Industrial Management & Entrepreneurship (BME501)

DEPARTMENT OF MECHANICAL ENGINEERING

INDUSTRIAL MANAGEMENT &

ENTREPRENEURSHIP
(BME501)

Dept of Mechanical Engg, AJIET Mangalore

 Industrial Management & Entrepreneurship (BME501)

VISION AND MISSION STATEMENT OF AJIET

Vision of the Institute

To produce top-quality engineers who are groomed for attaining excellence in their profession
and competitive enough to help in the growth of nation and global society.

Mission of the Institute

o To offer affordable high-quality graduate program in engineering with value education

and make the students socially responsible.
o To support and enhance the institutional environment to attain research excellence in
both faculty and students and to inspire them to push the boundaries of knowledge
base.
o To identify the common areas of interest amongst the individuals for the effective
industry- institute partnership in a sustainable way by systematically working together.
o To promote the entrepreneurial attitude and inculcate innovative ideas among the
engineering professionals.

Department of Mechanical Engineering

Vision of the Department

To create globally competent and self-reliant mechanical engineers adaptive to an

interdisciplinary environment contributing to society through development, authority and
entrepreneurship.

Mission of the Department

M 1. To offer high quality graduate program in the field of Mechanical Engineering with
value education to the students and make them responsive to societal needs.
M 2. To nurture the students with a global outlook for a sustainable future with high
moral and ethical values.
M 3. To strengthen collaboration with industries, academia and research organizations
to enrich learning environment, thus enhance research and entrepreneurship
culture.

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 Industrial Management & Entrepreneurship (BME501)

M 4. To create awareness about the need of interdisciplinary applications through

alumni industry-institution interactions.

PROGRAM EDUCATIONAL OBJECTIVES (PEOs)

Prepare graduates with mathematical, scientific and engineering skills to design and
PEO1
develop energy efficient systems for sustainable development.
Excel graduates with high level of technical competency combined with research and
PEO2 complex problem-solving ability to generate innovative solutions in Mechanical and
multi-disciplinary areas.
PEO3 Equip graduates with modern tools, technology and advanced software’s for
deliberating engineering solutions.
Inculcate graduates with strong foundation in academic excellence, soft skills, leadership
PEO4
qualities, professional ethics, and social concerns and understand the need for lifelong
learning for a successful professional career.

PROGRAM OUTCOMES (POs)

Engineering knowledge: Apply the knowledge of mathematics, science, engineering fundamentals, and
PO1
specialization in Mechanical Engineering for the solution of complex engineering problems.
Problem analysis: Identify, formulate, research literature, and analyse complex engineering problems
PO2 reaching substantiated conclusions using first principles of mathematics, natural sciences, and engineering
sciences.
Design/development of solutions: Design solutions for complex engineering problems and design system
PO3 components or processes that meet the specified needs with appropriate consideration for public health and
safety, and cultural, societal, and environmental considerations.
Conduct investigations of complex problems: Use research-based knowledge and research methods
PO4 including design of experiments, analysis and interpretation of data, and synthesis of the information to
provide valid conclusions.
Modern tool usage: Create, select, and apply appropriate techniques, resources, and modern engineering
PO5 and IT tools, including prediction and modelling to complex engineering activities, with an understanding of
the limitations.
The engineer and society: Apply reasoning informed by the contextual knowledge to assess societal, health,
PO6 safety, legal, and cultural issues and the consequent responsibilities relevant to the professional engineering
practice

Environment and sustainability: Understand the impact of the professional engineering solutions in societal
PO7
and environmental contexts, and demonstrate the knowledge of, and need for sustainable development.
Ethics: Apply ethical principles and commit to professional ethics and responsibilities and norms of the
PO8
engineering practice.
Individual and team work: Function effectively as an individual, and as a member or leader in diverse
PO9
teams, and in multidisciplinary settings.
Communication: Communicate effectively on complex engineering activities with the engineering
PO10 community and with the society at large, such as, being able to comprehend and write effective reports and
design documentation, make effective presentations, and give and receive clear instructions.
Project Management and Finance: Demonstrate knowledge and understanding of the engineering and
PO11 management principles and apply these to one’s own work, as a member and leader in a team, to manage
projects and in multidisciplinary environment.
Life-long learning: Recognize the need for, and have the preparation and ability to engage in independent
PO12
and life-long learning in the broadest context of technological change.

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 Industrial Management & Entrepreneurship (BME501)

PROGRAM SPECIFIC OUTCOMES (PSOs)

PSO1 Apply the knowledge of modern engineering tools to design and analyze the products and process
related to Mechanical Engineering systems
PSO2 Develop technical and interpersonal skills pertinent to mechanical and allied engineering for careers in
industry, academia and government organizations.

COURSE SYLLABUS

Industrial Management & Entrepreneurship

Course Code BME501 CIE Marks 50
Teaching Hours /Week (L:T:P) 3:0:0 SEE Marks 50
Credits 03 Exam Hours 03
Course Learning Objectives:
• Understand the basic concepts of management, planning, organizing, staffing,
directing and controlling.
• Identify various types of supporting agencies and financing available for an
entrepreneur
• Prepar report and decide selection of industrial ownership

Module-1
Management: Introduction Meaning nature and characteristics of Management, Scope and Functional areas of
management Management as a science, art of profession Management & Administration Roles of Management,
Levels of Management, Development of Management Thoughtearly management approaches – Modern
management approaches. Planning: Nature, importance and purpose of planning process Objectives Types of
plans (Meaning Only) Decision making Importance of planning steps in planning & planning premises
Hierarchy of plans.
Module-2
Organizing and Staffing: Nature and purpose of organization Principles of organization Types of organization
Departmentation Committees Centralization Vs Decentralization of authority and responsibility Span of control
MBO and MBE (Meaning Only) Nature and importance of staffingProcess of Selection & Recruitment (in
brief). Directing & Controlling: Meaning and nature of directing Leadership styles, Motivation Theories,
Communication Meaning and importance coordination, meaning and importance and Techniques of Co
Ordination. Meaning and steps in controlling Essentials of a sound control system Methods of establishing
control (in brief).
Module-3
Entrepreneur: Meaning of Entrepreneur; Evolution of the Concept; Functions of an Entrepreneur, Types of
Entrepreneurs, Entrepreneur an emerging. Class. Concept of Entrepreneurship Evolution of Entrepreneurship,
Development of Entrepreneurship; Stages in entrepreneurial process; Role of entrepreneurs in Economic
Development; Entrepreneurship in India; Entrepreneurship – its Barriers.
Module-4
Small Scale Industries: Definition; Characteristics; Need and rationale; Objectives; Scope; role of SSI in
Economic Development. Advantages of SSI Steps to start and SSI Government policy towards SSI; Different
Policies of SSI; Government Support for SSI during 5 year plans. Impact of Liberalization, Privatization,
Globalization on SSI Effect of WTO/GA TT Supporting Agencies of Government for SSI, Meaning, Nature of
support; Objectives; Functions; Types of Help; Ancillary Industry and Tiny Industry
Module-5
Institutional Support: Different Schemes; TECKSOK; KIADB; KSSIDC; KSIMC; DIC Single Window
Agency; SISI; NSIC; SIDBI; KSFC. Preparation of Project: Meaning of Project; Project Identification; Project
Selection; Project Report; Need and Significance of Report; Contents; Formulation; Guidelines by Planning
Commission for Project report; Network Analysis; Errors of Project Report; Project Appraisal. Identification
of business opportunities: Market Feasibility Study; Technical Feasibility Study; Financial Feasibility Study &
Social Feasibility Study

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 Industrial Management & Entrepreneurship (BME501)

Course outcomes
At the end of the course the student will be able to:
CO1 Explain the importance of management and its approaches.
CO2 Explain the roles and responsibilities of staff towards organization
CO3 Outline the quality and characteristics of an entrepreneur.
CO4 Explain the importance of Small scale industries in economic development.
CO5 Design, plan and prepare project proposals and reports.

Suggested Learning Resources:

1. Text Books

• Principles of Management, P. C.Tripathi,P.N. Reddy, Tata McGraw Hill,

• Dynamics of Entrepreneurial Development & Management, Vasant Desai, Publishing
House.
• Entrepreneurship Development, Poornima. M.Charantimath, Small Business
Enterprises –Pearson, 2006 (2 & 4).
• Management FundamentalsConcepts,Application , Skill , RobersLusier –Thomson
• Entrepreneurship Development, S.S.Khanka, S.Chand& Co
• Management, Stephen Robbins, Pearson Education/PHI, 17th Edition, 2003

2. Web links and Video Lectures (e-Resources):

• www.nptel.ac.in
• https://onlinecourses.nptel.ac.in/noc23_mg74/preview
• https://onlinecourses.nptel.ac.in/noc23_mg70/preview
• https://cleartax.in/s/smallscaleindustriesssi#:~:text=Small%20Scale%20Industries%20(SSI)%
20are,50%20crore
• https://www.startupindia.gov.in/content/sih/en/startupscheme. htm

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 Industrial Management & Entrepreneurship (BME501)

MODULE-1
INTRODUCTION
Managing is one of the most important activities of human life. Managing has
become essential to ensure the coordination of individual efforts. Principles of
management are now used not only for managing business but in all walks of life viz.,
government, military, social & educational institutions. Management is a critical element
in the economic growth of a country. By bringing together the 4 factors of production
(viz., men, money, material, and machines), management enables a country to experience
a substantial level of economic development. Management is the dynamic, life-giving
element in every organization. It is this element that coordinates current organizational
activities & plans future ones.
Definition: It is the process of designing and maintaining an environment in which
individuals, working together in groups, efficiently accomplish selected aims- harold
koontz and heinz weihrich

1.2 FEW DEFINITIONS OF MANAGEMENT

There are numerous definitions of management. Different experts have defined
different points of view.

According to Mary Parker follet

“Management is the art of getting things done through people.”
According to FWTaylor
“Management is knowing exactly what you want to do and then seeing that they
do it the best and cheapest ways.”
According to Henry Fayol.
“Management is to forecast and to plan, organize, to command, to co- ordinate
and to control.”
According to Koontz and O'Donnell
“Management is defined as the creation and maintenance of internal environment
in an enterprise where individuals, working together in groups, can perform
efficiently and effectively towards the attainment of group goals.”
According to John F. Mee.
“Management is a multipurpose organ that manages a business, manages a
manager and manages workers and work.”

1.3 NATURE AND CHARACTERISTICS OF MANAGEMENT

1) Management is goal-oriented
The purpose of management is to achieve certain goals. The goals must be realistic and
achievable that ensures efficient utilization of the resources and satisfies the enterprise
objectives
2) Management is group activity
Management comes into existence only when there is an group activity towards a
common objective. Management is always concerned with group efforts and not
individual efforts. To achieve the goals of an organization management plans, organizes,

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co-ordinates, directs and controls the group effort

3) Management is multi-disciplinary.
Management techniques, principles and theories are drawn from other disciplines of
knowledge like sociology, psychology, engineering, anthropology, statistics etc.
management depends upon wide knowledge and practices derived from various
disciplines.
4) Management is an art as well as a science:
Management is a science because it has developed certain principle which is of universal
application. Management is a art because result of management depend upon the
personnel skills of managers
5) Management is universal
The principles and techniques of managements are equally applicable in the fields of
business, education, military ,government and Hospitals
6) Management is intangible
Management is intangible as it is not seen as a thing or a material it is experiential in
nature which means we can feel its presence in the form of results such as efficient
organizational structures, better and informed decisions, increased productivity, and
heightened morale and motivation of employees. So management is intangible and can be
felt by employee satisfaction, wealth creation etc
7) Management is a social process
Since human factor is most important among the other factors, therefore management is
concerned with developing relationship among people. It is the duty of management to
make interaction between people - productive and useful for obtaining organizational
goals.
8) Management is a continuous process:
It is a never ending process. It is concerned with constantly identifying the problem and
solving them by taking adequate steps. It is an on-going process.
9) Management is a profession:
Management is a profession because it possesses the qualities of a profession. The
knowledge is imported and transferred. The established principles of management are
applied in practice
10) Management is a factor of production:
An enterprise produces goods or services using resources like land, labour, capital,
machines etc. These resources themselves cannot realize the organizations goals. The
goals are achieved when these are effectively coordinated by the entrepreneur. In case of
small enterprises an individual can do such type of job where as in large enterprises the
coordination job is done by management. Therefore, management is a factor of
production.

11) Dynamic in nature:

Management is not static. Over a period of time new principles, concepts and techniques
are developed and adopted by management. Management is changed accordingly to the
social change.
12) Management is needed at all levels:
The functions of management are common to all levels of organization. The functions of
planning, organizing, directing, controlling, decision-making are performed by top level

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as well as lower level supervisors.

1.1 MANAGEMENT FUNCTIONS OR THE PROCESS OF MANAGEMENT
A function is a group of similar activities. There is divergence of view on “What
functions are undertaken by managers in organizations?” Some management experts
classify these functions into four types and others classify into five types and some others
classify them as seven items. The Table 1.1 presents the management functions identified
by various writers. The Table 1.2 gives the combined list of management functions.
Table 1.1: Management functions

Writers Management Functions

1 Henry Fayol Planning, organizing, commending, coordinating,
2 Luther Gulick Planning, controlling
organizing, staffing, directing,
coordinating, reporting and budgeting (POSDCORB)
3 Lyndall Urwick Planning, organizing, commanding, coordinating,
communicating, forecasting, and investigating.
4 E.F.L. Brech Planning, organizing, motivating, coordinating,
5 Koontz and O'Donnell controlling
Planning, organizing, staffing, directing (leading),
controlling.
Table 1.2: Combined list of management functions

Planning Directing Controlling

Formulating purpose Leading Investigating
Decision making Motivating Evaluating
Innovating Commanding Coordinating
Organizing Activating Representing
Staffing Securing Efforts Administration
Appraising Communicating

The list of management functions is too long. However it can be shortened by

combining some functions into one. For example, leading, motivating, communicating
and commanding may be combined into a single function namely directing.
For our purpose we shall designate the following five as the functions of the
manager. In addition we briefly refer to “Innovation and representation as two additional
managerial functions considered important by Earnest Dale.
(1) Planning: Planning is the primary function of management. It is looking ahead
and preparing for the future. It determines in advance what should be done. It is
conscious determination of future course of action. This involves determining why to
take action? What action? How to take action? When to take action? Planning involves
determination of specific objectives, programs, setting policies, strategies, rules and

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procedures and preparing budgets. Planning is a function which is performed by

managers at all levels - top, middle and supervisory. Plans made by top management for
the organization as a whole may cover periods as long as five to ten years, whereas plans
made by low level managers cover much shorter periods. This “Planning” is discussed in
detailed in Chapter-2.
(2) Organizing: Organizing is the distribution of work in group-wise or section-
wise for effective performance. Once the managers have established objectives and
developed plans to achieve them, they must design and develop a human organization
that will be able to carry out those plans successfully. Organizing involves dividing work
into convenient tasks or duties, grouping of such duties in the form of positions, grouping
of various positions into departments and sections, assigning duties to individual
positions and delegating authority to each position so that the work is carried out as
planned.
According to Koonz O’Donnel, “Organization consists of conscious coordination of
people towards a desired goal”. One has to note that different objectives require different
kinds of organization to achieve them. For example, an organization for scientific
research will have to be very different from one manufacturing automobiles.
(3) Staffing: Staffing involves managing various positions of the organizational
structure. It involves selecting and placing the right person at the right position. Staffing
includes identifying the gap between manpower required and available, identifying the
sources from where people will be selected, selecting people, training them, fixing the
financial compensation and appraising them periodically. The success of the organization
depends upon the successful performance of staffing function.
(4) Directing: Planning, organizing and staffing functions are concerned with the
preliminary work for the achievement of organizational objectives. The actual
performance of the task starts with the function of direction. This function can be called
by various names namely “leading”, “directing”, “motivating”, “activating” and so on.
Directing involves these sub functions:
(a) Communicating: It is the process of passing information from one person to
another.
(b) Leading: It is a process by which a manager guides and influences the work of
his subordinates.
(c) Motivating: It is arousing desire in the minds of workers to give their best to the
enterprise.
(5) Controlling: Planning, organizing, staffing and directing are required to realize
organizational objectives. To ensure that the achieved objectives confirm to the pre-
planned objectives control function is necessary. Control is the process of checking to
determine whether or not proper progress is being made towards the objectives and goals

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and acting if necessary to correct any deviations. Control involves three elements:
(a) Establishing standards of performance.
(b) Measuring current performance and comparing it against the established
standard.
(c) Taking action to correct any performance that does not meet those standards.
(6) Innovation: Innovation means creating new ideas which may be either results in
the development of new products or finding new uses for the old ones. A manager who
invents new products is an innovator. A salesman who persuades Eskimos to purchase
refrigerator is an innovator. One has to note that innovation is not a separate function but
a part of planning.
(7) Representation: A manager has to spend a part of his time in representing his
organization before various groups which have some stake in the organization. A
manager has to be act as representative of a company. He has dealings with customers,
suppliers, government officials, banks, trade unions and the like. It is the duty of every
manager to have good relationship with others.

1.2 FUNCTIONAL AREAS OF MANAGEMENT

Management process involves several functions. A distinction should be maintained
between management functions (planning, organizing, staffing, directing and controlling)
and the organizational functions (productions, finance etc.) Organizational functions
differ from organization to organization depending upon their nature while management
functions are common to all. A manager may be put either in production or finance or
marketing, he performs all the managerial functions. These organization functions are
called functional areas of management. There are four functional areas of management
namely production, finance, marketing and finance and personnel. Each functional area
may have a number of sub-activities.
Production: This is generally put under production manager and he is responsible for
all production related activities.
This area has a number of activities, few of them are given below:
(1) Purchasing: Which is related with the purchase of various materials required by
the organization. Purchasing involves procuring right quantity of materials at the
right quality, at the right time and at the right price from the right supplier.
(2) Materials management: This involves storing of materials, issue of materials to
various departments.
(3) Research and Development: It deals with improving the existing products and
process and developing new products and process.
Marketing: This area involves the distribution of organizations’ products to the
buyers. The sub-activities are:

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 Industrial Management & Entrepreneurship (BME501)

(1) Advertising: Involves giving information about products to buyers.

