is required to have knowledge about all the operations carried in organization so that he can direct and regulate activities of his employees from time to time. Desire to succeed entrepreneur are recognized in society because of their varied mindset and high dreams which motivates them to bring in invention and innovation in are of their business.

285 Independence entrepreneur needs independence in his work area as they are not know to follow their rule of thumb. Optimistic entrepreneurs are optimistic about achieving their objective as they intend to take risk to any extent to accomplish desired goals. Value addition entrepreneurs are known for bringing new things in market. They create, innovate, add value to existing products in market. Leadership entrepreneur exhibits qualities of good leader. They are good planners, organizers, decision makers and are empathetic towards employees at workplace.

286 Hardworking entrepreneur are know to be workaholic. They put in continuous efforts to achieve success and know that their is no substitute for hard work. Risk taking ability is one of the major trait of successful entrepreneur.

287 TYPES OF ENTREPRENEURS 1. According to type of business : a. Business entrepreneur: these are set of entrepreneurs who convince the idea of new product or service and then translate ideas into reality. b. Trading entrepreneur : they are concerned with trading activities. They are basically into buying the finished activities of producing and selling off to the customer directly or through the retailer. c. Industrial entrepreneur : he is the one who sets up industrial unit. He perceives opportunity to set up his business, complies with necessary formalities and ensures availability of required resources for starting the business.

288 d. Corporate entrepreneur : is the one who plans, develops and manages a corporate body. He is promoter, organizer and director responsible for running the organization. He gets the corporate body registered under the suitable companies act in compliance with legal legislation. e. Agriculture entrepreneur : is the one who is engaged in agricultural activities. He uses the latest technology to increase the productivity of agriculture.

289 2. According to use of technology : a. Technical entrepreneur: strength of technical entrepreneur is the technical knowledge of person. He possesses craftsmen skill in him which he develops to apply and implements to develop technical aspect of product. b. Non technical entrepreneur: these entrepreneurs believe in coming up with new strategies rather then concentrating technical aspect of the product. His target is not to change the technology related to the product but rather increase demand for product with effective strategies by attracting customers. c. Professional entrepreneur: are the one who are interested in floating a business rather then managing or operating the same.

290 3. According to stages of development : a. First generation entrepreneur : are those who do not possess any entrepreneurial background. They start industrial unit by the means of their own innovative skill. b. Second generation entrepreneur: are those entrepreneur who inherit family business firm and pass it from one generation to other. c. Classical entrepreneur: is a stereotype entrepreneur who aims to maximize his economic returns at every level consistent with the survival of the unit but with or without element of growth.

291 4. Classification given by Danhof : a. Innovating entrepreneur : are the one who introduce new goods, inaugurate new techniques of production, discover new market etc. He arranges for various factors of production, chooses competent managers, and sets his enterprise. b. Imitative entrepreneur : are characterized by readiness to adopt successful innovations inaugurated by successful entrepreneurs. They imitate technology, strategies, techniques from successful business.

292 c. Fabian entrepreneur : accept change only when they feel threatened that failure to do so would result in losses. They are imitative by nature but not determinant and also lack in power. d. Drone entrepreneur : these are entrepreneur who refuse to accept to adopt to changes adopted by the competitors. When competition increases they are pushed out of the market as it becomes uneconomical for them to carry their business further due to financial crisis.

293 5. According to capital ownership : a. Private entrepreneur : when an individual or group of people together set up enterprise collectively bear profit and loss of company, and adopting latest techniques in business are known as private entrepreneur. b. State entrepreneur : refers to trading or industrial venture undertaken by the state or the government. c. Joint entrepreneur : refers to combination of private and state enterprise running the business by sharing resources with each other.

294 INTRAPRENEUR Intrapreneur is the person who works within the organization, utilizes the resources available within the organization and tries to accomplish present task in innovative and creative manner by effective utilization of available resources.

295 CHARACTERISTICS OF INTRAPRENEUR 1. Creates new venture : giving birth to new business within the existing organization is the typical characteristics of intrapreneur. 2. Innovates products and services : intrapreneur to create effectiveness at workplace has to update organization techniques through implementation of new technology in company. 3. Innovates process : to sustain in market company's strategies should be effective to that of competitors for which intrapreneur should renew company process at regular interval of time.

296 4. Proactive : intrapreneur attempt to lead rather than follow competitors through their proclivity in terms of advance operations in company. 5. Risk taking : intrapreneur possess risk taking attitude with regard to investment decision and strategic actions under uncertain situations. 6. Renews organization : intrapreneur is expected to transform the organization through renewal of key ideas. 7. Competitively aggressive : intrapreneur is expected to come up with new strategies to stabilize or develop company's brand image in market.

297 Point of distinction Qualities Goal management Status Risk Rewards Entrepreneur An innovative, risk taker, high achiever An entrepreneur starts a venture by setting up a new enterprise for his personal gratification An entrepreneur is owner of enterprise An entrepreneur bears all risks and uncertainty involved in the enterprise. Entrepreneur for his risk bearing role he receives profits. It is only uncertain and irregular but can at times be negative. Intrapreneur Person having all the qualities and characters of an entrepreneur But the main aim of a Intrapreneur is to render his service in a enterprise already set up by someone. Work for others as a paid employee. Does not bear all risk involved in the enterprise. Which is fixed and regular income can never be negative.

298 DEVELOPMENT OF ENTREPRENEURSHIP 1. Government and non government support bodies : government in country has come up with various institution for supporting SSI they are national institute for entrepreneurship and small business development ( NIESBUD ) was established in 1983 by the ministry of micro, small and medium enterprise. Entrepreneurship development institute in India ( EDI ) an autonomous body and non profit institution set up for supporting SSI in country.

299 2. Incubation facility : premiere business schools and technical institution in India have entrepreneurship centres which provide incubation facility to start up small scale unit. Incubator is facility designed to assist start up companies with respect to providing knowledge and technical assistance. 3. Educational programs : entrepreneurship is be coming popular choice as an elective in MBA programs at business schools in India. In addition to educational programs their are some business school which provide certification programs and training to candidates intending to start up their own business.

300 4. Entrepreneurship networks : refers to association formed by successful entrepreneur where by becoming member of such association fresher's will get some guidance and assistance to start up their own business. E.g. TIE : the Indus entrepreneurs was founded in silicon valley in 1992 by successful entrepreneurs and professionals in country. National entrepreneurship network ( NEN ) founded in 2002 is the non profit initiative working to inspire and educate emerging entrepreneurs in company.

301 STAGES IN ENTREPRENEURIAL PROCESS Identify an opportunity Establish vision Persuade others Gather resources Create new venture, product or market Change/ adapt with time

302 Identify an opportunity : is an first step towards setting up an enterprise. Entrepreneur before identification of an opportunity should do proper market analysis about market situation, economic conditions and understand taste preference of customers. Establish vision : is second step towards establishing an enterprise. In the process entrepreneur is required to establish long term vision and accordingly plan in mission which will serve as roadmap to achieve company vision. Objectives established by entrepreneur should be flexible in nature to adjust according to changing situation.

303 Persuade others : even though the idea of entrepreneurship is initiated by individual person, it requires team effort to covert an idea into reality. Entrepreneur is required to convince skilled employees to work on business plan, make investors and marketers understand credibility of business to enhance status and goodwill of company in business market. Gather resources : next step towards entrepreneurship requires gathering of required resources to start business. Resources includes a. Finance resources : it refers to getting required capital through financial institutions, raising capital through general public by issue of shares, raising required finance though other resources such as self investment, finance through family and friends.

304 b. Operating resources refers to tangible and intangible resources which includes machinery, raw material, company image, operating procedure, transportation etc. c. Human resources refers to skilled labour force in organization and other decision in relation to human resource such as training and development of employees, decision to hire permanent or temporary employees, amount of investment to be made of human resource in organization. d. Information resources : it is very important on part of organization to collect information about competitors, customers taste and preference, recent development in area of business company will be operating. The company has to maintain valid and accurate management information system in order to suffice to the information needs of company.

305 create new venture : once the entrepreneur has arranged in for resources mentioned above, next step involves creation and establishment of new venture. Which requires fulfilment of various legal formalities. Change and adapt with time : initial plan developed by entrepreneur may not be suitable for long run. So business plan is required to be updated on regular basis to cope up with recent trends or updation in market.

306 ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT 1. Create employment opportunities : unemployment is major problem faced by developing and under developing countries around the world. As small scale industries are labour intensive in nature they generate more employment opportunities rather then large scale industries in country. 2. Inspire others towards entrepreneurship : team created by entrepreneurship provides opportunity for employee cum team mates to have first hand experience in process of setting up an venture creating possibility for team mate to come up with his own SSI in future. 3. Create knowledge spill over : entrepreneurship serves as mechanism by which knowledge over to the firm in which it is commercialized. New firm gets the benefit by the experience and knowledge gained by the founder in the company.

307 4. Augment the number of enterprise : augment refers to making basic comparison and trying to find out area in which competitors are ahead. Entrepreneurship not only leads to formation of new business but also brings into picture idea or new concept in market exploring almost all the available areas in market creating tuff competition in market thus leading to supply of quality products in market. 5. Provide diversity in the firms : entrepreneurship activity in particular region often results into creation of variety of firms in country. These firms operates into diverse activities and these diversity fosters economic development in the country.

308 ENTREPRENEURSHIP AND ITS BARRIERS 1. Macro economic environment : macroeconomic environment in which SSI operates is dependent on policies of the government in supporting private participation in business. Macro means large and it refers to various factors existing in the environment which effect the working of company. E.g. instability in government of country which leads to change in legal legislation on continuous basis. 2. Legal and regulatory environment : for entrepreneurship is formed by registration and licence procedure, commercial and contractual laws, real estate regulations and laws. If the administration procedure and laws are unclear, time consuming and cumbersome then it proves to be barrier in operation of SSI.

309 3. Corruption and unfair competition : a corrupt can lead to unfair competition, which in turn can become major hurdle to entrepreneurship activity in country. Excessive approvals and regulations and approval from government required by entrepreneurs may make the government officials corrupt they develop attitude to take bribe for quicker completion of work. 4. Financial obstacles : start up ventures are usually dependent upon capital to be sourced from financial institution. But it is general tendency of financial institution to be reluctant in providing finance to SSI rather then LSI as LSI given in more amount of interest compare to SSI.

310 5. Tax burden : in many regions government charges tax to SSI at similar rate as to LSI which SSI cannot afford to pay as the revenue generated by SSI is comparatively less. 6. Challenges in attracting talent : to generate improved quality of product in the company human resource in company should be efficient in nature. It is possible only when company is able to attract efficient employee to join company, but candidates these days expect in for higher salary which SSI cannot afford to pay because of the same SSI has to compromise with average candidates in the company.

311 7. Difficulty to source raw material : for timely production of product in the market it is important to have proper supply of raw material, but supplier in market give second preference to SSI in market compare to LSI as they order in bulk rather then SSI in market. 8. Expensive to access proprietary technology : as investment amount of SSI is industry is less they cannot afford to do heavy investment in technology which again has adverse effect on quality and quantity of product produced by the company.