(2) Marketing research: It is related with the systematic collection, analysis of data
relating to the marketing of goods and services.
(3) Sales management: It involves management efforts directed towards movement
of products and services from producers to consumers.
Finance and accounting: It deals with intelligent investment of financial resources
and record-keeping of various transactions. The various sub-functions are
(1) Financial Accounting: Deals with record keeping of various transactions.
(2) Management Accounting: Deals with analysis and interpretation of financial
records so that management can take certain decision.
(3) Costing: It deals with recording of costs, their classification and analysis for cost
control.
(4) Investment Management: Takes care of how financial resources can be invested
in various alternatives to maximize returns.
(5) Taxation: Deals with various direct and indirect taxes to be paid by the
organization.
Personnel: It deals with the management of human resources with the following sub-
activities:
(1) Recruitment and Selection: It deals with recruitment and selection of
employees.
(2) Training and Development: It deals with training of employees and making
them more efficient.
(3) Wage and Salary Administration: Deals with fixing of salaries, job evaluation,
promotion, incentives etc.
(4) Industrial Relations: Deals with maintenance of good employee relations.

1.3 MANAGEMENT: A SCIENCE OR ART?

There is great controversy whether management is science or art. It is an art in the sense
of possessing of managing skill by a person. It is a science also because of developing
principles or laws which are applicable in a place where a group of activities are
coordinated. In fact management is both science and art as it clear from the following
discussion.
Management as science: Science is a systematized body of knowledge. We call a
discipline scientific if its
(1) Methods of inquiry are systematic and empirical.
(2) Information can be ordered and analyzed; and

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(3) Results are cumulative and communicable.

‘Systematic’ means, being orderly and unbiased. Moreover, enquiry must be
empirical and not merely an armchair speculation. Scientific information collected in the
raw form is finally ordered and analyzed with statistical tools. It is communicable which
permits repetition of study. When study is replicated then the second try produces the
results similar to the original. Science is also cumulative in that what is discovered is
added to that which has been found before. We build upon the base that has been left by
others.
Science denotes two types of systematic knowledge; natural or exact and behavioural
or inexact. In exact or natural science (such as physics and chemistry) we can study the
effect of any one of many factors affecting a phenomenon. For example, we can study in
the laboratory, the effect of heat on density by holding other factors (like humidity,
pressure etc.) constant, whereas in behavioural or in exact science it is not possible. In
management we have to study man and number of factors affecting him. For example, we
cannot study the effect of monetary incentives on workers productivity, because in
addition to monetary incentives other inseparable factors like leadership styles, workers
need hierarchy and leadership styles will also have simultaneous effect on productivity.
At the most we may get only rough idea of the relationship between monetary incentives
and productivity. Therefore, management is in the category of behavioural science.
Management is an art: Management is the art of getting things done through others
in dynamic situations. A manager has to coordinate various resources against several
constraints to achieve predetermined objectives in the most efficient manner. Manager
has to constantly analyze the existing situation, determine objectives, seek alternatives,
implement, and control and make decision. The theoretical lessons on principles,
concepts and techniques learnt by a manager in classroom is not enough to get the aimed
results unless he possess the skill (or art) of applying such principles to the problems. The
knowledge has to be applied and practised. It is like the art of musician or painter who
achieves the desired results with his own skill which comes by practice. A comparison
between science and art is given in table 1.3.
Table 1.3: Comparison between science and art
Science Art
Advances by knowledge Advances by policies
Process Feels
Predicts Guesses
Defines Describes
Measures Opines
Impresses Expresses

Management uses both scientific knowledge and art in managing an organization. As

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the science of management increases so should the art of management. A balance

between the two is needed.

1.4 MANAGEMENT: A PROFESSION

According to McFarland, “Profession” possesses the following characteristics:
(1) Existence of an organized knowledge.
(2) Formalized method of acquiring training and expertise.
(3) Existence of professional association.
(4) Existence of an ethical code to regulate the behaviour.
(5) Charging of fees based on service with due regard to social interest. Management
does not possess all the above characteristics of profession.
Management has no fixed norms for managerial behaviour. There is no uniform code of
conduct or licensing of managers. There are no restrictions to individuals to possess an
academic degree. Unlike medical or legal professionals, a manager need not possess an
academic degree. In the light of absence of these characteristics, management cannot be
called as profession. However, ‘professionalization’ of management started and it is
essential nowadays to acquire some professional knowledge or training. In this regard
government of India has started six national institutes of management and a number of
universities and institutions are offering MBA programmes.

1.5 MANAGEMENT AND ADMINISTRATION

The term administration and management are used synonymously. Some writers urge that
running of a business requires skills, which is known as management and functioning of
government departments and non-profit institutions requiring skill is known as
administration. Various views expressed by thinkers of management led to the emergence
of there approaches:
(1) Administration is above management.
(2) Administration is a part of management.
(3) Management and administration are same.
According to classical thinkers, Administration is above management so far as
different in the organization are concerned. According to Spreigal, “Administration is
that phase of business enterprise that concerns itself with the overall determination of
institutional objectives and the policies necessary to be followed in achieving those
objectives. Management on the other hand is an executive function which is primarily
concerned with carrying of broad policies laid down by the administration”. This implies
that administration deals with establishing objectives and policies and is done by the top
level whereas management is the execution of these policies by the middle and lower
organizational level. Table 1.4 shows the distinction between administration and

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management.
Table: 1.4: Differences between administration and management

Basis of difference Administration Management

1. Level of organization Top Level Middle and Lower Level
2. Major focus Policies formulation and Policies execution for
objective determination objectives achievements
3. Nature of function Determinative Executive
4. Scope of functions Broad & Conceptual Narrow & Operational
5. Factors affecting decision Mostly external Mostly internal
6. Employer - Employee Entrepreneurs & Owners Employee
relation
7. Qualities required Administrative Technical

E. El. Brech urges that administration is a part of management. According to Brech,

“Management is a generic name for the total process of executive control in industry or
commerce. It is a social process entailing responsibility for the effective and economical
planning and regulation of the operation of an enterprise in the fulfilment of a given
purpose or risk. Administration is that part of management which is concerned with the
installation and carrying out of procedures by which it is laid down and communicated,
and the process of activities regulated and checked against plans. According to this view,
administration become a subordinate function to overall management function.
According to the third approach which is the most popular and practical one,
management and administration are same. Both involve the same functions, principles
and objectives. The term administrator found its origin in bureaucratic structure of
government or in regulation of some laws. The government often uses the terms
administrator who is supposed to execute broad policies laid down by government.
The basic point of controversy between management and administration lies in forms
of coverage of activities. The content of policy formulation is higher at higher levels; it is
lower at lower levels, while executive is more at lower levels and lower at higher levels.
Hence, it becomes unimportant whether policy formulation function is known as
administration or management.

1.6 ROLE OF MANAGEMENT

A manager performs planning, organizing, directing and controlling to achieve the
organizational objectives. It has been questioned whether these functions provide an
adequate description of the management process. As against these management functions
Henry Mintzberg has defined the role of managers to identify what managers do in the
organizations. Mintzberg has identified ten roles of manager which are classified into

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three broad categories as shown in fig. 1.1.

Interpersonal role: This role is concerned with his interacting with people both
organizational members and outsiders. There are three types of interpersonal roles:
(1) Figure head role: In this role manager has to perform duties of ceremonial
nature such as attending social functions of employees, taking an important
customer to lunch and so on.
(2) Leader role: Manager’s leader role involves leading the subordinates motivating
and encouraging them.
(3) Liaison: In liaison role manager serves as a connecting link between his
organization and outsiders. Managers must cultivate contacts outside his vertical
chain to collect information useful for his organization.
Information roles: It involves communication. There are three types of informational
roles:
(1) Monitor: In his monitoring role, manager continuously collects information
about all the factors which affects his activities. Such factors may be within or
outside organization.
(2) Disseminator: In the disseminator role, manager possesses some of his
privileged information to his subordinates who otherwise not be in a position to
collect it.
(3) Spokesperson: As a spokesperson manager represents his organization while
interacting with outsiders like customers, suppliers, financers, government and
other agencies of the society.
Decisional roles: Decisional role involves choosing most appropriate alternative
among all so that organizational objectives are achieved in an efficient manner. In his
decisional role manager perform four roles:
1. Entrepreneur: As an entrepreneur, a manager assumes certain risks in terms of
outcome of an action. A manager constantly looks out for new ideas and seeks to
improve his unit by adopting it to dynamic environment.
2. Disturbance handler: In this role manager works like a fire-fighter manager
contains forces and events which disturb normal functioning of his organization.
The forces and events may be employee complaints and grievances, strikes,
shortage of raw materials etc.
3. Negotiator: In his role of negotiator, manager negotiates with various groups in
the organization. Such groups are employees, shareholders and other outside
agencies.
Readers are advised to note that management functions and roles do not exist opposite
to each other but these are two ways of interpreting what managers do. All these roles can
be integrated with earlier classification of management which is presented in fig. 1.2.

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In planning a manager performs informational and decisional role as he has to collect

information on the basis in which he makes decisions. Similarly in performing other
functions some or the other roles are performed by manager.

1.7 LEVELS OF MANAGEMENT

People in an organization are arranged in an hierarchy and they all have the relationship
of superior-subordinates. Every manager in an organization performs all five
management functions. The relative importance of these functions varies along the
managerial levels. There may be as many levels in the organization as the number of
superiors in a line of command. Some of these levels are merged into one on the basis of
nature of functions performed and authority enjoyed. E.F.L. Brech has classified
management levels into three categories - Top Management, Middle Management and
Supervisory/Lower Level as shown in fig 1.3.
Top management of an organization consists board of directors, chairman and chief
executive officer. Top level management determines goals and objectives. It performs
overall planning, organizing, staffing, directing and controlling. It integrates organization
with environment, balances the interest groups and is responsible for overall results.
Middle management stands between top management and supervisory management level.
Middle level management establishes programs for department and carries out functions
for achieving specific goals. The other functions of middle level management are training
and development of employees, integrating various parts of the department. Supervisory
management is concerned with efficiency in using resources of the organization. A
supervisor is an executor of policies and procedures making a series of decisions with
well-defined and specified premises.

1.8 EVOLUTION OF MANAGEMENT

Management in one or other form has existed in every hook and corner of the world
service the down of civilization. Although the 20th century is marked in history as an ‘Era
of scientific management’, yet it does not mean that management was totally absent in
yester years. 1700 to 1800 highlights the industrial revolution and the factory system
highlights the industrial revolution and the factory system highlighted the importance of
direction as a managerial function. Several economists during this period explained the
concept of management. For example, Adam Smith explained the concept of division of
labour, Jacques Turgot explained the importance of direction and control, and Baptiste
explained the importance of planning. But management is emerged as a separate
discipline in the second half of 19th century with the introduction of Joint Stock
Company. This form of enterprises separated management of business from their
ownership and gave rise to labour inefficiency and inadequate systems of wage
payments. In search of solution to this problem, people began to recognize management

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as a separate field of study. During 20th century, Management has become more scientific
discipline with standard principles and practices. The evaluation of management thought
during this period can be classified into two parts namely
(1) Early management approaches represented by Taylor’s scientific management,
Foyal’s administrative management and human relations movement.
(2) Modern management approaches, represented by behavioural approach,
quantitative/management science approach, systems approach and contingency
approach.
Early Management Approaches
Taylor’s Scientific Management
F. W. Taylor started his career as an apprentice in a steel company in USA and finally
became Chief Engineer. Taylor along with his associates made the first systematic study
in management. He launched a new movement in 1910 which is known as scientific
management. Taylor is known as father of scientific management and has laid down the
following principles of scientific management.
(1) Separation of planning and doing: In the pre-Taylor era, a worker himself used
to decide or plan how he had to do his work and what machines and equipments
would be required to perform the work. But Taylor separated the two functions
of planning and doing, he emphasized that planning should be entrusted to
specialists.
(2) Functional foremanship: Taylor introduced functional foremanship for
supervision and direction. Under eight-boss-scheme of functional foremanship,
four persons: (i) route clerk, (ii) instruction card clerk, (iii) time and cost clerk
and (iv) disciplinarian are related with planning function, and the remaining
four: (vi) speed boss, (vii) inspector, (viii) maintenance foreman, and (ix) gang-
boss are concerned with operating function.
(3) Elements of scientific management: The main elements of scientific manage-
ment are:
(a) Work study involving work important and work measurement using
method and time study.
(b) Standardization of tools and equipments for workmen and improving
working conditions.
(c) Scientific Selection, placement and training of workers by a centralized
personal department.
(4) Bilateral mental revolution: Scientific management involves a complete mental
revolution of workmen towards their work, toward their fellow-men and toward
their employers. Mental revolution is also required on the part of management’s

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side-the foreman, the superintendent, the owners and board of directions.

(5) Financial incentives: In order to motivate workers for greater and better work
Taylor introduced differential piece-rate system. According to Taylor, the wage
should be based on individual performance and on the position which a worker
occupies.
(6) Economy: Maximum output is achieved through division of labour and
specialization. Scientific Management not only focuses on technical aspects but
also on profit and economy. For this purpose, techniques of cost estimates and
control should be adopted.
Taylor summed up his approach in these words:
Science, not rule of thumb Harmony, not discord Cooperation and
not individualism Maximum output, in place of restricted output
The development of each man to his greatest efficiency and prosperity.
Henry Fayol’s Administrative Management (1841-1925)
Henry Fayol was a French Mining Engineer turned into a leading industrialist and
successful manager. Fayol provided a broad analytical framework of the process of
administration. He used the word Administration for what we call Management. Foyal
focused on general administrative and managerial functions and processes at the
organizational level. Foyal divided activities of business enterprise into six groups:
Technical, Financial, Accounting, Security, and Administrative or Managerial. He
focused on this last managerial activity and defined management in terms of five
functions: Planning, Organizing, Commanding, Coordinating and Controlling. He
emphasized repeatedly that these managerial functions are the same at every level of an
organization and is common to all types of organizations.
Foyal presented 14 principles of management as general guides to the management
process and management practice. His principles of management are as follows:
1. Division of work: This is the principle of specialization which is so well
expressed by economists as being necessary to efficiency in the utilization of
labour. Fayol goes beyond shop labour to apply the principle to all kinds of
work, managerial as well as technical.
2. Authority and responsibility: In this principle, Fayol finds authority and
responsibility to be related with the letter, the corollary of the former and arising
from the latter. The conceives of authority as a combination of official authority
deriving from a manager’s official position and personal authority, “Compounded of
intelligence, experience, moral worth, past services etc”.
3. Discipline: Holding that discipline is “respect for agreements which are directed at
achieving obedience, application, energy and the outward marks of respect”. Fayol
declares that discipline requires good superiors at all levels, clear and fair

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agreement, and judicious application of penalties.

4. Unity of command: This is the principle that an employee should receive orders
from one superior only.
5. Unity of direction: According to Fayol, unity of direction is the principle that each
group of activities having the same objective must have one head and one plan. As
distinguished from the principle of unity of command, Fayol perceives unity of
direction as related to the functioning of personnel.
6. Subordination of individual interest to general interest: In any group the interest of
the group should supersede that of the individual; when these are found to differ, it
is the function of management to reconcile them.
7. Remuneration of personnel: Fayol perceives that remuneration and methods of
payment should be fair and afford the maximum satisfaction to employee and
employer.
8. Centralization: Although Fayol does not use the term ‘Centralization of Authority’,
his principle definitely refers to the extent to which authority is concentrated or
dispersed in an enterprise. Individual circumstances will determine the degree of
centralization that will give the best overall yield.
9. Scalar chair: Fayol thinks of the scalar chair as a line of authority, a ‘Chain of
Superiors” from the highest to the lowest ranks and held that, while it is an error of
subordinate to depart ‘needlessly’ from lines of authority, the chain should be short-
circuited when scrupulous following of it would be detrimental.
10. Order: Breaking this principle into ‘Material order’ and ‘Social Order’, Fayol thinks
of it as the simple edge of “a place for everything (everyone), and everything
(everyone) in its (his) place”. This is essentially a principle of organization in the
arrangement of things and persons.
11. Equity: Fayol perceives this principle as one of eliciting loyalty and devotion from
personnel by a combination of kindliness and justice in managers dealing with
subordinates.
12. Stability of tenure of personnel: Finding that such instability is both the cause and
effect of bad management, Fayol points out the dangers and costs of unnecessary
turnover.
13. Initiative: Initiative is conceived as the thinking out and execution of a plan. Since it
is one of the “Keenest satisfactions for an intelligent man to experience”, Fayol
exhorts managers to “Sacrifice Personal Vanity” in order to permit subordinates to
exercise it.
14. Esprit de corps: This is the principle that ‘union is strength’ an extension of the
principle of unity of command. Fayol here emphasizes the need for teamwork

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and the importance of communication in obtaining it.

Human Relations Approach
The human rationalists (also known as neo-classicists) focused as human aspect of
industry. They emphasize that organization is a social system and the human factor is the
most important element within it. Elton Mayo and others conducted experiments (known
as Hawthorne experiments) and investigated informal groupings, informal relationships,
patterns of communication, patterns of internal leadership etc. Elton Mayo is generally
recognized as father of Human Relations School.
The human relationists, proposed the following points as a result of Hawthorne
experiments.
(1) Social system: The organization in general is a social system composed of
numerous interacting parts. The social system defines individual roles and
establishes norms that may differ from those of formal organization.
(2) Social environment: The social environment of the job affects the workers and
is also affected.
(3) Informal organization: The informal organization does also exist within the
frame work of formal organization and it affects and is affected by the formal
organization.
(4) Group dynamics: At the workplace, the workers often do not act or react as
individuals but as members of group. The group plays an important role in
determining the attitudes and performance of individual workers.
(5) Informal leader: There is an emergence of informal leadership as against formal
leadership and the informal leader sets and enforces group norms.
(6) Non-economic reward: Money is only one of the motivators, but not the sole
motivator of human behaviour. Man is diversely motivated and socio-
psychological factors act as important motivators.