312 SMALL SCALE INDUSTRY MODULE VI 1

313 SMALL SCALE INDUSTRY Meaning : SSI is an industrial undertaking in which the investment in fixed assets in plant and machinery, whether held on ownership terms or on lease or on hire purchase does not exceed rupees one crore. Provided that the investment ceiling in respect of the small-scale industrial undertaking manufacturing certain items shall not exceed rupees five crores. 2

314 CHARACTERISTICS OF SMALL SCALE INDUSTRY 1. Production output in small quantities : as the initial investment and level of operation of SSI is small similarly the quantity of production in SSI is small in quantity. 2. Lowest possible investment in plant and machinery : investment in fixed assets in plant and machinery whether hold on ownership or lease does not exceed the investment of 5 crores and SSI industry is more labour oriented than dependent on technology for its operations. 3

315 3.Small number of workers and employees : as level of operation in SSI is small in accordance with it number of employees required in the company are also less. 4. Lower gestation period and are easy to set up in backward and rural areas : the step from the process of planning, conceptualization till implementation of business in case of SSI is relatively small compared to large scale and medium industries as the formalities required to undergo are relatively less. 4

316 5. Utilizes local resources and produces products to cater the needs of local market : as SSI utilizes local resources it can reduce the cost of sourcing raw materials and as local market are easily accessible they prefers producing and selling goods to customers in local market. 6. Informal management style : as SSI is usually in form of family business important matters of the business are not required to be discussed through meeting, these issues are informally discussed with in the family. 5

317 NEED AND RATIONALE Employment Rationale: Employment rationale is based on the assumption that SSI creates more employment per unit of capital. It is told that the employment generating capacity of small business sector is eight times that of large scale sector. Small business units account for more than 60% of rural employment generated. Equality Rationale: A growth of SSI prevents concentration of economic power in a few hands and gross inequalities of income as the income generated in small business sector is dispersed more widely. In this way they contribute for greater equality of income distribution. 6

318 Latent Resource Rationale: According to this rationale the small enterprises enable in tapping latent resources like entrepreneurial skills, dishoarding of wealth and facilitate the growth of economy. Decentralisation Rationale: This rationale suggests the need for regional dispersal of industries so as to achieve balanced regional development. SSI can be located in rural and semi-urban areas to reduce regional disparities. Allocation Efficiency Rationale: Small business use productive factor more efficiently. They pay lower wages and incur high capital costs. They make use of local resources and cater to the local needs. 7

319 OBJECTIVES OF SSI To create more employment opportunities with less investment. To remove economic backwardness of rural and less developed regions of the economy. To reduce regional imbalances. To mobilise and ensure optimum utilisation of unexpected resources of the country. To improve standard of living of people. To ensure equitable distribution of income and wealth. To adapt latest technology aimed at producing better quality products at lower costs. To create decentralised pattern of ownership. To encourage growth of local entrepreneurship. 8

320 ROLE OF SSI IN ECONOMIC DEVELOPMENT Elimination of economic backwardness of rural and underdeveloped regions in the country. Reduction of regional imbalances. Reduction of disparities in income, wealth and consumption. Mobilisation of resources of capital and skills and their optimum utilisation especially in rural and semi-urban areas. Creation of greater employment opportunities, increase output, high standards of living etc., leading to economic development. Providing import substitution, thus saving foreign exchange. Improves the quality of industrial products manufactured in the cottage industry sector and to enhance both production and export. 9

321 ADVANTAGES OF SSI Employment Generation: The small-scale industry creates the largest employment opportunities for the Indian population, next only to agriculture. It has been estimated that an investment of Rs. One lakh in fixed assets in SSI sector generates employment for four persons. The SSI sector has made significant contribution to employment generation and also to rural industrialisation because of its low capital intensity and high labour absorption nature. Growth Potential: The SSI sector contributes 40 per cent of gross manufacturing. It has been estimated that an investment of Rs. One lakh in fixed asset in the SSI sector produces 4.62 lakhs worth of goods or services, with an approximate value addition of 10 percentage points. 10

322 Opportunities: The SSI sector is ideally suited to build on the strengths of our traditional skills and knowledge by infusion of the technologies, capital and innovative marketing practices. The opportunities for the SSI sector are enormous due to various reasons: (a) extensive promotion and support by the government (b) reservation for exclusive manufacture by small-scale industries sector (c) low level technical and managerial skills (d) reservation for exclusive purchase by government (e) growth in demand in the domestic market size to overall economic growth, etc. Export Contribution: The number of small-scale industrial units undertaking exports is more than Overall SSI exports contribute around per cent of the total Indian export market, while direct exports account for nearly 35 per cent of total exports. The major SSI items consists of low-skilled labour-intensive goods like garments(readymade, woollen garments), leather products, gems and jewellery products, sports goods, plastic products, processed food etc. 11

323 More Equitable Distribution of Income: The SSI sectors are instrumental in resulting in a more equitable distribution of income owing to two reasons. First, it ensures income parity among the workers of SSI sectors. Second, it is observed that entrepreneurial income is more equally distributed in case of SSI sector. Flexibility: Small firms are better able to adapt to changing and sometimes disruptive economic circumstances. Due to its flexibility, the sector is in an advantageous position to face challenges and changes. It is ideally poised to attract both technology and funds to generate rapid growth and sustained process of technology up gradation and quality improvement. Contribution to decentralisation: The smaller firms prevent the concentration of power in a few hands. In addition, they also help in ensuring equitable distribution of wealth. A significant number of SSIs are located in the rural belt, while major industrialists are interested in locating their industries only near urban centres. Therefore, the absence of decentralisation would cause accumulation of wealth only in certain areas. 12

324 STEPS TO START AN SSI Deciding to go into business: This is the most crucial decision a person has to take. In this respect, this is the first step. The promoter has to understand the benefits and risks involved in doing business. Selection of product: Product selection is an important step in setting up a SSI. Choice of the right product is very essential for the success of the enterprise and hence this step is to be made very carefully through environmental scanning. The promoter has to select the most promising product considering factors like market potential available, existing competition, availability of raw material and technology, the expertise and experience entrepreneur, government policies and marketing facilities needed. Selection of form of ownership: A firm can be constituted as proprietorship, partnership and limited company. This depends on the type, purpose and size of business. Factors like available resource in hand and tax planning decide the selection of form of ownership. 13

325 Selection of site: The next step is to decide on location of the unit. Suitability of the site is to be considered from the view points like the size, open area or covered, etc., logistics considerations are most important than emotional considerations. Designing capital structure: For any new venture the initial capital will be from the following sources: Own funds Long-term loans from friends and relatives. Long-term loans from banks and financial institutions. Depending on the availability the promoter has to decide on the capital structure of the firm. Acquisition of manufacturing knowledge: Various processes are available to manufacture a product. Information on all these available technologies should be collected and the best one should be selected. This will determine the machinery and equipment to be installed. The technical know-how may be arranged through NSIC, SISI, Foreign collaborations are even machinery suppliers. 14

326 Preparation of project report: The preparation of project report consists of the following elements: Feasibility study Techno-economic analysis Input analysis Financial analysis Social cost benefit analysis Project design, and Project appraisal Factors like technical feasibility, economic viability, financial feasibility, etc., are to be considered while preparing a project. 15

327 Registration with authorities as SSI: The required application in the prescribed form is to be submitted for provisional registration to local DIC or Directorate of Industries. This not essential, but desirable as it facilities availing the various facilities, incentives, assistance and subsidies provided by government. The provisional registration enables the promoter to apply for: An industrial shed in the industrial estate. Licenses from the corporation and the municipality. Power connection. Financial assistance fro banks and financial institutions. Sales tax and excise duty number etc. Arranging finance: For arranging finance from banks and financial institutions certain specified procedures and steps are to be followed. A number of financial institutions extend loans on concessional terms both for long term and working capital purposes. Under certain schemes SSIs are eligible for subsidies which obviate the need for margin money. 16

328 Power connection and water supply: The power requirement should be assessed phasewise. A No Objection Certificate(NOC) from pollution control authorities may be required before the power connection. Installation of machinery: after arranging finance, work shed, power, etc., steps are to be taken for procuring the required machinery and its installation as per the layout plan. It is also necessary to take insurance on assets. Recruitment of staff: after installation of machinery manpower is required to run them. Hence the quantity and 17

329 Procuring raw-materials: the availability of raw materials has to be found out and procured. If imported raw materials are required government agencies assist SSIs in procuring them. Starting production: Before starting commercial production trial runs are arranged. Commercial production is started after ascertaining the market demand. Production schedules are matched with the market off-take. The quality of the product is got certified. The wastage is kept at minimum level. Marketing the product: Once the product or service is produced, they are introduced in the market. Continuous market research is done to assess the need for modification up gradation and growth of the product. In SSIs marketing requires more concentration as they ignore this vital function. 18

330 Managing enterprise: the major role of an entrepreneur is to manage money, material, production, labour, marketing, finance to ensure appropriate return on investment. Managing an enterprise is the most critical task for the future success of business enterprise. After reaching the goal set by the entrepreneur, he should repeat the process to search for new opportunity for expansion and growth of the organisation. 19

331 GOVERNMENT POLICIES TOWARDS DEVELOPMENT OF SSI Reservation items for exclusive manufacture in small scale sector : in order to strengthen SSI ad make them economically viable, policy on reservation of products for exclusive manufacture in the SSI sector was initiated in 1967 with 47 items being reserved to promote and protect SSI. Reservation on items for exclusive purchase from SSI : under the government store purchase program the director general of supplies and disposal arranges for the purchase and delivery of all stores indented. It tries to support SSI in two ways that is firstly purchases are made from SSI units, secondly for those items which are not reserved a purchase price preference of 15% against quotation of LSI in country. 20

332 Excise duty exemption on third part branded goods manufactured by SSI units in rural areas : policy promotes entrepreneurship in rural areas where entrepreneurs can manufacture their goods, which are later supplied to other companies for selling them with their brand. SSI allowed to pay excise duty on a monthly basis as against payment of the duty at the time of removal of goods from factory : this policy provides flexibility to SSI to make excise duty payment for all the supplies made by them in a month. 21

333 One time grant of 50% for SSI which wish to develop and operate testing laboratories provided they are of international standards. Policy aims to strengthen the SSI who are willing to set up their own lab and testing centres. No liability for SSI under sales tax law for import of goods into or export of goods out of country. State government through this policy has provide great relief to SSI operating in country. 22

334 Export sales for SSI exempted from levy of sales tax under central sales tax under act of 1956 : central government has provided this exemption to encourage SSI to export their products abroad and lead to earning of foreign exchange in country. 23

335 GOVERNMENT SUPPORT FOR SSI DURING FIVE YEAR PLAN o During formation of five year plan in the country government included some special policies to support small scale industry in the country : 1. First five year plan : o Establishment of all India board to advice and assist in the formulation of program for the development of handloom industry, khadi and village industry, small scale industry, handicraft industry, sericulture, coir. o If the quality of products produced by SSI and cottage industry are comparable then it would receive preference from government in terms of goods requirement compare to that of other manufacturers. 24

336 o Four SSI services institutes were set up to provide technical and advisory support to SSI in country. o All India khadi and village board set up technological institute to village industries and also established regional and central institutions for training workers. o All India handicraft board brought in new design and pattern to improve process of production and organized survey to market handicrafts products both within and outside the country. o Coir board promoted the formation of cooperative societies for the collection of husk and production, supply of yam. 25

337 o Essential feature of first year plan was to assist SSI in form of credit, training facility, technical advice, supply of improved tool and equipment on easy term and establishment of sales report. o Emporia and sales depots for handloom, handicrafts and village industries were established during first five year plan. 26

338 2. Second five year plan ( ) o One of the major development during second year plan was the establishment of statutory khadi and village industries commission with more extensive powers then enjoyed by khadi and village industries. o At the end of second plan extension officers for the industry has been provided in more than 1650 development blocks out 3110 blocks. o About 60 industrial estates were set up for providing factory accommodation and a number of common facilities for promotion of SSI. 27

339 3. Third five year plan ( ) : o In third plan the main objective of SSI were to improve the productivity of worker to enlarge the availability of institutional finance and to pay special attention to the growth of small industries in rural areas and small towns. o Development related to plan was in incremental mode during first two year plan but later due to non availability of raw materials following the hostilities of 1962 and 1965 was with china and Pakistan. o During this planning period about 346 industrial estates had been completed by the end of march sheds along with 6600 sheds had been occupied. 28

340 4. Fourth five year plan ( ) : o Establishment of regional testing centres and a few branches of small industries services institutes. o 455 industrial estates functioning by march 1974, 347 were located in urban and semi urban areas and the remaining 108 in rural areas. o Massive scheme for training carpets weavers was initiated to promote larger exports of woollen carpets. 29