Modern Management Approaches

Behavioural Approach
This is an improved and more matured version of human relations approach. The various
contributors of this approach are Douglas Mc Gregor, Abraham Maslow, Curt Levin,
Mary Porker Follelt, Rensis Likert etc. Behavioural Scientists regard the classical
approach as highly mechanistic, which finds to degrade the human spirit. They prefer
more flexible organization structures and jobs built around the capabilities and aptitudes
of average employees. The behavioral approach has laid down the following conclusions.
(1) Decision-making is done in a sub-optimal manner, because of practical and
situational constraints on human rationality of decision-making. The

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behaviorists attach great weight age on participative and group decision-making.

(2) Behavioral Scientists encourage self direction and control instead of imposed
control.
(3) Behavioral Scientists consider the organization as a group of individuals with
certain goals.
(4) In view of behavioural scientists the democratic-participative styles of
leadership are desirable, the autocratic, task oriented styles may also be
appropriate in certain situation.
(5) They suggest that different people react differently to the same situation. No two
people are exactly alike and manager should tailor his attempts to influence his
people according to their needs.
(6) They recognize that organizational conflict and change are inevitable.
Quantitative Approach
Quantitative approach (also known as management approach) started during Second
World War during which each participant country of the war was trying to seek solutions
to a number of new and complex military problems. The interdisciplinary teams who
were engaged for this purpose were known as operation research teams. These operation
research teams developed quantitative basis for making military decisions. These
quantitative tools later are used to make business, industry and enterprise decisions.
The focus of quantitative approach is on decision making, and to provide tools and
techniques for making objectively rational decisions. Objective rationality means an
ability and willingness to follow reasonable, unemotional and scientific approach in
relating means with ends and in visualizing the totality of the decision environment. This
approach facilitates disciplined thinking while defining management problems and
establishing relationships among the variables involved. This approach is widely used in
planning and control activities where problems can be defined in quantitative terms.
Systems Approach
A system is a set of interdependent parts which form a unit as a whole that performs
some function. An organization is also a system composed of four independent parts
namely, task, structure, people and technology. The central to the system approach is
‘holism’ which means that each part of the system bears relation of interdependence with
other parts and hence no part of the system can be accurately analyzed and understood
apart from the whole system. A system can be open or closed system. In open system, a
system interacts with surrounding. An organization is open system because it interacts
with it.
Contingency Approach
According to this approach, management principles and concepts have no general and
universal application under all conditions. There is no best way of doing things under all

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conditions. Methods and techniques which are highly effective in one situation may not
give the same results in another situation. This approach suggests that the task of
managers is to identify which technique in a situation best contribute to the attainment of
goals. Managers therefore have to develop a sort of situational sensitivity and practical
selectivity. Contingency views are applicable in designing organizational structure, in
deciding degree of decentralization, in motivation and leadership approach, in
establishing communication and control systems, in managing conflicts and in employee
development and training.
Management is defined as the art and science of getting things done through others.
Management is the process of designing and maintaining the environment in which
individuals working together in groups, accomplish their aims effectively and efficiently.
Managers carry out the functions for Planning, Organizing, Staffing, Directing and
Controlling. Planning involves thinking ahead and preparing for future. It determines in
advance what should be done. Organizing involves dividing work into convenient tasks
or duties, grouping of such duties in the form of positions, grouping of various positions
into departments and sections, assigning duties to individual positions, and delegating
authority to each position so that work is carried out as planned. Staffing consists of
selecting and placing the right people at right position. Directing involves various sub
functions like Communicating, Leading and Motivating. Control is the process of
checking to determine whether or not proper progress is being made towards the
objectives and goals and acting if necessary to correct any deviations. All these functions
are performed to achieve predetermined goals. The nature of management can be
described by its multidisciplinary, dynamic nature, relative principles and universality of
Management. The functional areas of Management are Production, Finance, Marketing
and Personnel. A clear distinction can be made between Administration and
Management. Administration involves policy formulation, objective determination and
Management deals with policy execution and achieving objectives. A manager plays
inter-personal roles, information roles and decision roles. There are many theories of
Management and each theory contributes something to our knowledge of what managers
do. F W Taylor, Adam Smith, Henry Fayol, Elton Mayo and others have contributed to
the development of Management concept.

QUESTIONS
➢ Define management. Explain the functions to be performed by managers to attain
the set goals.
➢ Explain in brief the nature management.
➢ Write a note on characteristics of management.
➢ Discuss the functional areas of management.
➢ 'Management is an art as well as science'. Comment on this statement.
➢ Draw the distinction between administration and management.

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➢ Explain different roles of management.

➢ Discuss the levels of management.
➢ Explain Taylor's concept of scientific management.
➢ Discuss Henry Fayol's principles of management.
➢ Explain in brief the following approaches of management
➢ Systems approach.
➢ Contingency approach.
➢ Behavioural approach.
➢ Human relations approach.
➢ Write short notes on the following
o Planning
o Organizing
o Staffing
o Directing
o Controlling

PLANNING
2.1 MEANING

The management functions as discussed earlier are planning, organizing, staffing,

direction and controlling. These functions are essential to achieve organizational
objectives. If objectives are not set then there is nothing to organize, direct and control.
An organization has to specify what it has to achieve. Planning is related with this aspect.
Every person whether in business or not has framed a number of plans during his life.
The plan period may be short or long. One of the characteristic of human being is that he
plans. Planning is the first and foremost function of management. According to Koontz
and O’Donnel “Planning is deciding in advance what to do, how to do it, when to do it
and who is to do it. It bridges the gap from where we are and to where we want to go. It
is in essence the exercise of foresight”. According to M.S. Hardly “Planning is deciding
in advance what is to be done. It involves the selection of objectives, policies, procedures
and programmes from among alternatives.
Heying and Massie define “Planning is that function of the manager in which he
decides in advance what he will do. It is a decision making process of a special kind. It is
an intellectual process in which creative mind and imagination are essential”. Planning is
an attempt to anticipate the future in order to achieve better performance. Plans derive
the following benefits:
(1) Planning focus managers to think ahead.
(2) It leads to development of performance standards.
(3) Having to formulate plans forces management to articulate clear objectives.

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(4) Planning makes organization to be better prepared for sudden developments. On

the basis of definitions of planning the following features can be identified.
(1) Planning is primarily concerned with looking into future. It requires forecasting
the future.
(2) Planning involves selection of suitable course of action. It means there are
several ways to achieving objectives.
(3) Planning is undertaken at all levels of the organization because managers at all
level are concerned with determination of future course of action.
(4) Planning is flexible. Planning involves selection of best course of action under
specific environment. If environment changes an adjustment is needed between
various factors of planning.
(5) Planning is pervasive and continuous managerial function.

2.2 NATURE OF PLANNING

The nature of planning may be understood in terms of it being a rational approach, open
system, flexibility and pervasiveness.
Planning: A Rational Approach
Planning is a rational approach for defining where one stands, where one wants to go in
future and how to reach there. Rationalist denotes a manager chooses appropriate means
for achieving the stated objectives rational approach fills the gap between the current
status and future status. The difference between two time periods T1 and T2 may be as
long as 5 years or as short as one year. The desired and the current results are usually
expressed in terms of objectives, which can be achieved by an action or set of actions.
The actions required resources and the rational approach emphasis an appropriate use of
resources.
Planning: An Open System Approach
An organization is an open system because it accepts inputs from the environment and
exports output to environment. Planning adopt an open system approach. Open system
approach indicates that the gap between current and desired status and the action required
to bridge this gap is influenced by a variety of environmental economic, legal, political,
technological, socio-cultural and competitive factors. These factors are dynamic and
change with time. Therefore managers have to take into account the dynamic features of
environment while using open system approach.
Flexibility of Planning
By flexibility of a plan is meant its ability to change direction to adopt to changing
situations without undue cost. The plans must be flexible to adapt to changes in
technology, market, finance, personal and organizational factors. However flexibility is

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possible only within limits, because it involves extra cost. Some times the benefit of
flexibility may not be worth the cost.

(1)Pervasiveness of Planning
Planning is pervasive and it extends throughout the organization. Planning is the
fundamental management function and every manager irrespective of level, has a
planning function to perform within his particular area of activities. Top management is
responsible for overall objectives and action of the organization. Therefore it must plan
what these objectives should be and how to achieve them. Similarly a departmental head
has to devise the objectives of his department within the organizational objectives and
also the methods to achieve them.

2.3 IMPORTANCE OF PLANNING

Planning is of great importance in all types of organization whether business or non-
business, private or public, small or large. The organization which thinks much ahead
about what it can do in future is likely to succeed as compared to one which fails to do
so. Without planning, business decisions would become random, ad hoc choices.
Planning is important because of the following reasons.
Primacy of planning: Planning is the first and foremost function of management, other
functions follow planning. What is not planned cannot be organized and controlled.
(2) Planning establishes the objectives and all other functions are performed to achieve the
objectives set by the planning process .To minimize risk and uncertainty: The
organization continuously interacts with the external dynamic environment where there is
great amount of risk and uncertainty. In this changing dynamic environment where social
and economic conditions alter rapidly, planning helps the manager to cope up with and
prepare for changing environment. By using rational and fact based procedure for making
decisions, manager can reduce the risk and uncertainty.
(3) To focus attention on objectives: Planning focuses on organizational objectives and
direction of action for achieving these objectives. It helps managers to apply and
coordinate all resources of the organization effectively in achieving the objectives. The
whole organization is forced to embrace identical goals and collaborate in achieving
them.
To facilitate control: Planning sets the goals and develops plans to achieve them. These
goals and plans become the standards or benchmarks against which the actual
performance can be measured. Control involves the measurement of actual performance,
comparing it with the standards and initiating corrective action if there is deviation.
Control ensures that the activity confirm to plans. Hence control can be exercised if there
are plans. To increase organizational effectiveness: Effectiveness implies that the
organization is able to achieve its objectives within the given resources. The resources
are put in a way which ensures maximum contribution to the organizational objectives.

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Effectiveness leads to success.

2.4 TYPES OF PLANNING

Though the basic process of planning is same yet there are several ways in which an
organization can undertake planning process. Planning can be classified on the basis of
coverage of activities, importance of contents in planning, approach adopted in planning
process, time dimension and degree of formalization in planning process as shown in
Table 2.1

Table 2.1: Types of planning

Dimension Types of planning

1. Coverage of activity Corporate and functional planning
2. Importance of contents Strategic and tactical/operational
3. Time period involved Long term and short term planning
planning
4. Approach adopted Proactive and reactive planning
5. Degree of formalization Formal and Informal planning

Corporate and functional planning: The planning activities at the corporate level
which cover the entire organizational activities are known as corporate planning. The
focus in corporate planning is to determine long term objectives as a whole and to
generate plans to achieve these objectives bearing in mind the probable changes in
dynamic environment. This corporate planning is the basis for functional planning.
Functional planning which is derived from corporate planning is undertaken for each
major function of the organization like production, marketing, finance etc., Since
functional planning is derived out of corporate planning and therefore it should contribute
to the corporate planning.

Strategic and operational planning: Strategic planning sets future directions of the
organization in which it wants to proceed in future. Strategic planning involves a time
horizon of more than one year and for most of the organization it ranges between 3 and 5
years. Examples of strategic planning may be diversification of business into new lines,
planned grown rate in sales etc. Operational planning also known of tactical planning on
the other hand involves deciding the most effective use of resources already allocated to
achieve the organizational objectives. The time horizon in operational planning is less
than one year. Operational planning is undertaken out of the strategic planning. The
examples of operational planning may be adjustment of production within available
capacity, increasing the efficiency of the operating activity by analyzing past

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performance etc. Table 2.2 gives the differences between strategic and operational
planning.

Table 2.2: Differences between strategic and operational planning.

Strategic planning Operational planning
1. It decides major goals and policies of 1. It decides the detailed use of resources for
allocation of resources to achieve these achieving these goals
goals.
2. It is carried at higher level of 2. It is carried at lower level of management.
management.
3. It is long term. 3. It is short term.
4. It is based on long term forecasting 4. It is generally based on past performance of
considering the possible impact of the organization and is less uncertain.
political, economical, technological and
competitive factors and is more uncertain.
5. It is less detailed. 5. It is more detailed.

Long and short term planning: The long term planning is strategic in nature and
involves more than one year period and can extend to 15 to 20 years or so. Short term
planning usually covers one year. Short term plans are made with reference to long term
plans because short term plans contribute to long term plans.
Proactive and reactive plans: Planning is an open system approach and hence it is
affected by environmental factors which keep on changing continuously. The
organization’s response to these changes differs. Based on these responses planning may
be proactive and reactive. Proactive planning involves designing suitable courses of
action in anticipation of likely changes of environment. Managers adopting proactive
changes do not wait for environment to change, but take action in advance of
environmental changes. For this, continuous scanning of environment is necessary. In
reactive planning response comes after environmental changes take place. By the time
organization responds to change in environment there may be further change in
environment. Hence this type of planning is suitable in the environment which is fairly
stable over a long period of time.
Formal and informal planning: Large organizations undertake planning in a formal
way. Generally a separate corporate planning cell is formed at higher level. The cell is
staffed by people of different backgrounds like engineers, economists, statisticians etc.,
depending upon the nature. The cell continuously monitors the environment. When
environment shows some change the cell analysis the environment and suggest suitable
measures to take the advantage of the changing environment. This type of planning is
rational, systematic, regular and well documented. On the other hand informal planning
is undertaken generally by small organizations. This planning process is based on

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manager’s experience, intuitions rather than based on systematic evaluation of

environmental changes. This planning process is part of manager’s regular activity and is
suitable for small organizations.

2.5 TYPES OF PLANS

Plans are classified into standing plans and single use plans as shown in fig 2.3. Standing
plans provide guidelines for further course of action and are used over a period of time.
Standing plans are designed for situations that recur often enough to justify a standardize
approach. For example a bank designs a standing plan to process a loan application.
Using this standing plan the bank manager decides whether to approve or not a loan
application depending upon the details furnished by the applicant. Once formulated these
plans are in operation for a long period unless there is change in these plans. Examples of
such plans are organizational mission, long term objective, strategies, policies,
procedures and rules. On the other hand single use plans are designed for specific end;
when that end is reached, the plan is dissolved or formulated again for next end.
Examples of such plans are project, budgets, quotas, targets etc. Single use plans are
generally derived from standing plans. Organization set their mission and objectives, out
of which strategic actions are determined. In order to put these actions into operations,
projects, budgets etc., are prepared for specific time period.
Various organizational plans discussed above are interlinked and may be arranged in
hierarchy in which higher order plans helps to derive lower order plans. In turn a lower
order plan contributes to the achievement of the objectives of a higher order plans. The
hierarchical nature of various plans is represented in fig. 2.4.

Mission and Purpose

Setting organizational objectives is the starting point of managerial actions. Every
organization is purposive creation, it has some objectives; the end results for which the
organization strive. These end results are referred to as mission, ‘purpose’, ‘goal’, ‘target’
etc. which are often used inter-changeably. However there are differences in the contest
in which these terms are used.
In every social system, enterprises have a basic function or task, which is assigned to
them by society. The mission or purpose identifies this basic function or task of the
organization, for example the purpose of university.
Mission and purpose are often used interchangeably though there is difference
between the two at least at theoretical level. Mission has external orientation and relates
the organization to the society in which it operates. A mission statement links the
organization activities to the needs of the society and legitimates its existence. Purpose is
also externally focused but is relates the organization to that segment of the society to
which it serves; it defines the business which the company will undertake. The difference

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between the two may be visualized in the mission and purpose of Hindustan Lever
Limited. The mission statement of HLL is:
“Hindustan Lever’s commitment to national priorities has ensured that the
company is a part of people lives at the grass root level, making a difference to
India and to Indians- in depth, width and size. Hindustan has always identified
itself with the nations priorities; employment generation, development of
backward area, agricultural linkages, exports etc.”
The purpose of the company is:
Our purpose in Hindustan lever is to meet the every day needs of the people every
where - to anticipate the aspirations of consumers and customers and to respond
creatively and competitively with branded products and services which raise the
quality of life.

The mission of the company says what it can be for the country i.e., society in
general and purpose suggest how this contribution can be made. However in general
practice mission and purpose are either used interchangeably or jointly.
Objectives
Every organization is established for the purpose of achieving some objectives. An
individual who starts a business has the objective of earning profits. A chartable
institution which starts schools and colleges has the objectives of rendering service to the
public in the field of education. Though objectives may differ from one organization to
another, yet each organization has its own objective. According to Mc Farland,
“Objectives are the goals, aims or purposes that the organizations wish to achieve over
varying periods of time”. George R Terry defines “. A managerial objective is the
intended goal which describes definite scope and suggests direction to the efforts of a
manager”. Objective is the term used to indicate the end point of management
programme, for which an organization is established and tries to achieve.
Objectives have the following characteristics.
(1) Objectives are multiple in numbers: Every business enterprise has a package of
objectives set in various key areas. Peter Drucker has emphasized setting
objectives in eight key areas namely market standing, innovation, productivity,
physical and financial resources, profitability, manager performance and
development, worker performance and attitude, and public responsibility.
(2) Objectives are tangible or intangible: Some of the objectives such as producti-
vity, physical and financial resources are tangible; where as objectives in the
areas of manager’s performance, workers morale is completely intangible.
(3) Objectives have a priority: At a given point of time one objective may be
important than another. For example maintaining minimum cash balance is
important than due date of payment.
(4) Objectives are generally arranged in hierarchy: It implies that organization has
corporate objectives at the top and divisional, departmental and sectional

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objectives at the lower level of organization.

(5) Objectives some time clash with each other: An objective of one department
may clash with the objectives of other department. For example the objectives of
production of low unit cost achievement through mass production of low quality
products may conflict with goal of sales department selling high quality
products.

Requirements of Sound Objectives

(1) Objectives must be clear: There should not be ambiguity in objectives. The
framed objectives should be achievable and are to be set considering various
factors affecting their achievements.
(2) Objectives must support one another.
(3) Objectives must be consistent with organizations mission.
(4) Objectivesshould be consistent over period of time.
(5) Objectivesshould be rational, realistic and not idealistic.
(6) Objectivesshould start with word ‘to’ and be followed by an action verb.
(7) Objectivesshould be periodically reviewed.
Advantages of Objectives
The following are some of the advantages of objectives.
(1) Unified planning: Various plans are prepared at various level in the
organization. These plans are consistent with the objectives and hence objectives
encourage unified planning.
(2) Individual motivation: Objectives act as motivators for individual and
departments imbuing their activity with a sense of purpose.
(3) Coordination: Objectives facilitate coordinated behavior of various groups
which otherwise may pull in different directions.
(4) Control: Objectives provide yardstick for performance. The actual performance
is compared with standard performance and hence objectives facilitate control.
(5) Basis for decentralization: Department-wise or section wise objectives are set in
order to achieve common objectives of the organization. These objectives
provide basis for decentralization.