341 5. Fifth five year plan ( ) : o By march 1980, 382 district industries centre were sanctioned covering 392 districts with the objective of providing all the facilities and support facilities under one roof. o Central scheme of rural marketing centre at bock level was taken up on pilot basis in to cater the marketing requirements of artisans and tiny units. o For external marketing number of export promotion councils for important manufactured products were set up, these are export promotion councils for handloom, gems and jewellery and leather products. o In case of SSI 834 items were reserved for exclusive productions. 30

342 6. Sixth five year plan ( ) : o Production in SSI sector increased from 33,580 crores in to crores in and exports from to 4557,56 crores in o In relation to employment it increased from 233,72 lakh to 315,00 lakh persons in o 5035 new model charkas for spinning of khadi yarn were installed. 31

343 7. Seventh five year plan ( ) : o To facilitate modernization and achieve rapid growth in the sector, the upper limit on the investment was raised in respect of small scale units from 20 lakh to 35 lakh and in case of ancillary units from 25 lakh to 45 lakh. o Small industrial bank of India was established in 1990 for timely and adequate disbursement of credit to SSI. 32

344 8. Eight five year plan ( ) : o the ceiling of investment in the case of tiny enterprise was raised to 5 lakh local restriction on setting of these enterprise were removed and their scope was enlarged to include all industry related to service and business enterprise. o Equity participation not exceeding 24 percent, by other industrial undertaking including that foreign collaboration in small-scale sector was permitted with view to encourage modernization and technological up gradation. o Greater emphasis on private initiative in industrial development. Greater emphasis was laid on the establishment of tools room and provision for training facilities. 33

345 9. Ninth five year plan ( ) : o Adequate availability of modern infrastructure facilities was sought to be ensured by setting up integrated infrastructure development centres. o During the period the village and small industries sector was growing at the rate of two to three percentage points higher than the large and medium industries sector. o It contributed more then 40 percent of value addition in the manufacturing sector and 80 percent of total employment in the industries sector. o Its contribution to export was significant and accounted for more than 40 percent ( both direct and indirect ). o During ninth plan period SSI created over 3.2 million jobs. 34

346 10.Tenth five year plan ( ) : o Enhancement of excise duty exemption limit for SSI units from 50 lakh to Rs 100 lakh. o Increase in composite loan limit to 25 lakh. o Credit linked capital subsidy at 12 percent of cost of technological up gradation of SSI units for modernisation of SSI units. o the service and business related small scale units with maximum investment limit of Rs 10 lakh would also be covered under priority lending. o Enhancement of investment limit to Rs 500 lakh for Hi tech and export oriented sector. 35

347 o Technology bank to set up for SSI sector by strengthening the existing technology bureau for small enterprise. o One time capital grant for 50 percent to SSI associations for setting up international level testing laboratories for SSI units. o Preference to be given to tiny units while organizing buyer seller meet, vendor development programmes and exhibitions. o Conduct third census on SSI. o Integrated infrastructure development centres scheme extended to all areas. 36

348 11. Eleventh five year plan ( ) : o Eleventh plan approach to the MSE sector marks shift from the welfare approach to that of empowerment. Strategy is prolonged it focuses on the livelihood and social security. o Policy initiatives are proposed to incentivise MSE to achieve economies of scale by expanding production. o MSE sector including handloom and handicrafts presents an opportunity for exports. Effort during plan period will therefore be to organize this sector to create cluster of weavers to improve their bargaining power and to enable them to pool resources. o Banks will be encouraged to ensure that all loans up to Rs 5 lakh to MSE are given free of collateral at the interest rate of 8%. 37

349 IMPACT OF LIBERLIZATION, PRIVATISATION AND GLOBALISATION o Globalization means free movement of factor inputs labour as well as capital between the countries. o Liberalisation refers to leniency in terms of rules and regulation related to export, import and regulation relating to investment in home country companies from host country companies. o Privatisation : is a scenario in country where the interference of government relating to industrial activities is very minimum and private players dominate in country. 38

350 Concept of LPG in every country irrespective whether it is SSI or LSI is benefited in terms of expanding their business in global market. LPG concept in the country has compelled domestic players to enhance quality in terms of product as well as services provided within and outside the country. It helps SSI to import advanced technology required for production from other countries as they have liberty in terms reduced tax on goods imported from other countries. 39

351 ADVANTAGES OF LPG ON SSI o Increased free trade between nations o Increased liquidity of capital allowing investors in developed nations to invest in developing nations o Corporations have greater flexibility to operate across borders o Global mass media ties the world together o Greater interdependence of nations states o Spread of democratic ideals to developed nations o SSI get more scope to market their products outside the country. 40

352 DISADVANTAGES OF LPG ON SSI 1. Quality of goods produced by small scale industry cannot match up with that of goods produced by foreign company as quality of raw materials used by these company will comparatively be High. 2. Foreign company entering country used high level of technology which reduces their operation cost which benefits foreign company in comparison to SSI in country. 3. Host country company have effective marketing strategy by which it becomes easy for them to attract customers in market which proves to be tuff competition for local SSI. 4. Government in country grant more facilities to foreign companies as they generate more revenue compare to that of SSI in country. 41

353 EFFECT OF WTO / GATT GATT (General Agreement on Tariffs & Trade): The 3 main principles of GATT are: Non-discrimination: the policy of non- discrimination requires that no member country shall discriminate between the members of GATT in conduct of international trade. Reciprocity: the reciprocity was never formally defined but nevertheless remained a cornerstone of GATT negotiations. The reciprocity obligation required that a country receiving a concession from another was to offer an equivalent concession in return. Transparency: according to the policy of transparency direct control on trade especially, quantitative restrictions are forbidden. Achievements of GATT: (I ) trade liberalization in industrial products (Kennedy Round) (ii) No world wars since 1948 (iii) replaced by WTO on January 1,