Strategies
‘Every organization has to develop plans logically from goals considering the
environmental opportunities and threats and the organizational strengths and weakness. A
strategy is a plan which takes into these factors and provides an optimal match between

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the firm and external environment. Two activities are involved in strategy formulation
namely environmental appraisal and corporate appraisal.
Environmental appraisal involves identifying and analysis of the following factors:
(1) Political and legal factors: Stability of government, taxation and licensing laws,
fiscal policies, restrictions on capital etc.
(2) Economic factors: Economic development, distribution of personal income,
trend in prices, exchange rates etc.,
(3) Competitive factors: Identifying principal competitors and analysis of their
performance, anti-monopoly laws, protection of patents, brand names etc.

Corporate analysis involves identifying and analyzing company’s strength and

weakness. For example a companies strength may be low cost manufacturing skill,
excellent product design, efficient distribution etc.,. Its weakness may be lack of physical
and financial resources. A company must plan to exploit these strengths to maximum and
circumvent it’s weakness.
The formulation of strategy is like preparing for beauty contest in which a lady tries to
highlight her strong points and hide her weak points. The process of matching company’s
strength and weakness with environmental opportunities and threats is known as SWOT
analysis.
Standing Plans
Policies
A policy is a general guideline for decision making. It sets up boundaries around
decisions. Policies channelize the thinking of the organization members so that it is
consistent with the organizational objectives. According to George R Terry “ Policy is a
verbal, written or implied overall guide, setting up boundaries that supply the general
limits and directions in which managerial action will take place”. Although policies deal
with “how to do” the work, but do not dictate terms to subordinates. They only provide
framework within which decisions are to be made by the management in various areas.
Hence an organization may have recruitment policy, price policy, advertisement policy
etc.,
Types of policies: Policies may be classified on the basis of sources, functions or
organizational levels.

their own and are made available in the form of manuals. Appealed policies are those
which arise from the appeal made by a subordinate to his superior regarding the manner
of handling a given situation. When decisions are made by the supervisor on appeals
made by the subordinates, they become precedents for further action. For example a
books dealer offers a discount of 10% on all text books. Suppose if an institution requests
for a discount of 15% and prepared to pay full amount in advance, the sales manager not
knowing what to do may approach his superior for his advice. If the superior accepts the
proposal for 15% discount, the decision of the superior become a guideline for the sales
manager in future. This policy is an appealed policy because it comes into existence from

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the appeal made by the subordinate to the superior. The policies which are stated neither
in writing nor verbally are known as implied policies. The presence of implied policies
can be ascertained by watching the actual behavior of various superiors in specific
situations. For example if company’s residential quarters are repeatedly allotted to
individuals on the basis of seniority, this may become implied policy.
On the basis of business function policies may be classified into production, sales,
finance, personnel policies etc. Every one of these function may have a number of
policies. For example the personnel function may have recruitment policy, promotion
policy and finance function may have policies related to capital structure, dividend
payment etc.,
On the basis of organizational level policies may range from major company policies
through major departmental policy to minor or derivative policies applicable to smallest
segment of the organization.
Advantages of Policies
The advantages of policies are as follows:
(1) Policies ensure uniformity of action at various organization points which make
actions more predictable.
(2) Since the subordinates need not consult superiors, it speeds up decision.
(3) Policies make easier for the superior to delegate more and more authority to his
subordinates because, he knows that whatever decision the subordinates make
will be within the boundaries of the policies.
(4) Policies give a practical shape to the objectives by directing the way in which
predetermined objectives are to be attained.
Procedures
Policies are carried out by means of more detailed guidelines called procedures. A
procedure provides a detailed set of instructions for performing a sequence of actions
involved in doing a certain piece of work. A procedure is a list of systematic steps for
handling activities that occur regularly. The same steps are followed each time that
activity is performed. A streamlined, simplified and sound procedure helps to accelerate
clerical work without duplication and waste of efforts and other resources. Difference
between policies and procedures can be explained by means of an example. A company
may adopt a policy of centralized recruitment and selection through labor department.
The labor department may chalk out the procedure of recruitment and selection. The
procedure may consist of several steps like inviting application, preliminary interview
aptitude and other tests, final interview, medical examination and issue of appointment
orders. The following are advantages of procedures.
(1) They indicate a standard way of performing a task.
(2) They result in simplification and elimination of waste.

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(3) Procedure improves the efficiency of employees.

(4) Procedure serves as a tool of control by enabling managers to evaluate the
performance of their subordinates.
Methods
A method is a prescribed way in which one step of procedure is to be performed. A
method is thus a component part of procedure. It means an established manner of doing
an operation. Medical examination is a part of recruitment and selection procedure,
method indicate the manner of conducting medical examination. Methods help in
increasing the effectiveness and usefulness of procedures. By improving methods,
reduced fatigue, better productivity and lower costs can be achieved. Methods can be
improved by eliminating wastes by conducting “motion study”.
Rules
The rules are the simplest and most specific type of standing plans. Every organization
attempts to operate in an orderly way by laying down certain rules. Rules are detailed and
recorded instructions that a specific action must or must not be performed in a given
situation. Rules are more rigid than policies. Rules generally pertain to the administrative
area of a procedure. For example sanctioning overtime wages to workers, sanctioning
traveling bills etc., need uniform way of handling them. These are all covered by rules of
the enterprises. A rule may not be part of procedure. For example ‘no smoking’ is not
related to any procedure. Rules demand strict compliance. Their violation is generally
associated with some sort of disciplinary action.
Single Use Plans
Programme
A programme is a sequence of activities directed towards the achievement of certain
objectives. A programme is action based and result oriented. A programme lays down the
definite steps which will be taken to accomplish a given task. It also lays down the time
to be taken for completion of each step. The essential ingredients of every programme are
time phasing and budgeting. This means that specific dates should be laid down for the
completion of each successive stage of programme. In addition a provision should be
made in the budget for financing the programme. A programme might include such
general activity as purchasing new machines or introducing new product in the market.
Thus a programme is a complex of objective, policies, procedures, task assignments,
steps to be taken, resources to be employed and other elements to carry out a given
course of action.
Budgets
A budget is a single use plan since it is drafted for a particular period of time. A budget is
a statement of expected results expressed in quantitative terms i.e. rupees, man hours,
product units etc. Since it is a statement of expected results, it is also used as an
instrument of managerial control. It provides a standard by which actual operations can
be measured and variation could be controlled. One should not forget that making budget

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is clearly planning. The important budgets are sales budgets, production budgets, cash
budgets, and revenue and expenses budgets.

2.6 STEPS IN PLANNING

The planning process is different from one plan to another and one organization to
another. The steps generally involved in planning are as follows:
(1) Establishing goals/objectives: The first step in planning process is to determine
the enterprise objectives. These are set by upper level managers after number of
objectives has been carefully considered. The objective set depends on the
number of factors like mission of the organization, abilities of the organization
etc., Once the organizations objectives are determined, the section wise or
department wise objectives are planned at the lower level. Defining the
objectives of every department is a very essential one; then only clear cut
direction is available to the departments. Control process is very easy if the
objectives are clearly defined.
(2) Establishing planning premises: This is the second step in planning which
involves establishing planning premises that is the conditions under which
planning activities will be undertaken. Planning premises are planning assump-
tions—the expected environmental factors, pertinent facts and information
relating to the future such as general economic conditions, population trends,
competitive behavior etc.
The planning premises can be classified as below:
(1) Internal and External premises.
(2) Tangible and Intangible premises.
(3) Controllable and non-controllable premises.
Internal and External premises: Premises may exist within or outside the enterprise.
Internal premises include sales forecasts, ability of the organization in the form of
machines, methods of design, behavior of the owners and employees etc., The
external premises exists outside the enterprise and include general business and
economic environment, technological changes, government policies and regulations,
population growth etc.,
Tangible and Intangible premises: Tangible premises are those which can be
quantified. They include population growth, industry demand, capital and resources
invested etc., On the other hand political stabilities, sociological factors, attitudes
and behavior of the owners etc., are intangible premises. Controllable and non-
controllable premises: Some of the planning premises are controllable and others are
non-controllable. Some examples of non-controllable factors are strikes, wars,
natural calamity, legislation etc., Because of the presence of non-controllable
factors; organizations have to revise plans periodically in accordance with current

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development. The controllable factors are availability of resources, skill of managers
and labor etc.,
(3) Deciding the planning period: Once the long term objectives and planning premises
are decided, the next task is to decide the period of the plan. Some plans are made
for a year and in others it will be decades. Companies generally base their period on
a future that can reasonably be anticipated. The factors which influence the choice of
a period are:
(a) Lead time in development and commercialization of a new product: An aircraft
building company planning to start a new project should have a planning
period of five to ten years where as a small manufacturer of spare parts who
can commercialize his idea in a year or so makes annual plans.
(b) Time required for recovering capital investment or the pay back period: The
pay back period also influence the planning period. For example, if a machine
costs 50 lakhs and generates cash in flow of Rs. 10 lakhs a year, it has a pay
back period of 5 years. Therefore the plans should also be for at least five
years.
(c) Length of commitment already made: The plan period should be long enough
to enable the fulfillment of already made commitments. For example if a
company has agreed to supply goods for five years, it needs to plan for the
same period to fulfill its commitments.
(4) Identification of alternatives: The fourth step in planning is identifying alternatives.
A particular objective can be achieved through various actions. For example an
organization’s objective is to grow further which 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 organization
and so on. With each category there may be several alternatives. For example,
diversification may point out the possibility of entering into one of the several
fields.
(5) Evaluation and selection of alternative: Once the alternatives are identified the
next step is to evaluate the alternatives in the light of the premises and goals and
to select the best course or courses of action. This is done with the help of
quantitative techniques and operations research. In addition software packages
are available for evaluating alternatives.
(6) Developing derivative/supportive plans: Once the plan is selected, various plans
are derived so as it support the main plan. The derivative may be planning for
buying equipments, buying raw material etc. These derivative plans are
formulated out of the main plan and therefore, they support.
(7) Measuring and controlling the process: One should not allow plan to run on its
own without monitoring its progress. Managers need to check the progress of
their plans so that remedial action can be taken to make plan work or change the

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plan if it is unrealistic. Hence process of controlling is a part of any plan.

2.7 DECISION-MAKING
Decision-making is an essential part of modern management. Whatever a manager does
he does by making decisions. A manager makes hundreds of decisions consciously or
subconsciously every day. Decisions are made by the managers and actions are taken by
others. Major decisions are taken carefully and consciously by the application of human
judgment and experience where as minor decisions are made almost subconsciously
using rules. Decision-making permeates through all managerial functions namely
planning, organizing, staffing, directing and control. In planning for example manager
decides what to produce, where and when etc., and in organizing manager decides about
division of work, delegating authority and fixing responsibility. Decisionmaking is
commitment to something, a point of view, a principle or course of action. It is selecting
the best among alternative courses of action. The decision-making has the following
factors.
(1) Decision-making implies that there are various alternatives and the most
desirable alternative is chosen to solve the problem.
(2) Existence of alternatives suggests that the decision-maker has freedom to choose
an alternative of his liking.
(3) Decision-making like any other managerial process is goal oriented. It implies
that the decision maker attempts to achieve some results through decision-
making.

Types of Decisions
Decisions are classified in a number of ways as below:
Programmed and non-programmed decisions: Programmed decisions are those that
are made in accordance to policy, procedure and rules. These decisions are routine and
repetitive and programmed decision are relatively easy to make. For example
determining salary payment to the workers who have been ill, offering discounts for
regular customers etc. are programmed decision. Non-programmed decisions are novel
and non-repetitive. If a problem has not arisen before or if there is no clear cut method
for handling it, it must be handled by non-programmed decision. For example what to do
about a failing product line is a non-programmed decision because no definite procedure
exists for it. For programmed decision clear cut rules exists and hence it is not possible
for two persons to reach different solutions to the some problem.
In case of non-programmed decision there are no clear cut rules for handling the
problem, each manager may bring his own personal beliefs, attitudes and judgments to
bear on the decision, it is possible for two managers to arrive at distinctly different
solutions to the same problem. For manager at higher level this ability to make non-
programmed decisions becomes important.

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Major and minor decisions: The decisions which have their impact for long-period
or which have impact on other departments are known as major decision. On the other
hand decisions which does not have long term effect or affecting one department are
known as minor decisions, diversification of existing product lines, adopting new
technology are the major decisions. The decision to procure raw materials is a minor
decision, Major decisions are made at higher level and minor decisions are taken at lower
level in the organizational hierarchy.
Simple and complex decisions: If very few variables are to be considered for solving
a problem the decision is sample. If the variables are many, then it is a complex decision.
Strategic and tactical or operational decisions: Strategic decision is a major choice
of actions concerning allocation of resources and contribution to the achievement of
organizational objectives. Strategic decisions are major and non-programmed decisions
having long term impact. A strategic decision may involve major departure from earlier
ones. For example change in the product mix. Strategic decisions are made by the higher
level managers. Tactical or operational decision is derived out of strategic decision. It
relates to day-to-day working of the organization and is made in the context of well- set
policies and procedures. Decisions relating to provisions of air conditioning, parking
facilities are operational decisions. These decisions are made at the lower level of the
organization.
Individual and group decisions: Decision may be taken either by an individual or
group. Decisions which are routine in nature, with few variables and definite procedures
exists to deal with them are taken by individuals. On the other hand decisions which have
their impact on other departments, which may result into some changes in the
organization, are generally taken by groups.

Decision Making Process: Steps in Rational Decision Making

A decision is rational if appropriate means are chosen to reach the desired end. The
following steps are involved in the process decision making.
(1) Recognizing the problem.
(2) Deciding priorities among the problems.
(3) Diagnosing the problem.
(4) Developing alternative solutions or courses of activities.
(5) Evaluating alternatives.
(6) Converting the decision into effective action and follow up of action.
(1) Recognizing the problem: When a manager makes a decision it is in effect the
organization’s response to a problem. Hence it is necessary to search the environment for
the existence of a problem. A problem is said to exist;
(a) When there is deviation from past experience. For example the present year’s
sales are lower than previous year, the expenses are more than previous years
etc.,

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(b) When there is deviation from plan. For example sales are lower than anticipated,
expenses are more than expected etc.,
(c) When competitors outperform. For example other companies manufacture the
goods of same quality at lower costs.
(d) When people bring problems to the manager, For example workers may
complain about poor ventilation.
(2) Deciding priorities among problems: A manager might have identified a
number of problems. All these problems vary in their importance. He may find that some
of the problems are such that they can be solved by their subordinates because they are
closest to them. All such problems should be passed on to them. Some problems may
need information available only at higher level or affecting other departments. Such
problems are referred to higher level managers. And those problems which can be best
solved by him are to be focused.
(3) Diagnosing the problems: Symptoms of the problem that are observed by the
manager may some times mislead him. The symptom may lead manager to suspect one
part when the defect may lie hidden in another part. For example if there is decline in
sales, the management may think that the problem is one of poor selling procedure or the
saturation of the old market. But the real problem may be inability to move quickly to
meet changing needs of the customers. For diagnosing the problem a manager should
follow the systems approach. He should study all the sub-parts of his organization which
are connected with the sub-part in which the problem seems to be located.
(4) Developing alternative solutions or courses of action: A problem can be solved
in several ways; however all the ways cannot be equally satisfying. If there is only one
way of solving a problem, then no question of decision arises. Therefore decision maker
must identify various alternatives available in order to get most satisfactory result of a
decision. It should also be borne in mind that it is not possible to consider all alternatives
either because information about all alternatives may not be available or some of the
alternatives cannot be considered because of limitations. Hence while developing
alternatives; the concept of limiting factor should be applied. Limiting factor is one
which stands in the way of accomplishing a desired objective. For example, if an
organization has limitation in raising sizable finance, it cannot consider projects
involving high investment.
A decision maker can identify alternatives using his own experience, practices
followed by others and using creative technique. A decision maker using past experience
takes into account the action taken by the decision maker in the past with the difference
between former challenges and the present one. The successful action of the past may
become an alternative for the future. The limitation of this is, what was successful in the
past may not be so in the present context because of change in context under which
decision was made. Copying from experience of others is another way of generating

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alternatives. Alternatives used by successful decision makers can be thought of
alternatives of decision making. The third method of generating alternatives is through
creative process where various exercises are taken to generate entirely new ideas.
Creative ideas of individuals or groups help in developing alternatives. One popular
group technique is brain storming. The brain storming group consists of 5 to 10 people.
The best idea behind brain storming is to think of as many alternatives as possible
without pausing to evaluate them.
(5) Measuring and comparing consequences of the alternative solution: Once
various alternatives are developed, the next step is to measure and compare their
consequences of alternatives using quality and acceptability. The quality of a decision
must be determined considering both tangible and intangible consequences. Tangible
consequences are those which can be quantitatively measured or mathematically
demonstrated. For example the one can calculate the installing and running costs of two
types of air conditioners. Intangible consequences cannot be measured quantitatively. For
example the effect of good labor relationship in one location cannot be compared with
the local taxes in another location.
Acceptability of solution is also important. A decision though good in quality may be
poor in acceptability or decision though acceptable may not be good in quality. In such
cases managers must find the relative importance of these two. In production, finance,
purchase etc. the solution’s quality is important than acceptability, where as in all human
maters such as lighting condition, layout of office etc., the acceptability is more
important. If sufficient information about quality or acceptability of a solution is not
available, it is suggested to experiment it on a small scale known as pilot testing. For
example a company may test a new product in a certain market before expanding its sale
nationwide.