354 Shortcomings of GATT: In case of agricultural commodities, there was no liberalisation. Due to non-tariffs barriers, the exports of developing countries suffered heavily. The GATT dispute settlement system was slow. Ironically the developed countries were increasing the trade protection where as the developing countries were liberalising. WTO (WorldTrade Organisation): [1 st Jan 1995] o Word trade organization is the global organization dealing with rules of trade between unions. Functions of WTO: o The WTO shall facilitate the administration and implementation of multilateral and plurilateral trade agreements which together make up the WTO. o The WTO shall provide the forum for negotiations among its members concerning their multilateral trade relations. o The WTO shall administer the undertaking on rules and procedures governing the settlement of disputes. o The WTO shall administer the Trade Review Mechanism. o The WTO shall cooperate with other international institutions involved in global economic policy making. 43

355 WTO objective is to help producers of goods and services, exporters and importers to carry on their activities smoothly. Basic principles of WTO are : o Non discrimination between countries o Free trade gradually through negotiations o Predictability o Promoting competition 44

356 Favourable Factors to India on becoming a member of WTO: Benefits from reduction of tariffs on exports. Advantages from greater security and predictability of the international trading system. Compulsory imposed on us to be competitive in the world market. Improved prospects for agricultural exports because the prices of agricultural products in the world market will increase due to reduction to domestic subsidies, and barriers to trade. 45

357 Unfavourable Factors to India India s share in the world trade is very low and the Foreign trade Domestic Gross Product(DGP) ratio of India is low. Less prospects of increase in agricultural exports due to the limited extent of agricultural liberalisation. India will be under pressure to liberalise the service industries. Steep hike in prices of drugs and agricultural inputs. 46

358 o But the cause of concern is that policies of these international institution has proved to be more beneficial to multinational corporation rather then SSI operating in various countries. 47

359 Ancillary industry: Ancillary industrial undertaking is an industrial undertaking which is engaged or is proposed to be engaged in the manufacturing or production of parts, components, subassemblies, tooling or intermediates, or the rendering of services, and undertaking supplies or proposes to supply or renders not more than fifty percent of its production or services, as the case may be, to one or more other industrial undertakings and whose investment in fixed assets in plant and machinery, whether held on ownership terms or on lease or on hire purchase does not exceed rupees one crore. 48

360 Tiny industry: very small industries with an investment in plant and machinery less than Rs. 25 lakhs are included in the definition of Tiny Industry. The number of persons employed in these units must be less than 50. The locational restrictions of setting up of tiny units have been removed by Small-Scale Industries Policy of

361 MODULE VII

362 Institutional Support Different Schemes, TECKSOK, KIADB KSSIDC, KSIMC, DIC single window agency SISI NSIC SIDBI KSFC

363 MSME Development Organization MSME Board National Small Industries Corporation MSME Development Institutes Central government MSME Technology Development Centers MSME Testing Centers & Testing Stations Coir Board Khadi & Village Industries Commission SIDBI Entrepreneursh ip Development Institutes MSME Tool Rooms

364 Commissioner /Director of Industries State Small Industries Development Corporations State governments Technical Consultancy Organization District Industries Centers State financial corporation

365 Established in the year 1976 by the Government of Karnataka. Primary objective of founding TECSOK was to provide reliable consultancy support for entrepreneurs to start up self-employment ventures in Karnataka. Functions : Package of services include: Location-specific opportunities. identification of investment Assistance in obtaining statutory and procedural clearances Feasibility studies and environment impact studies. Preparation of detailed project reports investment norms and financial norms. as per

366 Market survey and research Project implementation and turnkey assistance. Reorganization and restructuring of enterprises. Valuation of assets, manpower planning and budgetary control system. Energy management and audit, corporate plan, technology transfer Diagnostic studies and rehabilitation of sick industries. Management studies, company formation, corporate plan, enterprise restructuring. Consultancy for mergers/takeovers. Designing and organizing training programs. Consultancy for agro-based industries as a Nodal Agency of Government of India. Infrastructure development projects.

367 TECSOK undertake the assignment in the field of Technical and market appraisal of projects. Industrial potential surveys. Fact-finding and opinion reports. Corporate planning. Collection and collation of information. Impact assessment. Evaluation of schemes and programmes. Asset evaluation. Infrastructure development project proposal. Event management and publicity campaigns, and Organizing seminar and workshops. TECSOK has over 25 well-experienced engineers in different disciplines, MBAs, economists and finance professionals. TECSOK has an exclusive women s cell which conducts training and education programmes, exhibitions for promotion of products and services provided by women entrepreneurs and offers escort services to women entrepreneur. TECSOK has many publications. Kaigarika Varthe a monthly is published by TECSOK. In addition it publishes Guide to Entrepreneurs Directory of Industries on a regular basis.

368 Focused Consultancy Areas of TECSOK Promotion of agro based industries: TECSOK is recognized nodal agency by the Ministry of Food Processing Industries, Government of India, for project proposal to avail grant and loan assistance under the special schemes. Energy management and audit: Thrust is given to use non- conventional energy sources for which both state and central governments are offering incentives. TECSOK has been recognized as a body to undertake energy audit and suggest energy conservation measures. TECSOK undertakes studies and project proposal for availing assistance from the Indian Renewable Energy Development Authority (IREDA). Environment and ecology: TECSOK undertakes assignments relating to environment education, environment impact assessment, environment management plan and pollution control measures. TECSOK has joined hands with Karnataka cleaner production center (KCPC) to provide total consultancy support in the area of environment.

369 Engaged in acquiring and developing industrial lands in different industrial areas. In case the investor desires, KIADB acquires land in specific location of investor s choice and develops the land if required, at entrepreneur s cost. KIADB industrial lands are generally of ready to occupy condition with all basic infrastructure facilities. Allots the land on lease-cum-sale basis and the period of lease is 10 years. Allotters are required to construct the factory and other buildings within a specified time frame and as per the plan approved by the Directorate of Factories and Boilers.