(6) Converting the decision into effective action and follow up of action: This step
involves communication of decisions to the employees. Decision must be communicated
in clear and unambiguous terms. All necessary efforts should be made to secure
employees participation in some stages of decision making. Association of employees in
decision making not only enhance the acceptability, but also improves the quality of
decision. Sometimes due to non-availability of data, a manager may not take correct
decision. As a safeguard against incorrect decision, the manager while converting a
decision into effective action should institute a system of follow-up so that he can modify
or alter his decision at the earliest opportunity.
ENVIRONMENT OF DECISION-MAKING
A decision-maker may not have the complete knowledge about decision alternatives or
about the outcome of a chosen alternative. This problem may be highly complex and
uncertain. These conditions of knowledge are referred to as the ‘environment of decision
making’. The environment may be of three types; certainty risks and uncertainty. The
environment of decision-making is a continuum, at one end there is complete certainty
and at the other end there is complete uncertainty.

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Decision-making under certainty: The term certainty refers to accurate knowledge

of the outcome of each alternative. All relevant data are available for making decision.
For example a company wants to transport goods from five warehouses to a number of
customers. It is possible to obtain the relevant facts for the problem like type of transport
available, the cost of transporting a unit from each warehouse to each customer. With this
it is possible to design least cost distribution pattern.
Decision-making under risk: In decision making under risk, the consequences of a
particular decision cannot be specified with certainty but can be specified with known
probability values. The value of probability is a measure of likelihood of the occurrence
of that event. In such cases, alternatives are evaluated by computing the expected value
of the payoff associated with each alternative. For example, while estimating the demand
of a product for future where there is great amount of uncertainty, a manager can make
three estimates of demand associated with the probability of occurrence as show is table
2.3.

Table 2.3
Types of demand Demand Probability
High demand 1000 0.3
Medium demand 800 0.5
Low demand 500 0.2

Then the expected demand is computed as follows

Expected demand = 1000(0.3) + 800(0.5) + 500(0.2)
Decision making under uncertainty: Uncertainty is said to exist when the decision
maker does not know the probabilities associated with the possible outcomes, though he
has been able to identify the possible outcomes and their related pay-offs. Since the
probabilities are not known, the decision maker cannot use the criterion of maximizing
the pay off. He can however use MaxiMin criterion. MaxiMaxi criterion or Minimax
regret criterion. If a manufacturer is pessimistic or cautions in his approach, he can
choose that decision act which maximizes the minimum pay-off, which is called as
MaxiMin criterion.

MODULE 2
Organizing and staffing

3.1 MEANING AND DEFINITIONS OF ORGANIZING

Organization is the foundation upon which the whole organization is built. Without
efficient organization, no management can perform its function smoothly. Sound

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organization contributes greatly to the continuity and the success of organization. A poor
organization structure makes good performance impossible, no matter how good the
individuals are.
The term organization connotes different things to different people. For example to
the sociologists, organization means a study of interactions of people, classes or
hierarchy of an enterprise. To the psychologists organization means an attempt to
explain, predict and influence the behaviour of individuals in an enterprise. The word
‘organization’ is also used widely to connote a group of people and the structure of
relationships. In order to understand the meaning and characteristics of organization, we
shall study it under the following heads:
➢ Organization as a group of persons.
➢ Organization as a structure of relationship.
➢ Organization as a function of management.
➢ Organization as a process.
(1) Organization as a group of persons: Organization is viewed as a group of
people contributing their efforts towards certain goal. The concept of organizing
began at the early stages of human civilization when two or more persons began
to cooperate and combine together for fulfilling their basic needs of food,
clothing, shelter and protection of life. Organization begins when people
combine efforts for some common purpose. Chester I Barnard defined
organization “as an identifiable group of people contributing their efforts. An
organization comes into existence when there are a number of persons in
communication and relationship to each other and are willing to contribute
towards a common Endeavour. The group of people lay down rules and
regulations and the formal structure or relationship among themselves”.
(2) Organization as a structure of relationships: Some people view organization as
a structure of relationship. Organization sets up the scope of activities of the
enterprise by laying down the structure of relationships. If organization is
merely recognized as ‘structure’, it will be viewed as a static thing used to
explain formal relationships. But an organization is a ‘dynamic’ entity consisting
of individuals, means, objectives and relationships among the individuals.
However, the use of the term structure to denote organization is not used
independently, but is combined with the term organization either in the form of
organization structure or structure of organization.
(3) Organization as a function of management: Organization is one of the basic
functions of management. It involves determination and provision of various
resources for the achievement of predetermined goal. Thus, organization is
defined as a process of integrating and coordinating the efforts of human,
financial and other resources for the accomplishment of certain objectives. Like
‘planning’, organizing is also applied in every aspect of management, For
example organization is necessary for planning, development, for formulation of
plans and policies.

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(4) Organization as a process: Organization is the process of establishing

relationship among the members of the organization. Using this process
organization structure is crated. The relationships are created in terms of
authority and responsibility. Each person in the organization is assigned specific
responsibility or duty to perform and is granted the corresponding authority to
perform his duty.
According to Louise A Allen, “Organization involves identification and grouping of
activities to be performed and dividing them among the individuals and creating authority
and responsibility relationship among them for the accomplishment of organizational
objectives. Organizing being process, consists of departmentalization, linking of
departments, defining authority and responsibility and prescribing authority relationships.
The organization structure is the result of this process.

3.2 STEPS IN ORGANIZING

While organizing, a manager differentiates and integrates the activities of his
organization. By differentiation is meant the process of departmentalization or
segmentation of activities on the basis of some homogeneity. Integration is the process of
achieving unity of effort among various departments, segments or subsystems.
Organization involves the following interrelated steps:
(1) Consideration of objectives: The first step in organizing is to know the
objectives of the enterprise. Objectives determine resources and the various
activities which need to be performed and the type of organization which needs
to be built for this purpose. Objectives also serve as guidelines for the
management and workers. They bring about unity of direction in the
organization.
(2) Identification and grouping of activities: If the members of the group are to
pool their efforts effectively, there must be proper division of the major
activities. Each job should be properly classified and grouped. This will enable
the people to know what is expected of them as members of the group and will
help in avoiding duplication of efforts. For example, the total activities of an
enterprise may be divided into major functions like production, purchasing,
marketing, finance etc., and such function is further subdivided into various
jobs. For example, in production department separate sections may be created
for research, industrial engineering etc. The jobs then can be classified and
grouped to ensure the effective implementation of other steps.
(3) Assignment of duties: After classifying and grouping the activities into various
jobs, they should be allotted to the individuals for ensuring certainty of work
performance. Each individual should be given a specific job to do according to
his ability and made responsible for that.

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(4) Delegation of authority: Authority without responsibility is dangerous and

responsibility without authority is an empty vessel. Hence, corresponding to the
responsibility authority is delegated to the subordinates for enabling them to
show work performance.

3.3 NATURE OF ORGANIZATION

The nature of organization can be highlighted by studying the following features:
(1) Organization is always related to certain objectives: Whether it is organization of
the entire enterprise or part of it, organization is influenced by objectives. The
operations are divided; authority and responsibility are determined to achieve
predetermined objectives.
(2) An organization connotes a group of people: Mc Farland has defined organi-
zation as “an identifiable group of people contributing their efforts towards the
attainment of goals. People form groups or organizations to accomplish common
objectives and pool their efforts by defining and dividing various activities,
responsibility and authority”.
(3) Communication is the nervous system of organization: The organizational
members are able to communicate with each other and may coordinate their
activities. No organization can survive without an efficient system of communi-
cation.
(4) Organizing is a basic function of management: Organizing is done in relation
to all other functions of management, namely planning, staffing, directing and
controlling and in all the areas of business namely production, marketing,
purchasing, personnel. The organizing function is performed by all managers.
(5) Organization is a continuous process: It is not a one step function. Managers
are continuously engaged in organizing and reorganizing.
(6) Organization connotes a structure of relationship: The structure of relationship
deliberately created by the management is referred to as formal organization. An
organization may also have a network of social relationships that arise between
people working together. Such relationships are known as informal organization.
In formal organization people are able to communicate with each other, are
willing to act and share a purpose. In informal organization, people work
together because of their likes and dislikes.
(7) Organization involves a network of authority and responsibility relationship:
Various positions are created; specific tasks are assigned to them. To perform
the task, each position is delegated adequate authority. Authority and
responsibility relationships throughout the organization must be clearly defined
to achieve coordination and to avoid conflicts between individuals and
departments.

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3.4 ORGANIZATION STRUCTURE

An organization structure shows the authority and responsibility relationship between the
various positions of the organization by showing who reports to whom. It is a set of
planned relationships between groups of related functions and between physical factors
and personnel required for the achievement of organizational goal. The structure of an
organization is generally shown on the organization chart or a job task pyramid. It shows
the authority and responsibility relationship between various positions in the
organization. A good organization structure should not be static but dynamic. It should be
subject to change from time to time in the light of changes in the business environment.
3.5 PURPOSE OF ORGANIZATION
Organization means a form of human association for the attainment of common
objectives. An industrial organization denotes a type of associationship of persons in
relationship to some economic activities. Obviously, the better the organization the fuller
would be the achievement of common objectives. Similarly, a loose organization implies
an unhappy and dangerous state of affairs. Organization is essential for the following
purposes:
(1) To facilitate pattern of communication: Organization structure provide pattern
of communication and coordination. By grouping activities and people, structure
facilitates communication between people centered on their job activities. People
who have joint problem often need to share information to solve the problem.
(2) To allocate authority and responsibility: Organization structure allocates
authority and responsibility. It specifies who is to direct whom and who is
accountable for what results. The structure helps the organization members to
know what his role is and how it relates to others role.
(3) To locate decision centers: Organization structure determines the location of
decision making in the organization. For example, a departmental store may
leave pricing decision to the lower level manager while in oil refinery pricing
decision is at top level.
(4) To create proper balance: Organization structure creates the proper balance and
emphasis of activities. Those more critical to the enterprises success might be
placed higher in the organization. For example R&D in pharmaceutical company
might be singled out for reporting to the managing director. Activity of
comparable importance might be placed at the lower level.
(5) To stimulate creativity: Sound organization stimulates independent, creative
thinking and initiative by providing well-defined areas of work with broad
attitude of the development of new and improved ways of doing things.
(6) To encourage growth: The organization structure provide framework within
which an enterprise functions. If the organization structure is flexible, it will

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help in meeting challenges and creating opportunities for growth.
(7) To make use of technological improvements: A sound organization structure
which is adoptable to changes can make the best possible use of latest
technology. It can modify the existing pattern of authority-responsibility
relationships in the wake of technological improvements.

3.6 PRINCIPLES OF ORGANIZATION

In order to facilitate the achievement of objectives, management thinkers have laid down
certain principles of organization. The principles are guidelines for planning organization
structure. Therefore, thorough understanding of the principles of organization is essential
for good organization. The principles of organization are discussed below:
(1) Objectives: The objectives of the enterprise influence the organization structure.
Every part of the organization and organization as a whole should be geared to
the basic objective determined by the enterprise.
(2) Specialization: Effective organization must promote specialization. The
activities of the enterprise should be divided according to functions and assigned
to persons according to their specialization.
(3) Span of control: A manager can directly supervise only a limited number of
executives. Hence, it is necessary to have a proper number of subordinates
answerable to a manager. A maximum of six may be prescribed for this purpose.
(4) Exception: This principle requires that organization structure should be so
designed that managers are required to go through the exceptional matters only.
All the routine decisions should be taken by subordinates, where as problems
involving unusual matters and policy decision should be referred to higher
levels.
(5) Scalar principle: This is also known as chain of command. There must be clear
lines of authority running from the top to the bottom. Authority is the right to
decide, direct and coordinate. Every subordinate must know who his superior is
and to whom policy matters beyond his own authority must be referred for
decision.
(6) Unity of command: Each subordinate should have only one supervisor whose
command he has to obey. Dual subordination must be avoided, for it causes
uneasiness, disorder, and indiscipline and undermine of authority.
(7) Delegation: Proper authority should be delegated at the lower levels of the
organization also. The authority delegated must be equal to responsibility i.e.,
the manager should have enough authority to accomplish the task assigned to
him.
(8) Responsibility: A superior should be held responsible for the acts of his
subordinates. No superior should be allowed to avoid responsibility by
delegating authority to his subordinates.

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(9) Authority: The authority is the tool by which a manager is able to accomplish
the desired objective. Hence, the authority of each manager must be clearly
defined. The authority and responsibility must be co-extensive in the organi-
zation.
(10) Efficiency: The organization should be able to attain the mission and objectives
at the minimum cost.
(11) Simplicity: The organization structure should be as simple as possible with
minimum number of levels. A large number of levels of organization means
difficulty of effective communication and coordination.
(12) Flexibility: The organization should be flexible, should be adaptable to changing
circumstances. It should permit expansion and replacement without dislocation
and disruption of the basic design. A sound organization must avoid complicated
procedures, red-tape and excessive complication of control so that it may adapt
itself easily and economically to business and technical changes.
(13) Balance: There should be reasonable balance in the size of various departments,
between centralization and decentralization. There must be balance in the formal
structure as regards to factors having conflicting claims.
(14) Unity of direction: There must be one objective and one plan for a group of
activities having the same objective. Unity of direction facilitates unification and
coordination of activities at various levels.
(15) Personal abilities: As organization is a formal group of people there is need for
proper selection, placement and training. Organization structure must ensure
optimum use of human resources.

3.7 DEPARTMENTATION
The horizontal differentiation of tasks or activities into discrete segments is called as
departmentalization or departmentation. Departmentation involves grouping of operating
tasks into jobs, combining of jobs into effective work group and combining of groups
into divisions often termed as ‘departments’. The aim is to take advantages of division of
labour and specialization up to a certain limit. There are several ways of
Departmentation, each of which is suitable for particular corporate sizes, strategies and
purposes. The important methods of grouping activities may be summarized as below:
Departmentation by functions: This is the simplest and most commonly used base
for Departmentation. Each major function of the enterprise is grouped into a department.
For example there may be production, finance, marketing and personnel department in an
organization as shown in fig. 3.1. All functions related to production are grouped
together to form production department, similarly other departments are formed on the
basis of function.

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Advantages
(1) It is simple and suitable for small organization which manufactures limited
number of products.
(2) It promotes specialization.
(3) It leads to improve planning and control.
(4)Manpower and other resources of the company are effectively used.
Drawbacks
(1) It fosters sub-goal loyalty. Department goal becomes important than
organizational goal resulting into interdepartmental conflicts.
(2) Difficult to set up specific accountability and profit centers within functional
departments with the result that performance cannot be accurately measured.
Departmentation by product: The grouping of activity on the basis of product or
product lines is followed in multi-lines large scale organizations. All activities related to a
particular product line may be grouped together under the direction of a semi-
autonomous division manager as shown in fig 3.2.
Advantages
(1) It focuses individual attention on each product line.
(2) It leads to specialization of physical facilities on the basis of product which
results in economy.
(3) It is easier to evaluate and compare the performance of various product division.
(4) It keeps problems of production isolated from others.

on the basis of customers to cater to the requirements of clearly defined customer groups.
For example, an automobile service company may organize its departments as heavy
vehicles servicing division, car servicing division and scooter servicing division.
Similarly an educational institute may have departments for regular courses, evening and
corresponding courses etc.
Departmentation by territory: Under this classification, the market area is broken up
into sales territories and a responsible executive is put in-charge of each territory. The
territory may be known as district, division or region. The field salesmen under
respective regions report to their corresponding sales supervisors, if any, who are
reporting to their respective regional managers. The fig. 3.3 is quite illuminating in this
connection.
Departmentation by Process: Departmentation here, is done on the basis of several
discrete rocess or technologies involved in the manufacture of a product. For example, a
vegetable oil company may have separate departments for crushing, refining and
finishing. A textile mill may have departments for ginning, spinning, weaving and
dyeing. A work that would otherwise be done in several different locations in an
enterprise is done in one place because of special equipments used.

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3.8 TYPES OF ORGANIZATION

According to Kimball and Kimball “The problem of an organization is to select and
combine the efforts of men of proper characteristics so as to produce the desired results”.
Nature, scale and size of the business are the normal factors which determine forms of
internal organization. The following common types of organization find a place in the
structure of internal organization.
Line, Military or Scaler Organization
Line organization is the simple and oldest type of organization and is also known of
scalar or military organization. The line organization represents the structure in a direct
vertical relationship through which authority flows. The line of authority (see fig 3.4)
flows vertically downward from top to bottom throughout the organization. The quantum
of authority is highest at the top and reduces at each successive level. Under line
organization, each department is generally a complete self-contained unit. A separate
person will look after the activity of the department and has full control over the
department. The superior communicates his decision and orders to his subordinates. The
subordinates, in turn, can communicate them to those who are immediately under them.
This type of organization is followed in military.
The advantages of line organization are
(1) Simplicity
(2) Quick decision and speed of action.
(3) Unity of control.
(4) Clear division of authority and responsibility.
(5) Discipline and better coordination
(6) Direct communication.
Disadvantages
(1) The organization is rigid and inflexible
(2) Being an autocratic system, managers may become dictators and not leaders.
(3) There is scope of favor-ism and nepotism.
(4) Red-tape and bureaucracy.
(5) Lack of specialization.
Functional Organization
The line organization does not provide specialists in the structure. Many jobs require
specialized knowledge to perform them. In functional organization the specialists are
made available in the top positions throughout the enterprise. It confers upon the holder
of a functional position, a limited power of command over the people of various
departments concerning their function. Functional authority remains confined to
functional guidance of different department.

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Under functional organization, various activities of the enterprise are classified
according to certain functions like production, marketing, finance, personnel etc., and are
put under the charge of functional specialists as show in fig.3.5. A functional incharge
directs the subordinates throughout the organization in his particular area of business
operation. That means that subordinates receives orders and instructions not from one
superior but from several functional specialists.

The advantages of functional organization

(1) Specialization.
(2) Reduces the burden on the top executives.
(3) Offers greater scope for expansion.
(4) A functional manager is required to have expertise in one function only. This
makes it easy for executive development.
Disadvantages
(1) Violates principles of unity of command.
(2) The operation of functional organization is too complicated.
(3) It develops specialists rather than generalists.
(4) Lack of coordination among functional executives which delays decision
making.
Line and Staff Organization
In order to reap the advantages of both line organization and functional organization, a
new type of organization is developed i.e., line and staff organization. In line and staff
organization, the line authority remains the same as it does in the line organization.
Authority flows from top to bottom. In addition, the specialists are attached to line
managers to advice them on important matters. These specialists stand ready with their
speciality to serve line men as and when their services are called for to collect
information and to give help which will enable the line officials to carryout their activity
better. The staff officials do not have any power of command in the organization as they
are employed to provide expert advice to the line manager. In most of the organization,
staff investigates and supplies information and recommendations to managers who takes
decision. Specialized staff positions are created to give counsel and assistance in each
specialized field of effort as show in fig 3.6.

Advantages
(1) Specialized knowledge
(2) Reduction of burden on line managers.
(3) Better decisions, as staff specialists help the line managers
(4) Unity of command

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(5) Flexible when compared to functional organization.

Disadvantages
(1) Allocation of duties between line and staff is not clear.
(2) There is generally conflict between line and staff executives.
(3) Since staff is not accountable, they may not be performing well.
(4) Difference between orientations of line and staff. Line executive’s deals with in
problem in a more practical manner while staff, tend to be more theoretical.
Committee Organization
A committee is a body of persons appointed or elected to meet on an organized basis for
the consideration of matters brought before it. “A committee is a group of persons
performing a group task with the object of solving certain problems”. The area of
operation of a committee is determined by its constitution. A committee may formulate
plans, review the performance of certain units or may only have the power to make
recommendation. Committees help in taking corrective decision, coordinating the affairs
of different departments and meeting communication requirements in the organization.
Committees can be broadly classified into advisory committees and executive
committees. Advisory committees have only a recommender’s role and cannot enforce
implementation of their advice or recommendation. The examples of advisory
committees are works committees, finance committees etc., Whenever committees are
vested with line authority, they are called as executive committees. Unlike advisory
committee, executive committees not only take decisions but also enforce decisions and
thus perform a double role of taking decision and ordering its executive. The board of
directors of a company is an example of an executive committee.
Advantages of Committees
(1) Committees provide a forum for the pooling of knowledge and experience of
many persons of different skills, ages and backgrounds.
(2) Committees are excellent means of transmitting information and ideas both
upward and downward.
(3) Committees are impersonal in action and hence their decisions are generally
unbiased and are based on facts.
(4) When departmental heads are members of committee, people get an opportunity
to understand each others problems and hence improve coordination.
Weaknesses of Committees
(1) In case a wrong decision is taken by committee, no one is held responsible
which may results in irresponsibility among members.
(2) Committees delay action

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(3) Committees are expensive form of organization.

(4) Decisions are generally arrived at on the basis of compromise and hence they are
not best decision.
(5) As committee consists of large number of persons, it is difficult to maintain
secrecy.

3.9 SPAN OF CONTROL

The span of control indicates the number of subordinates who can be successfully
directed by a supervisor. It is often referred to as span of management, span of
supervision, span of authority. Span of management is important because of two reasons.
First is span of management affects the efficient utilization of managers and the effective
performance of the subordinates. If the span is too wide, managers are overburdened and
subordinates receive little guidance. If the span of management is too narrow, the
managers are under utilized and subordinates are over controlled. The second reason is
there is relationship between span of management and organization structure. A narrow
span results in tall organization with many levels of supervision between top management
and lowest organizational levels which creates more communication and cost problems.
On the other hand, a wide span for the same number of employees results in flat
organization with fewer management levels between top and bottom. Suppose a sales
manager has 12 salesmen reporting to him, his span of management is 12. If he feels that
he is not able to work closely enough with each salesman and decides to reduce the span
by adding three assistant managers - each to supervise four salesmen then his span of
management is three as shown in fig 3.7. In doing so, he has added a level of
management through which communication between him and salesmen must pass and he
has added the cost of three additional managers.

Management experts suggest that the ideal number of subordinates is four in case of
higher level management and eight to twelve in case of lower level management.
Factors Affecting the Span of Management
The following are some of the factors which influence the span of management:
(1) Ability of the manager: Some managers are more capable than others and hence
can handle a large number of subordinates.
(2) Ability of the employees: If employees are more competent, less attention from
the managers is required and a larger span of management can be used.
(3) Type of work: If employees are doing similar jobs, the span of management can
be large. If their jobs are quite different, a small span may be necessary.
(4) Geographic location: If all subordinates are located at the same place span of
management can be large. If subordinates are geographically distributed, a lower
span is essential.
(5) Well-defined authority and responsibility: Clear-cut authority and responsibility

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helps a manager to supervise large number of subordinates.

(6) Level of management: The span of management is narrow at higher level of
management, and span can be wider at lower levels.
(7) Economic considerations: Narrow the span, taller is the structure is more is the
cost. On the other hand, wider span reduces the number of levels and cost.

3.10 AUTHORITY, POWER AND RESPONSIBILITY

In all organized efforts, managers actually do not perform the jobs; they simply get the
things done by others. It means that the managers should have some right by which they
get the things done. This ‘right’ is technically known as what we call ‘Authority’, which
every manager must have to perform his function effectively. Without authority a
manager cannot function. Authority is a legal or rightful power, a right to command or to
act. According to Henry Fayol “Authority is the right to order or command and is
delegated from the superior to the subordinate to discharge his responsibilities. The
authority may be exercised through persuasions or sanctions. If the subordinates does not
obey, the superior has right to take disciplinary action.
The power may be defined as the capacity or ability to influence the behaviour of
other individuals. If a person has a power, it means that he is able to influence the
behaviour of others. The essence of power is control over the behavior of others. The
difference between authority and power are given in table 3.1.
Table 3.1: Difference between authority and power
Authority Power
(1) It is the institutionalized right of a It is ability of a person to influence others.
superior to command and compel
his subordinates to perform a
(2) It rests in
certain the position
act. It rests in the individual.
(3) It is delegated to an individual by It is earned by individual
his superior.
(4) It is well defined It is undefined and infinite.
(5) It is what exists in the eye of law. It is what exists in fact. It is a de facto
concept.

Just an authority is the right of a superior to issue commands; responsibility is the

obligation of a subordinate to obey those commands. Responsibility is defined as the
obligation of a subordinate, to whom a duty has been assigned, to perform the duty. The
essence of responsibility is then obligation. Responsibility arises from a superior-
subordinate relationship, from the fact that some one has the authority to require
specified service from another person.
Responsibility may be specific or continuing. It is specific when on being discharged
by a subordinate, it does not arise again. Thus, a consultant’s responsibility is specific,
which ceases when the assignment is completed. The responsibility of a foreman is

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however continuing nature.
Responsibility cannot be delegated or transferred. The superior can delegate to a
subordinate the authority to perform and accomplish a specific job. But he cannot
delegate responsibility. Responsibility is divided into two parts namely operating
responsibility and ultimate responsibility. The subordinates assumes only operating
responsibility and superior retains ultimate responsibility. If the subordinate fails to
perform the job (operating responsibilities) the superior is held responsible for this failure
(Ultimate responsibility)

3.11 DELEGATION OF AUTHORITY

A manager in an enterprise cannot do all the tasks necessary for the accomplishment of
group goals. His capacity to do the work and to take decisions is limited. He therefore
assigns same part of his work to his subordinates and grants them necessary authority to
make decisions within the area of their assigned duties. This downward pushing of
authority to make decisions is known as delegation of authority. According to Louis
Allen “If the manager requires his subordinate to perform the work, he must entrust him
with part of the rights and powers which he otherwise would have to exercise himself to
get that work done”. By delegating authority, a manager does not surrender his authority
or give this authority away. The delegating manager always retains the overall authority
which was assigned to him to perform his functions. It is something like imparting
knowledge. Teacher shares knowledge with student who then possess the knowledge, but
still the teacher retains the knowledge. The following are the advantages of delegation of
authority.
➢ It relieves the manager of his heavy work load.
➢ It leads tobetter decision. This is because, the subordinates are closest to the
o situation and have the best view of the facts, are in better positions to
make decision.
➢ It speeds up decision-making.
➢ It helps totrain the subordinates and builds moral.
➢ It helps tocreate formal organization structure.

3.12 CENTRALIZATION AND DECENTRALIZATION

Centralization refers to systematic reservation of authority at central points within the
organization. Centralization means retention or concentration of managerial authority in
few key managerial positions at the nerve centre of an organization i.e., at the top level.
Everything that goes to reduce the subordinate’s role in decision making is centralization.
Decentralization means dispersal of decision-making power to lower levels of the
organization. In decentralized setup, ultimate authority to command and ultimate
responsibility for the results is localized as far down in the organization. According to
Allen “Decentralization refers to the systematic effort to delegate to the lower levels all
authority except that which can only be exercised at central points”. In decentralized
setup large number of decision, important decisions in large number of areas are made
consulting few people.

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In the words of Henry Fayol, “Everything that goes to increase the importance of
subordinates role is decentralization and everything that reduces it is centralization”.
The following are the advantages in decentralization:
(1) It eases the burden of top level managers.
(2) Decentralization permits quicker and better decision making.
(3) With decentralization capable managers can be developed
(4) Promotes participation in decision making and improves morale and motivation.
(5) Decentralization facilitates diversification of products.
Disadvantages of decentralization:
(1) It increases administrative expenses.
(2) It may create problems in bringing coordination among various units.
(3) It may bring about inconsistencies in the company, because uniform procedures
may not be followed for the same type of work in various divisions.

3.13 DELEGATION VS DECENTRALIZATION

Delegation and Decentralization are not same; the differences between them are given
below:
(1) Delegation is a process while decentralization is the end result of a deliberate
policy of making delegation widespread in the organization.
(2) Delegation takes place between a superior and a subordinate while decentra-
lization is company wide delegation as between top management and the
departments or division of the organization.
(3) In delegation, delegator exercises supervision and control over the delegate,
while in decentralization, top management exercises broad minimum control.

3.14 MANAGEMENT BY OBJECTIVES [MBO]

Management by objectives or results is an important practice for accomplishing the
objectives of an enterprise in an effective way. The concept of MBO was introduced by
Peter Drucker and later developed by various experts like John Humble, Dale and George
Ordiome. In recent years MBO has become philosophy of managing in many enterprises
and is recognized as most dynamic and exciting in the area of management.
John Humble defined managing by objectives as a dynamic system which integrates
the company’s need to achieve it’s goals for profit and growth with manager’s need to
contribute and develop himself. In the words of George S. Ordiome the system of MBO
can be described as a process whereby the superior and subordinate managers of an
organization jointly identify its 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 the contribution of each of its members. He also stressed

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that MBO is not a set of rules, a series of procedures or methods, but it is a way of
thinking about management.
Management by objectives calls for regulating the process of managing in terms of
meaningful, specific and variable objectives at different levels of management hierarchy.
MBO moulds planning, directing and controlling in a number of ways. It stimulates
meaningful action of better performance and higher accomplishment. It is closely
associated with the concept of decentralization because decentralization cannot work
without the support of management by objectives.
Features of MBO
(1) An attempt is made by the management to integrate the goals of an organization
and individuals. This will lead to effective management.
(2) MBO emphasize not only on goals but also on effective performance.
(3) It pays constant attention to refining, modifying and improving the goals and
changing the approaches to achieve the goals on the basis of experience.
(4) It increases organizational capability of achieving goals at all levels.
(5) A high degree of motivation and satisfaction is available to employees through
MBO.
(6) Recognizes the participation of employees in goal setting process.
(7) Aims at replacing the exercise of authority with consultation.
(8) Encourages a climate of trust, goodwill and a will to perform.
Steps in Management by Objectives
The following steps are involved in MBO—
(1) Setting of organizational objectives: The first step in MBO is defining
organizational objectives. The definition of organizational objectives states why
the business is started and exists. Long-term objectives followed by short-term
objectives are framed taking into account the feasibility of achieving them. The
objectives are framed on the basis of availability of resources.
(2) Setting departmental objectives: Objectives for each department, division and
section are framed on the basis of overall objectives of the organization. Period
within which these objectives should be achieved is also fixed. Goals or
objectives are expressed in a meaningful manner.
(3) Fixing key result areas: Key result areas are fixed on the basis of organizational
objectives premises. Key result areas are arranged on the basis of priority. Key
result areas indicate the strength of an organization. The examples of key result
areas are profitability, market standing, innovation etc.
(4) Setting subordinate objectives or targets: Departmental objectives are then set
by departmental managers, and get them approved by the top management. This
process of setting the objectives is repeated at the lower levels of management.
At each level, objectives are set in verifiable unit so that performance of every

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department and individual may be reviewed after the end of a particular period.
(5) Appraisal of activities: In this step, superiors periodically review the progress
and the subordinate’s performance is evaluated against the specified standards
and initiates corrective action. The superior should identify the reasons for
failure of achieving objectives and should tackle such problems.
(6) Reappraisal of objectives: An organization has to operate in a dynamic world.
So the top management should review the organizations objectives to frame the
objectives according to the changing condition.
Benefits of MBO
The following are the benefits of MBO—
(1) Managers are involved in objectives setting at various levels of management
under MBO and this commitment ensures hard work to achieve them.
(2) MBO process helps the managers to understand their role in the total
organization.
(3) MBO provides a foundation for participative management. Subordinates are also
involved in goal setting.
(4) A department does not work at cross purpose with another department. In other
words, each department’s objectives are consistent with the objectives of the
whole organization.
(5) Systematic evaluation of performance is made with the help of MBO.
(6) MBO gives the criteria of performance. It helps to take corrective action.
(7) MBO motivates the workers by job enrichment and makes the jobs meaningful.
(8) The responsibility of a worker is fixed through MBO.

3.15 MEANING OF STAFFING

Earlier staffing was considered to be a part of organization function of management. It is
now recognized as a separate management function. The reason for separating the
staffing from organizing is to give proper emphasis to the actual meaning of managerial
roles. Today the staffing function has assumed greater importance because of rapid
advancement of technology, increasing the size of the organization and complex
behaviour of human beings. The enterprise has to give due importance to human resource
planning.
It is the tendency in modern enterprises to create a separate department. It is for this
purpose medium and large organizations have separate department known as personnel
department or human resource department to perform staffing function.
The organization structure spells out various positions of the organization. Filling and
keeping these positions with right people is the staffing phase of the management
function. Staffing involves the determination of manpower requirements of the enterprise

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and providing it with adequate competent people at all levels. The staffing function
performs the following sub functions:
(1) Manpower planning.
(2) Recruitment
(3) Selection of the best qualified from those who seeks job,
(4) Training and Development.
(5) Performance appraisal and compensation.
3.16 NATURE AND IMPORTANCE OF STAFFING
The staffing function has assumed greater significance these days because of various
factors. Staffing is also a pervasive function. Through separate department exist for this
yet every manager is engaged in performing the staffing function, when they participate
in selection, training and evaluating their subordinates. The various reasons which have
increased the significance of staffing functions are discussed below:
(1) Increasing size of organization: Advancement in science and technology has
given rise to large scale companies employing thousands of employees. The
performance of the company depends on the quality and character of the people.
This has increased the importance of staffing.
(2) Advancement of technology: In order to make use of latest technology, the
appointment of right type of persons is necessary.
(3) Long-range needs of manpower: In some industries, labour turn-over is high.
The management is required to determine the manpower requirement well in
advance. Management has also to develop the existing personal for future
promotion. The role of staffing has also increased because of shortage of good
managerial talents.
(4) Recognition of human relations: The behaviour of individuals has become very
complicated and hence human aspect of organization has become very
important. Employees are to be motivated by financial and non-financial
incentives. Right kind of atmosphere should also be created to contribute to the
achievement of organizational objectives. By performing the staffing function,
management can show the significance it attaches to the man power working in
the enterprise.

3.17 RECRUITMENT
Recruitment is the process of identifying the sources for prospective candidates and to
stimulate them to apply for the jobs. It is a linking activity that brings together those
offering jobs and those seeking jobs. Recruitment refers to the attempt of getting
interested applicants and providing a pool of prospective employees so that the
management can select the right person for the right job from this pool.
The various sources of recruitment are divided into two categories:

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(1) Internal Sources.

(2) External Sources.
Internal sources involve transfer and promotion. Transfer involves the shifting of an
employee from one job to another. Many companies follow the practice of filling higher
jobs by promoting employees who are considered fit for such positions. Filling higher
positions by promotion motivates employees, boots employee’s morale.
66 // Management and
Entrepreneurship External
Sources
(1) Direct recruitment: An important source of recruitment is direct recruitment by
placing a notice on the notice board of the enterprise by specifying the details of
the jobs available. This is also known as recruitment at factory gate.
(2) Unsolicited applications: Many qualified persons apply for employment to
reputed companies on their own initiative. Such applications are known as
unsolicited applications.
(3) Advertising: Large enterprises particularly when the vacancy is for higher post
or there are large number of applications use this source where advertisements
are made in local and national level newspapers. This helps in informing the
candidates spread over different parts of the country. The advertisement contains
information about the company, job description, and job specialization etc.
(4) Employment agencies: This is the good source of recruitment for unskilled and
semiskilled jobs. In some cases, compulsory notification of vacancies of
employment exchange is required by the law. The employment exchanges bring
job givers in contact with job seekers.
(5) Educational institutions: Many jobs in business and industries have become
increasingly varied and complex which need a degree in that particular area.
That is why many big organizations maintain a close liaison with the colleges,
vocational institutes and management institutions for recruitment of various
jobs.
(6) Labour contractor: Often unskilled and semiskilled workers are recruited
through labour contractors.
(7) Recommendations: Applicants introduced by friends, relatives and employees of
the organization may prove to be a good source of recruitment. Many employers
prefer to take such persons because something about their background is known.