370 Functional Units Of KIADB: Acquisition wing: This wing conducts the proceedings of acquisition and hand over the land to KIADB.A special duty commissioner heads acquisition wi and assisted by special land acquisition officers at zonal level.this section is an arm of government which conducts the proceedings. Engineering wing: Engineering section prepares design and development plan taking into consideration of different parameters like: Infrastructure requirements Statutory and regulatory requirements Co-ordination with other agencies

371 Chief engineer and chief development officer: Heads engineering section assisted by development officers who are in charge at the zonal offices. This wing of KIADB also provides service to the allottees by approving building plans, providing water supply connections,nocs for obtaining power connections from supply agencies and addressing the grievances of allottees at industrial in the matters related to infrastructure. Allotment wing: This section is headed by secretary assisted by assistant secretaries at zonal offices. Request of entrepreneurs in the matters of leasing, issuance of absolute sale deed, issuance of NOCs for financial assistance, needful clearances for change in activity,change in constitution, maintenance of payment records of allottees etc are attended by allotment sections.

372 Accounts wing: Controller of finance,the head of this department is assisted by senior audit officer, accounts officer, project officer and assistant secretary.this wing of KIADB is engaged in drawing of budgetory proposals,project financing and planning. Administration wing: Joint director is the head of this department. This section has overall responsibility of general administration, human resources management and other administrative and logistics matters. This section ensures that the employees of this board are abreast with professionalism by providing trainings, refresher courses for better productivity in the organization

373 Established in Greatly instrumental in the industrialization of the State, esp. large and medium sector. Functions: 1. Assisted 135 start-up ventures through equity participation to the extent of Rs crores spread over the length and breadth of the State. 2. Extended financial assistance in the form of debt to core sector industries like steel, cement, mining and textiles and modern sector industries like information technology, aviation, telecommunications and other infrastructure projects. 3. Instrumental in Establishing JSW Ltd, Vikrant Tyres ltd, Karnataka Antibiotics and Pharmaceuticals Ltd. 4. Persistent efforts aided in Realizing the dream of setting up the country s first green field international Airport at Devanahalli on public private sector partnership.

374 KSSIDC(then Mysore Small Industries Corporation) is rendering services to cater to the primary developmental needs of the small, tiny and village industries in the state/union territories under their jurisdiction. The important functions performed by the KSSIDCs include: To procure and distribute scarce raw materials. To supply machinery on hire purchase system. To provide assistance for marketing of the products of small-scale industries. To construct industrial estates/sheds, providing allied infrastructure facilities and their maintenance. To extend seed capital assistance on behalf of the state government concerned provide management assistance to production units.

375 Karnataka state industrial marketing corporation(ksimc) KSSIDC with the objective of creating market to SSI product formulated a sister concern called KSIMC With an investment of 35 lakhs. The state has also established the karnataka small industries market corporation to provide marketing assistance to the small scale industries sector. These measures have helped the small scale industries sector to a greater extent. Departments, public sector undertakings and statutory board and corporations is proposed to amend the karnataka act 2000 to provide purchase price preference to SSI units of the state which manufacture items reserved for small scale industries sector by government of india from time to time in the following manner:

376 75% of the items reserved by the SSI sector shall be procured from the units located within the state through an open tender system. SSI units of the state shall be offered a price preference of 15% over the lowest price quoted. This benefit will be available for a period of 5 yrs from 1 st April The role of KSIMC will also be reoriented to help the SSI sector to: Improve the quality of products Improve the production-manufacturing processes Reduce prices. Augment exports

377 The District Industries Centres (DIC s) programme was started in 1978 with a view to provide integrated administrative framework at the district level for promotion of small scale industries in rural areas. The DIC s are envisaged as a single window interacting agency at the district level providing service and support to small entrepreneurs under a single roof. DIC s are the implementing arm of the central and state governments of the various schemes and programmes. Registration of small industries is done at the district industries centre and PMRY (Pradhan Mantri Rojgar Yojana) is also implemented by DIC.

378 The main functions of DIC are: (1) To prepare action plan to implement the schemes effectively already identified. (2) To undertake industrial potential survey and to identify the types of feasible ventures which can be taken up in ISB sector, i.e., industrial sector, service sector and business sector. (3) To guide entrepreneurs in matters relating to selecting the most appropriate machinery and equipment, sources of it supply and procedure for importing machineries. (4) To provide guidance for appropriate loan amount and documentation. (5) To assist entrepreneurs for availing land and shed equipment and tools, furniture and fixtures. (6) To appraise the worthiness of the project-proposals received from entrepreneurs. (7) To help the entrepreneurs in obtaining required licenses/permits/clearance. (8) To assist the entrepreneurs in marketing their products and assess the possibilities of ancillarization. (9) To conduct product development work appropriate to small industry. (10) To help the entrepreneurs in clarifying their doubts about the matters of operation of bank accounts, submission of monthly, quarterly and annual returns to government departments. (11) To conduct artisan training programme. (12) To act as the nodal agency for the district for implementing PMRY (Prime Minister Rojgar Yojana)

379 PMRY for providing self-employment to educated unemployed youth was announced by Prime minister on 15 th august 1993 to provide self-employed opportunities to one million educated unemployed youth in the country. The scheme has been formally launched on 2 nd October, Objectives- The PMRY has been designed to provide employment to more than a million Person by setting up of 7 lakhs micro enterprises by the educated unemployed youth. It relates to the setting up of the self-employment ventures through industry, service and business routes. The scheme also seeks to associate reputed non-governmental organisations in implementation PMRY scheme especially in the selection, training of entrepreneurs and preparation of project profiles.

380 Features of P.M.R.Y: Age should be between 18 to 40 years. Activities covered are all economically viable activities including agriculture and allied activities but excluding direct agricultural operations like raising Crop, purchase of manure etc. Scheme envisages compulsory training for entrepreneurs after the loan is sanctioned. Should not be a defaulter to any nationalized bank / financial institution / co-operative bank. Further, a person already assisted under other subsidy linked Government schemes would not be eligible under this scheme. Should be a permanent resident of the area for at least 3 years.