3.18 SELECTION
The process of selection leads to employment of persons having the ability and qualifi-
cations to perform the jobs which have fallen vacant in an organization. It divides the

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candidates into two categories; those will be offered employment and those who will not
be. The basic purpose of the selection process is choosing right type of candidates to man
various positions in the organization. In order to achieve this purpose, a well, organized
selection procedure involves many steps and at each step more and more information is
obtained about the candidates. The steps involved in selection procedure are discussed
below.
(1) Receipt of applications: Whenever there is vacancy, it is advertised or enquires
are made from suitable sources and applications in standard form are received
from the candidates. The applications give preliminary idea of the candidates
like age, qualifi- cations, experience etc., Standard forms make the application
processing very easy.
(2) Screening of applications: Applications received from the candidates are
screened by the screening committee and a list of candidates to be interviewed is
prepared. Applicants can be called for interviews on some specific criterion like
sex, desired age group experience and qualification. The number of candidates
to be called for interview is five to seven times the number of vacant positions to
be filled.
(3) Employment tests: Employment tests help in matching the characteristics of
individuals with the vacant jobs so as to employ the right kind of people.
Intelligent tests, Aptitude tests, proficiency tests, personality tests, interest tests
etc. may be used for this purpose.
(4) Interviews: The employment tests do not provide the complete set of information
about the candidate. Interview may be used to secure more information about the
candidate. The main purpose of interview is to find out the suitability of the
candidate, to seek more information about the candidate, to give an accurate picture
of the job with details of terms and conditions. In addition, interview help to check
the information given by the applicant in the application and to assess the capability
and personality of the applicant. For senior positions, interviews may be in several
stages. The preliminary interview is conducted by head of the department and the
final interview is conducted by the selection committee consisting of chairman of the
organization, head of the department, personal manager and outside experts. After all
the candidates have been interviewed, a panel is proposed. The number of persons in
the panel is generally about two to three times the number of vacancies to be filled
up.
Background investigation and medical examination: Prior to final selection, the
prospective employer normally makes an investigation about applicants past
employment, education, personal reputation, police record etc., Medical and physical
examination has three objectives:
(1) It serves to ascertain applicant’s capabilities to meet the job requirement.
(2) It serves to protect organization against the unwarranted claims under works-
man compensation.

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(3) It helps to prevent communicable deceases entering the organization.

A proper medical examination will ensure standards of health and physical fitness of
the employees and reduce the rates of accidents, labour turnover and absenteeism
Final selection: After a candidate has cleared all the hurdles in the selection
procedure, he is formally appointed by issuing him an appointment letter or by
concluding with him a service agreement. The appointment letter contains the terms and
conditions of employment, pay scale and other benefits associated with the job.

QUESTIONS

➢ Explain in brief the meaning of organizing.

➢ Discuss the steps involved in organizing.
➢ Explain in brief the nature of organization.
➢ Discuss the purpose of organization.
➢ Write a note on principles of organization.
➢ Explain in brief the various types of departmentation.
➢ Explain the following with it's merits and demerits
➢ Line organization.
➢ Functional organization.
➢ Line and staff organization.
➢ Committee organization.
➢ What do you mean by span of control? Explain the factors affecting span of it.
➢ Distinguish between
➢ Authority and responsibility.
➢ Delegation and decentralization.
➢ Authority can be delegated but not responsibility. Comment on this statement.
➢ Explain in brief the centralization and decentralization.
➢ Write a note on Management by objectives.
➢ Explain the features of MBO.
➢ Explain in brief the steps involved in MBO.
➢ Write a note on benefits of MBO.
➢ Explain in brief the nature and importance of staffing.
➢ Explain various sources of recruitment.
➢ Explain the steps involved in selection process.

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Directing and controlling

4.1 MEANING AND NATURE OF DIRECTION
Direction is a vital managerial function, performed by every manager. Whenever
decision is taken, it must be converted into action by proper implementation. Otherwise,
it is of no use. Effective implementation of a decision is made possible by directions.
Planning, organizing and staffing are concerned only with the preparation for work
performance and it is the direction which stimulates the organization and it’s staff to
execute the plans. Hence, it is also called ‘management-in-action’. Every manager gives
direction to his subordinates as superior and receives directions as subordinate from his
superior.
Direction may be defined as a function of management which is related with
instructing, guiding and inspiring human factor in the organization to achieve
organizational mission and objectives. There are three elements of direction, namely
communication leadership and motivation. According to Koonz and O’Donnel,
“Direction is a complex function that includes all those activities which are designed to
encourage subordinates to work effectively and efficiently in both the short and long
term”.
In the words of Theo Haimann, “Directing consists of the process and techniques
utilized in issuing instructions and making certain that operations carried on of originally
planned”.
The functions of direction involve two major activities:
(1) Giving orders to employees
(2)Leading and motivating them
The order is a device employed by a line manager in directing his immediate
subordinates to start an activity, stop it or to modify it. A staff executive does not issue
orders. The orders should be clear and complete, compatible with the purpose of
organization and with the personal interest of the organization. Motivation arises interest
in the subordinates and leading channelise the efforts of the subordinates in the right
direction.

4.2 PRINCIPLES OF DIRECTING

While directing a manager should understand the needs, motives and attitudes of his
subordinates. The following principles of directing may be useful to a manager.
(1) Harmony of objectives: Individuals and organization have their own objectives.
The management should coordinate the individual objectives with the organiza-
tional objectives. Directions can integrate their objectives with organizational
objectives.
(2) Unity of direction or command: An employee should receive orders and

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instructions only from one superior. If not so, there may be indiscipline and
confusion among subordinates and disorder will ensue.
(3) Direct supervision: Managers should have direct relationship with their sub-
ordinates. Face to face communication and personal touch with the subordinates
will ensure successful direction.
(4) Effective communication: The superior must ensure that plans, policies,
responsibilities and orders are fully understood by the subordinates in the right
direction.
(5) Follow through: Direction is a continuous process. Mere issuing orders or
instructions are not an end itself. Follow is necessary, so the management should
watch whether subordinates follow the orders and whether they face difficulties
in carrying out the orders or instructions.

4.3 LEADERSHIP AND LEADERSHIP STYLES

The success of a business concern depends upon the ability of its leadership. For example
Microsoft, Reliance, Mittal Steels would not have attained their present success but for
the able leadership of Bill Gates, Dheerubai Ambani and Lakshmi Mittal. Every
enterprise may have will to do, but this will to do is triggered by leadership. According to
Koontz and O’Donnel, “leadership is generally defined as influence, the art of process of
influencing people so that they will strive willingly towards the achievement of group
goals”. A leader is one who guides and directs other people. In the words of Alford and
Beatty, “Leadership is the ability to secure desirable actions from a group or followers
voluntarily without the use of coercion”. A clear distinction can be made between a
leader and a manager. A leader emerges out from situations where as a manager is put
into his position by appointment. A leader has informal power and a manager has formal
power. A leader seeks those very objectives which are the objectives of his subordinates
where as a manger seeks those objectives which his subordinates do not regard their own.
The leaders while influencing the subordinates perform the following functions:
(1) Taking initiative: A leader has to take all initiative to lead the business
activities. He himself should come in the field and take all steps to achieve
predetermined targets. Hence a leader is initiator.
(2) Guide: A leader has the primary duty of guiding others by communicating
instructions and orders.
(3) Representation: A leader is a representative of the organization.
(4) Encouraging others: A leader is the captain of the team. Encouragement is
necessary to build team work. The leader must win the confidence of his
colleagues.
(5) Arbitrator and mediator: A leader has to create a smooth relationship among
employees. In addition, he has to settle disputes arising among employees.
(6) Planner: A leader makes decisions concerning the ways and means by which

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the organizational goals can be achieved.

(7) Administrator of rewards and punishments: Leaders encourage, upgrade,
promote deserving people and reprove, transfer and fine inefficient workers.

Leadership Styles
Leadership styles are the patterns of behavior which a leader adopts in influencing the
behavior of his followers (subordinates in the organizational context). These patterns
emerge in the leader as he begins to respond in the same fashion under similar
conditions: he develops habits of actions that become some what predictable to those
who work with him. Various researchers have proposed different leadership styles. These
styles are either based on either behavioural approach or situational approach as follows.
Based on behavioural approach

(1) Power generation

(2) Leadership as a continuum
(3) Employee-production orientation
(4) Likert’s management system
(5) Managerial grid
(6) Tri-dimensional grid
Based on situational approach
(1) Fiedler’s contingency model
(2) Hursey and Blanchard’s situational model
(3) Path-goal model
Leadership styles are also broadly classified based on three points of view:
Motivation, Authority and supervision. On the basis of motivation leadership style can be
positive or negative style. In positive style a leader motivates his followers to work hard
by offering them rewards, for example, higher bonus. In negative styles, a leader forces
his followers to work hard and punishes them for lower productivity.
On the basis of Authority, leadership styles are divided into three types namely
autocratic, democratic and free-rein.
Autocratic leadership: An autocratic leader is one who dominates and drives his
subordinates through coercion, command and the instilling of fear in his followers. An
autocratic leader alone determines policies, plans and makes decisions. He demands strict
obedience. Such leaders love power and love to use it for promoting their own ends.
They never like to delegate their power for they fear that they may loose their authority.
The merits of this type of leadership is that, it can increase efficiency, save time, and
get quick results under emergency conditions, chain of command and division of work
are clear.

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The demerits are people are treated machine-like cogs without human dignity, one
way communication without feedback and the leader receives little or no input from his
sub-ordinates for his decision-making which is dangerous in the current dynamic
environment.
Democratic leadership: This style of leadership is also known as participative
leadership. As the name itself indicates, in this style, the entire group is involved in goal
setting and achieving it. A democratic leader follows the majority opinion as expressed
by his group. Subordinates have considerable freedom of action. The leader shows
greater concern for his people’s interest, is friendly and helpful to them. He is always
ready to defend their subordinates individually and collectively. This type of leadership
encourages people to develop and grow, receives information and ideas from his
subordinates to make decisions, and boosts the morale of employees. The demerits of this
type of leadership are (1) Some leaders may use this style as a way of avoiding
responsibility, (2) Can take enormous amount of time for making decisions.
Free-rein: In this type of leadership, the leaders exercise absolutely no control. He
only provides information, materials and facilities to his subordinates. This type of
leadership is employee centered and the subordinates are free to establish their own goals
and chart out the course of action. This type of leadership can be disaster if the leader
does not know well the competence and integrity of his people and their ability to handle
this kind of freedom.
Fig 4.1 shows the spectrum of leadership styles where at one end there is no freedom
for people and full freedom at the other.
4.4 MOTIVATION
A manager gets work done through others. Getting the work done depends mainly on
whether a person has been motivated to do it. Motivating an employee is to create a need
and a desire on the part of employee to better his performance. This can be done by
creating in him a sense of responsibility and feeling of special interest in his work.
Motivation concern itself with ‘will to work’. It is a behavioural concept by which a
manager tries to understand why people behave as they do. Motivation is inspiring the
subordinates to contribute with zeal and enthusiasm towards organizational goals.
Performance of an employee depends on two factors, ability to work and willingness to
work. Mathematically
Performance = Ability x willingness Motivation is enhancing the willingness to work
which improves the performance.

Motivational Theories
What can enhance the willingness to work are explained by a number of motivational
theories as discussed below.
Maslow’s Need Hierarchy Theory
Every person has a variety of needs, some of these needs are satisfied and others are
unsatisfied. An unsatisfied need is the starting point in the motivation process. When a
person has an unsatisfied need, he attempts to identify something that will satisfy the

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need. This is called as goal. Once a goal has been identified, he takes action to reach that
goal and thereby satisfy the need. A.H. Maslow has identified five categories of need
which are arranged in hierarchy.

(1) Physiological needs: These are the basic needs for sustaining human life itself,
such as food, water, shelter and sleep. Maslow took the position that until these
needs are satisfied to the reasonable degree necessary to maintain life, other
needs will not motivate people.
(2) Security or safety needs: People want to be free of physical danger and of the
fear of losing job, property or shelter.
(3) Social needs: Since people are social being, they need to belong, to be accepted
by others.
(4) Esteem needs: Once people begin to satisfy their need to belonging, they tend to
want to be held in esteem both by themselves and by others. This kind of need
produces such satisfaction as power, prestige and status.
(5) Self-actualization needs: It is desire to become what one is capable of
becoming- to maximize one’s potential and to accomplish something.
According to Maslow, people attempt to satisfy their physical need first. As long as
the needs are unsatisfied, they dominate behavior. As they become reasonably satisfied,
they loose their motivational power and the next level i.e., security needs becomes the
dominant motivational force. This process continues up the need hierarchy.
Hertzberg’s Two Factors Theory
Fredrick Hertzberg and his associates have proposed a two factors theory of motivation.
In one group of needs are such things as company policy and administration, supervision,
working conditions, interpersonal relations, salary, job security and personal life. These
are called as dis-satisfiers and not motivators. If they exist in a work environment, they
yield no dissatisfaction. Their existence does not motivate but their absence result dis-
satisfaction. Hertzberg called these factors as hygiene or maintenance factors. The second
group he listed certain satisfiers and therefore motivators, which are related to job
content. They include achievement, recognition, challenging work, advancement and
growth in the job.
The first group of factors (the dissatisfiers) will not motivate in the organization, yet
they must be present otherwise dissatisfaction will arise. The second group or the job
content factors are real motivators because they have the potential of yielding a sense of
satisfaction. It means managers must give considerable attention to upgrading job content

Table 4.1: Hygiene factors and motivators

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Hygiene factors Motivators

Status Challenging work
Interpersonal relations Achievement
Quality of supervision Responsibility
Company policy and administration Growth in the job.
Working conditions Advancement
Job security Recognition
Salary

Vroom’s Expectancy Theory

According to Victor H. Vroom, people’s motivation towards doing anything will be
determined by the value they place on the outcome of their effort multiplied by the
confidence they have that their efforts will materially aid in achieving a goal. Motivation
is a product of anticipated worth that an individual places on a goal and the chances he or
she sees of achieving that goal. Using his own terms Vroom’s theory may be stated as
Force = Valence x Expectancy
Where force is the strength of a person’s motivation, valance is the strength of an
individual performance for an outcome and expectancy is the probability that a particular
action will lead to a desired outcome. When a person is indifferent about achieving a
certain goal, valance is zero. Valance is negative when the person do not achieve goal. In
either case there is no motivation. Similarly, there is no motivation to achieve a goal if
expectancy is zero or negative. The force exerted to do something depends on both
valance and expectancy. A motive to accomplish some action is determined by the desire
to accomplish something else. For example, a person may be willing to work hard to get
out a product for a valance in the form of pay valance.
Adam’s Equity Theory
This theory points out that people are motivated to maintain fair relationship between
their performance and reward in comparison to others. For the comparison of his
performance and reward with others people use equity. Equity refers to individual’s
subjective judgements about the fairness of the reward he or she gets. In this theory
equity is defined of as a ratio between the individuals job inputs (such as effort, skill,
experience, education and skill) compared to the rewards others are receiving for similar
job inputs.
If people feel that many are inequitably rewarded, they may be dissatisfied, reduce
the quantity and quality of work or leave the organization. They also can ask for a greater
reward. If people perceive the reward as equitable, they probably will continue at the
same level of output. If people think the rewards are greater than what is considered
equitable, they may work harder. These three situations are illustrated in fig 4.3.
In practice many overestimate their own contributions and the rewards other receive.
Certain inequalities may be tolerated for some time by employees. But prolonged
feelings of inequity may result in strong reactions.

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McClelland’s Need Theory

According to McClelland, the three important needs are; the need for achievement, the
need for affiliation and the need for power. The need for affiliation reflects a desire to
interact socially with people. A person with high need for affiliation is concerned about
the quality of an important personal relationship. A person, who has a high need for
power, concentrates on obtaining and exercising power and authority. The person is
concerned with influencing other and winning arguments. A person with need for
achievement is concerned with setting moderately difficult but potentially achievable
goals. He does most of the things himself rather than getting them done by others.
If the needs of the employees can be accurately measured, organizations can improve
the selection and placement process. For example, an employee with high need for
affiliation could be placed in a position that would enable the person to achieve. Thus, it
is important to identify the behaviours required to perform a set of tasks effectively, and
then to determine what individual characteristics are most associated with these
behaviours.
Carrot and Stick Approach
Carrot and Stick approach of motivation comes from the old story that the best way to
make a donkey move is to put a carrot out in front of him or job him with a stick from
behind. The carrot is the reward for moving and the stick is the punishment for not
moving. The carrot and stick approach of motivation takes the same view. In motivating
people for behaviour that is desirable, some carrots, rewards are used such as money,
promotion and other financial and non-financial factors; some sticks, punishments are
used to push the people for desired behaviour.
Though in various theories of motivation, the terms carrot and sticks are avoided,
these still form the basis of motivation if administered properly. The role of carrots has
been adequately explained in various theories of motivation when these analyze what
people want to get from their performance that is the positive aspect of behavior and its
rewards. Such rewards may be financial or non-financial. The stick also pushes people to
engage in positive behaviour or overcoming negative behaviour. The mixture of both
carrot and stick should be used judiciously so that both have positive affects on the
motivational profile of the people in the organization.
Skinner’s Reinforcement Theory
Psychologist B.F. Skinner has developed another approach for motivation called as
positive reinforcement or behaviour modification theory. According to his theory
individuals can be motivated by proper design of their work environment and praise for
their performance and that punishment for poor performance produces negative results.
They analyze work situations to determine what causes workers to act the way they do
and then they initiate changes to eliminate troublesome areas and obstructions to
performance. Specific goals are then set with workers participation and assistance,
prompt and regular feedback is made available, and performance improvements are

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rewarded with recognition and praise. Even when performance does not equal goals, way
are found to help people and praise them for good things they do. It has also been found
highly useful and motivating to give people full information on a company’s problems,
especially those in which they are involved.
This theory emphasizes removal of obstructions to performance, careful planning and
organizing, control through feedback, and the expansion of communication.

4.5 COMMUNICATION
The process of communication is as old as man himself. It is hard to name human activity
in which communication does not play an important role. This is truer in formal
reorganizations in which people assemble to achieve their common objectives through
their coordinated efforts. Individuals placed in various departments may perform
different activities but they are functionally interrelated. The working and maintenance of
these relationships is possible only through communication. In addition, communication
establishes connections of the organization with external community.
Communication means the process of passing information and understanding from
one person to another. It is defined as “the process of exchange of information, ideas and
opinions which bring about integration of interests aims and efforts among the members
of a group organized for achievement of predetermined goals.
Communication Process
Communication process involves the sender, the transmission of a message through a
selected channel and the receiver as show in fig. 4.4.
The sender of the message: Communication begins with a sender, who has a thought
or idea which is then encoded in a way that can be understood by both the sender and the
receiver. It is usual to think of encoding a message into the English language but there
are many other ways of encoding such as translating thought into computer language.
Use of channel to transmit the message: The information is transmitted over a
channel that links the sender and receiver. The message may be oral or written and it may
be transmitted through a memorandum, a computer, telephone, telegram or television.
Television of course also facilitates the transmission of gestures and visual clues. At
times, two or more channels are used. In a telephone conversation, for instance, two
persons may reach a basic agreement that they later confirm by a letter. Since many
choices are available, each with advantages and disadvantages, the proper selection of the
channel is vital for effective communication.
The receiver of the message: The receiver has to be ready for the message so that it
can be decoded into thought. The next step in the process is decoding in which the
receiver converts the message into thought. Accurate communication can occur only
when both the sender and the receiver attach the same or at least similar meanings to the
symbols that compose the message. Thus, it is obvious that a message encoded into
French required the receiver who understands French. Similarly, a message in technical
or professional jargon requires a recipient who understands such language. So
communication is not complete unless it is understood. Understanding is in both the

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sender and the receiver.