381 There are 30 MSME development institutes (formerly Small Industries Service institutes, SISI). Main functions: Assistance/consultancy to prospective entrepreneurs. Assistance/consultancy rendered to existing units Preparation of state industrial profiles Preparation/updation of district industrial potential surveys. Project profiles. Entrepreneurship development programmes Motivational campaigns Production Index Management development programmes Energy conservation Pollution control

382 Quality control and up gradation Export Promotion Ancillary development Common facility workshop/labs Preparation of directory of specific industry Intensive technical assistance Coordination with district industries centers. Linkage with state government functionaries Market surveys.

383 Establishment 1955 Mission of promoting, aiding and fostering the growth of small scale industries in the country. Proved its strength within the country and abroad by Promoting modernization, up gradation of technology, quality consciousness, strengthening linkages with large and medium enterprises and enhancing exports Operates through 9 zonal offices, 33 branch offices, 14 sub offices, 10 NSIC business centers and 2 software technology parks supported by a team of over 500 professionals. Schemes comprise of facilitating marketing support, credit support, technology support and other support services.

384 SERVICES OF NSIC 1. Single point registration: Registration under this scheme for participating in government and public sector undertaking tenders. 2. Information service: NSIC continuously gets updated with the latest specific information on business leads, technology and policy issues. 3. Raw material assistance: NSIC fulfils raw material requirements of small-scale industries and provides raw material on convenient and flexible terms. 4. Meeting credit needs of SSI: NSIC facilitate sanctions of term loan and working capital credit limit of small enterprise from banks. 5. Performance and credit rating: NSIC gives credit rating by international agencies subsidized for small enterprises up to 75% to get better credit terms from banks and export orders from foreign buyers.

385 For ensuring larger flow of financial and nonfinancial assistance to the small scale sector, the government of India set up the Small Industries Development Bank of India (SIDBI) under Special Act of Parliament in 1989 as a wholly owned subsidiary of the IDBI. Principal development financial institution for promotion, financing and development of industries in the small scale sector and for coordinating the functions of other institutions engaged in similar activities. Mission to empower the MSME sector with a view to contribute to the process of economic growth, employment generation and balanced regional development.

386 The important functions of SIDBI are as follows: (1) To initiate steps for technological up gradation and modernization of existing units. (2) To expand the channels for marketing the products of SSI sector in domestic and international markets. (3) To promote employment oriented industries especially in semi-urban areas to create more employment opportunities and thereby checking migration of people to urban areas. (4)Indirect Finance Refinance scheme is used for catering to the need of funds of eligible primary lending institutions (PLIs) like state financial corporation, state industrial development corporations, scheduled commercial banks both in the public and private sector for financing small scale industries.

387 (5) Direct Finance Through 38 of SIDBI s own offices by means of several tailor-made schemes to provide financial assistance to specific SSI target groups. (6) Promotional and developmental activities Activities like human resource development in SSI sector, technology up gradation, programmes on environment and quality management, market promotion, information dissemination etc are performed by SIDBI.

388 State-level financial institution, operating as regional development bank and playing a crucial role in the development of small and medium enterprises in the state. There are 18 SFCs in the country. One of the fast-track term lending financial institution in the country, with assistance to more than 1,65,128 units amounting to nearly Rs 11,282 crores over the last 49 years in Karnataka. It is one of the robust and professionally managed state financial corporations. Objective : Provides term loans for establishment of new Tiny/SSI/MSI/service units and for expansion/modernization/diversification of existing units. Assistance for rehabilitation of potentially viable sick units. To evaluate the effectiveness, reliability and integrity of loan management system module of online system in particular and other modules in general. To assist small and medium scale existing units with good track record to undertake various activities necessary to increase sales in domestic and foreign markets and to create physical marketing infrastructure.

389 KSFC extends lease financial assistance and hire purchase assistance for acquisition of machinery/equipment/transport vehicles. KSFC has merchant banking department which takes up the management of public issues underwriting at shores, project report preparation, deferred payment guarantee, and syndication of loans, bill discounting and similar tasks. KSFC give preference to the projects which are (i) Promoted by technician entrepreneur. (ii) In the small-scale sector. (iii) Located in growth centres and developing areas of the state; (iv) Promoted by entrepreneurs belonging to scheduled castes and scheduled tribes, backward classes and other weaker sections of society. (v) Characterized by high employment potential. (vi) Capable of utilizing local resources; and (vii) In tune with the declared national priorities.

390 The eligible industrial concerns for financial assistance from KSFC are those engaged/to be engaged in manufacture, preservation, processing of goods, mining, power generation transport, industrial estate, hotels, R & D of any product or process of industrial concern, weigh bridge facilities, power laundries, photocopying, hiring of heavy material handling equipment, cranes and other earth moving equipments, hospitals, nursing homes, medical stores, computers, tourism related activities, construction of roads, tissue and horticulture software development, software parks, block board vehicles, office construction, go down and warehouse construction, mobile canteens, commercial complexes, training institutes, office automation and so on.

391 Credit Guarantee Fund Scheme for MSE Launched by the Government of India to make available collateral free credit to the MSE sector. Formally launched on 30 August 2000 and is operational with effect from 1 January Corpus is being contributed by the Government and SIDBI in the ratio of 4:1 respectively and has contributed Rs crore to the corpus of the Trust up to 30 June 2008.

392 ISO 9000/ISO Certification Reimbursement Scheme In order to enhance the competitive strength of the small scale sector, the Government introduced an incentive scheme for their Technological up gradation, quality improvement and environment management. Operational since March This is an incentive scheme of reimbursement of expenses for acquiring Quality Management System ISO 9000 certification/ Environment Management Certification. Reimbursement to the extent of 75% of expenditure or Rs 75000, whichever is lower.

393 Market Development Assistance Scheme Offers funding up to 90% in respect of toand-fro air fare for participation by MSME entrepreneurs in overseas fairs and trade delegations. The scheme also provides for funding for producing publicity material (up to 25% of costs), sector specific studies (up to Rs 2 lakh), and for contesting antidumping cases (50%, up to Rs 1 lakh).

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