4.6 NOISE AND FEEDBACK IN COMMUNICATION

Unfortunately, communication is affected by ‘noise’ which is any thing-whether in the
sender, the transmission or the receiver that hinders communication. For example,
encoding may be faulty because of ambiguous symbols, inaccurate retention because of
inattention of the receiver, decoding may be faulty because of wrong meaning attached to
the words and symbols by the receiver or transmission may be interrupted which may be
experienced in a poor telephone connection.
To check the effectiveness of communication, a person must have feedback. One
never is sure whether or not a message has been effectively encoded, transmitted and
decoded or understood until it is confirmed by feedback. Similarly, feedback indicates
whether individual or organizational change has taken place as a result of
communication.

4.7 IMPORTANCE OF COMMUNICATION

The purpose of communication is to effect change, to influence action towards the
welfare of the enterprise. Communication is essential because, it integrates the
managerial function. Fig 4.5 graphically shows not only communication facilities the
managerial functions but also that communication relates an enterprise to its external
environment. It is through information exchange that manager become aware of the
needs of the customer, the availability of suppliers, the claims of stakeholders etc. The
communication is important because of the following:
(1) Every aspect of manager’s job may it be planning, organizing, staffing, directing
and controlling involves communication. Researches have shown that about 75
per cent of the manager’s time is spent in communication.
(2) Nothing contributes so much to managerial effectiveness as effective communi-
cation. Managers do not deal with ‘things’ but with ‘information about things’.
(3) However, the decision at the top are, they will serve no purpose unless the
manager successfully communicate the implications of these decisions to the
subordinates who are to implement them.
(4) Communication is the essence of organized activity. It is the basis of direction
and leadership. The managers have to communicates to give instructions, orders,
to assign jobs and to fix responsibility.
(5) Communication renders the complexity of business intelligible and workable.
(6) The better the communication, the more efficient the work performance. Good
communication not only obtains manager’s effectiveness but organizational
effectiveness.
(7) ‘Communication network’. The channels of communications are divided into

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formal and informal channels. Accordingly, a communication may be formal or
informal communication.
(8) The paths of communication which are deliberately created and officially
recognized connecting various positions in the organization hierarchy are called
as formal channels. In formal communication information flows in formally
established channels and is concerned with work related matters. All orders,
instructions etc., are communicated to the subordinates through this channel.
(9) The path of communication which is not officially created is known as informal
channel. People who know each other talk together informally about the
happenings in the organization. People want to know what is going on in the
organization. When they are not kept informed through formal channels, they
seek information through informal channel (grapevine). The grapevine carries
the type of personal information not generally communicated through formal
channels.
4.9 TYPES OF COMMUNICATION
Based on the direction of flow of information communications are classified as upward,
downward and horizontal communication.
Downward communication: Downward communication flows from people at higher
level to those at the lower levels in the organizational hierarchy. The purpose of
downward communication is to communicate policies, procedures, programs and
objectives and to issue orders and instructions to subordinates.
Upward communication: Upward communication travels from subordinates to
superiors. Upward communication is generally nondirective. Typical means of upward
communications are suggestion systems, appeal and grievance procedures, complaint
systems etc.
Horizontal communication: It refers to transmission of information among positions
of the same level. Horizontal communication helps to coordinate the activities of
different departments. The production foreman and the maintenance foreman
communicate directly without going through their managers. In this way horizontal
communication avoids the much slower procedure of directing communication through a
common superior.

4.10 FORMS OF COMMUNICATION

Broadly speaking there are three forms of communications: Oral, written and nonverbal.
Oral communication: In oral or verbal communication, information is given directly,
either face to face or through a telephone or intercom system. Generally in meeting,
lecturers, interviews, conferences etc., the communication is oral. The oral communi-
cation saves time and money, involves personal touch, doubt can be clarified
immediately. The demerits of oral communications are there is no permanent record of
communication and is not suitable for lengthy communication.
Written communication: Written communication is always in black and white and
may be in the form of a report, statement, circular, manual, handbook, letter or memo.

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The merits of written communication are

(a) It is a permanent record.
(b) It is suitable for lengthy communication.
(c) If the parties are far away beyond telephonic range, written communication is the
only way.
The demerits of written communications are it is not flexible and secrecy cannot be
maintained and time consuming.
Non-verbal communication: Non-verbal communication is expressed through the body -
the facial expression, posture, gestures etc.

4.11 COORDINATION
The basic function of coordination in an enterprise is the same as that of an orchestra
conductor who directs the activities of the orchestra party in such a manner that it
produces harmony in music. Likewise the coordinator of an enterprise also directs the
activities of the group in such a manner that it brings harmonious and unified actions to
achieve common purpose. Like the orchestra conductor, a manager also performs the
function of securing and maintaining unity of direction throughout the organization. In
the words of Mooney and Raley, “Coordination is the orderly arrangement of group
efforts to provide unity of action in pursuit of a common purpose”. Some experts
consider coordination as a separate management function. However, coordination might
best be considered not as a separate function, but as an essential part of all managerial
functions of planning, organizing, directing and controlling. If a manager performs these
functions efficiently and expertly, coordination is generated automatically and there
remains no need for special coordination as such.

4.12 COORDINATION AND COOPERATION

The terms ‘coordination’ and ‘cooperation’ cannot be used interchangeably because they
have got different meanings. Coordination is an orderly arrangement of group efforts to
provide unity of action in the pursuit of common objectives. It is a process of deliberately
bringing together the efforts of various components of an enterprise in order to give them
unity of purpose. Cooperation denotes the collective efforts by the persons working in the
enterprise voluntarily for accomplishing a particular purpose. It is the willingness of the
individuals to help each other. Thus, it is obvious that the concept of coordination is
broader in scope than that of cooperation. The differences between cooperation and
coordination are given in table 4.2.

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Table 4.2: Distinction between coordination and cooperation

Basis Coordination Cooperation

1. Definition It is a deliberate effort by a managerIt is voluntary attitude of
organization members
2. Purpose It is an orderly arrangement of group It denotes collective efforts
efforts to provide unity of action in of the group contributed
the pursuit of common objectives. voluntarily to accomplish a
particular objective.
3. Relations It is achieved through both formal Cooperation arises out of
and informal relations. informal relations.
4. Result Coordination seeks whole hearted Cooperation without
support of employees and coordination is fruitless.
departments

4.13 IMPORTANCE OF COORDINATION

An organization is a consciously coordinated system of cooperative human endeavor
focused towards achievement of certain goals. The need of cooperation arises because
‘what one can do, two can, what one can do, two can do better’. The need for
coordination arises due to differential perceptions, orientation, interests and attitudes of
individual members of the organization. In the absence of coordination, members are
likely to pull in different directions; there may also be destructive conflict of interests and
goals. Coordination is intended to channelize cooperative efforts and behaviour of people
along organizationally determined lines and to contain the possibilities of conflict within
tolerable limits.
An organization represents a pooling of diverse resources and facilities, adopted of
diverse skills, techniques, processes and practices determination and achievement of
diverse goals and initiation of diverse activities. Diversity demands unity. To manage
diversity means to bring about unity or unification. Otherwise diversity is likely to lead to
disintegration. The managerial function of coordinator, strives for desired degree of
unity, without destroying diversity.
Apart from differentiation of activities and authority, organization goals are differen-
tiated into sub goals among various units and levels of organization. Organizational goals
are also operationalised into strategies, policies, plans and programmes. There is a
means- end chain in the organization. At every level goals are operationalised into means
of achieving them. Means of higher level units become the goals of next lower unit.
There is need for consistency and compatibility among the various elements in the
means- ends chain. Sub-goals are to contribute to the overall goals. Means are to match
ends. Short term goals are to mesh in with long-term goals. The coordination is important
to achieve correlation between means and ends.

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4.14 TECHNIQUES OF COORDINATION

Managers can use a number of techniques to enlist coordination. Some of the techniques
of coordination are discussed below:

1. Clearly Defined Objectives

Each and every organization has its own objectives. These objectives would be clearly
defined. Then the employees of all the organization should understand the objectives of
the organization well. Unity of purpose is a must for achieving proper coordination.

2. Effective Chain of Command

There is a line of authority in every enterprise which indicates as to who is accountable to
whom. The line of authority and responsibility should be clearly defined to achieve
coordination. Clear cut authority relationship help in reducing conflicts among different
positions, particularly line and staff which is essential for sound coordination.

3. Precise and Comprehensive Programmes and Policies

Laying down well defined programmes and policies is another measure for achieving
effective coordination. This brings uniformity of actions because everybody understands
the programmes and policies in the same sense.

4. Planning
Planning ensures coordinated efforts. Under planning, target of each department dovetail
with the targets of all other departments. For example fixing the target of 50,000 units of
additional production and sale for production and sales department respectively, the head
of the organization can be fairly sure that the work of the two departments would be
coordinated since their targets so demand.

5. Cooperation
Cooperation is the result of better relations among employees of the organization.
Cooperation can be brought about by keeping harmonious relations among the people in
the organization by encouraging informal contacts to supplement formal communication
and using committees for exchange of ideas and views at the top level.

6. Liaison of Officers/Departments
A person who acts as a link between two persons is called a liaison officer. The external
coordination is obtained through him. Many large organizations depend on this officer to
maintain cordial relations with government and outsiders. 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. For
example, a packaging company that is processing a large order of containers might have
a liaison department to make sure that the production department is meeting the clients
specifications and that the delivery will take place on time.

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7. Induction
Inducting the new employee into the new social setting of his work is also a coordinating
mechanism. This device familiarizes the new employee with the organization’s rules and
regulations, its dominant norms of behavior, values and beliefs and integrates his
personnel goals with the organizational goals.

8. Incentives
Incentives may be in the form of increments in the scale of pay, bonus, profit sharing etc.
These schemes of incentives promote better team spirit which subsequently ensures
better coordination. In particular, profit sharing promotes team spirit and better
cooperation between superiors and subordinates, between employees and employers.
Mutuality of interest reduces stride and ensures better coordination.

9. 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 is largely shaped by
technological, economic and social considerations and helps in coordination.

4.15 MANAGERIAL CONTROL

‘Control’ is an important concept and process in management. In the past managers
believed that the necessity of control arose only when something went wrong. Then, the
object of control was to find out the person responsible for these events and take actions
against him. This is only negative view of control. In modern management, the primary
object of control is to bring to light the mistakes or variations as soon as they appear
between performance and standard laid down and then to take steps to prevent such
variations in future. The control is aimed at results and not people as such. It’s purpose is
to assure that intended results occur and not that particular workers are reprimanded.
Only a continuous control (and not occasional and emergency control) can achieve the
objective.
According to E F L Brech, “Control is checking current performance against
predetermined standards contained in the plans, with the view to ensuring adequate
progress and satisfactory performance”. In the words of George R. Terry, “Controlling is
determining what is being accomplished, that is, evaluating the performance and if
necessary applying corrective measures so that the performance takes place according to
plans”. To draw an analogy, it is like a thermostat in an air conditioning system which
ensures that predetermined temperature is maintained.
The concept of control is often confused with lack of freedom. The opposite of
control is not freedom but chaos or anarchy. Control is fully consistent with freedom. In
fact they are interdependent. Without control freedom cannot be sustained for long.
Without freedom control becomes ineffective. Both autonomy (freedom) and
accountability are embedded in the concept of control.

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4.16 STEPS IN A CONTROL PROCESS

There are three basic steps in a control process namely establishment of standards,
measurement of performance and comparing the performance with the standards and
taking corrective action.
1. Establishment of standards: The first step in control process is the setting up of
standards of performance. A standard acts as a reference line or a basis of actual
performance. Standards should be set precisely and in quantitative terms. Standards
expressed in vague or general terms such as “Costs should be reduced” or “rejections
should be reduced” are not specific as “cost should be reduced by 10 percent” or
“rejections should be reduced to 0.5 percent”. Standards are used as the criteria or
benchmarks by which performance is measured in the control process. Since standards
cannot be set for entire operations, each organization must first develop its own list of
key result areas for the purpose of control. Different standards of performance are set up
for various operations at the planning stage. As a matter of fact, planning is the basis of
control.
Standards are to be flexible in order to adopt changing conditions. For example, a
new salesman who seems to be an above average performer should have his sales
standard adjusted accordingly. Every objective, goal, policy, procedure and budget
becomes a standard against which actual performance might be measured. However, in
practice different types of standards used are:
(1) Physical standards such as units of production per hour.
(2) Cost standards, such as direct and indirect cost per unit.
(3) Revenue standards such as sales per customer.
(4) Capital standards such as rate of return of capital invested.
(5) Intangible standards such as competency of managers and employees.
2. Measuring and comparing actual performance with standards: The second step
in the control process is measuring the actual performance of individuals, group or units
and comparing it with the standards. The quantitative measurement should be done in
cases where standards have been set in numerical terms. This will make evaluation easy
and simple. In all other cases, the performance should be measured in terms of qualitative
factors as in the case of performance of industrial relations manager. His performance
should be measured in terms of attitude of workers, frequency of strikes and morale of
workers. In general, measurement of performance can be done by personal observation as
in the case of the subordinates being observed while they are engaged in work or by a
study of various summaries of figures, reports, charts and statements.
Once the performance is measured, it should be compared with the standards to
detect deviations. Some deviations are desirable such as the output above the standard.
But some other variations are undesirable such as a variation in the delivery schedule

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agreed upon with the customer. The measurement and comparison are to be made at
various stages in the total process and not at the end.
3.
Taking corrective action: The final step in the control process is taking corrective
action so that deviations may not occur again and the objectives of the organization are
achieved. This will involve taking certain decisions by the management like replanning
or redrawing of goals or standards, reassignment or classification of duties. It may also
necessitate reforming the process of selection and training of workers. This control
function may require change in all other managerial functions. If the standards are found
to be defective, they will be set up again in the light of observations. Joseph Massie has
pointed out that a manager may commit two types of mistakes at this stage. The first is,
he may take action when no action is needed. The second is he may fail to take action
when some corrective action is needed. A good control system should provide some basis
for helping the manager estimate the risks of making either of these types of errors. Of
course, the final test of a control system is whether correct action is taken at the correct
time.

4.17 ESSENTIALS OF A SOUND CONTROL SYSTEM

The essentials of a sound control system are as follows:
(1) Suitable: The control system should be appropriate to the nature and needs of the
activity. For example, a machine based method of production requires control
system which is different from the system that is used in labour intensive methods of
production. Thus every enterprise should develop such a control system it would
serve its purpose.
(2) Timely and forward looking: The control system should be directed towards future.
It should report all the deviations from the standards quickly in order to safeguard
the future. The feedback system should be as short and as quick as possible. If the
control reports are not directed at future, they are of no use as they will not be able
to suggest the types of measures to be taken to rectify the past deviations.
(3) Objective and comprehensible: The control system should be both objective and
understandable. Objective controls specify the expected results in clear and definite
terms and leave little room for the argument by the employees. They provide
employees with direct access to any additional information which they may need to
perform their task. Employees are not made to go up and down the hierarchy to get
the information.
(4) Flexible: Control system should be flexible so that it can be adjusted to suit the
needs of any change in the environment. It should be adoptable to new
developments including the failure of the control system itself.
(5) Economical: Another requirement of a good control system is economy. The
benefits derived from the control system should be more than the cost involved in
implementing it.
(6) Control by exceptions: This is also known as “management by exception” according

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to this principle, only significant deviations from standards, whether positive or

negative requirement management as they constitute exceptions. An attempt to go
through all deviations tends to increase unnecessary work and decrease attention on
important problems.
(7) Prescriptive and operational: A control system in order to be effective and
adequate, must not only detect deviations, but should also provide solutions to the
problems that cause deviations. In other words, the system should be prescriptive
and operational. It must disclose where failures are occurring, who is responsible for
them and what should be done about them. It must focus more on action than on
information.
(8) Acceptable to organization members: The system should be acceptable to
organization members. When standards are set unilaterally by upper level managers,
there is a danger that employees will regard those standards of unreasonable or
unrealistic. They may then refuse to meet them.
(9) Motivation: A good control system should be employee centered. The control
system is designed to secure positive reactions from employees. If large
deviations are found, the employees will be properly directed and guided instead
of being punished. The very purpose of a control is prevention and not
punishing.

4.18 CONTROL METHODS

Control methods are broadly classified into two types namely past-oriented controls and
future oriented controls.
Past-oriented controls: Past-oriented control measure results after the process. These
are also known as post action controls. They examine what has happened in the past for a
particular period. Examples of past-oriented controls are accounting records, school grade
reports etc. These controls are used to plan future behaviour in the light of post errors or
successes. They can also be used for rewarding, disciplining, training or promoting
individuals.
Future-oriented controls: These are also known as feed-forward controls or steering
controls. These controls are designed to measure results during the process, so that action
can be taken before the job is done or the period is over. Feed-forward control 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 help
managers to see that they will have problems in such areas of cash or on time delivery
unless they take prior action.

These two types of controls are not alternatives to each other. Organizations use both
these types. Future-oriented controls are important because the information feedback in

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them is at the input side of the system, so that correction can be made before the system
output is affected as shown in figure 4.6 even with the use of past-oriented controls, a
manager would still want to measure final system output since nothing can be expected to
work perfectly enough to give the confidence that the final output will always be exactly
as is desired.
achievement of predetermined goals. Communication process involves the
sender, the transmission of a message through a selected channel and the receiver. The
communication may be formal or informal. Based on the direction of flow of
information, communication may be classified as upward, downward and horizontal.
Different forms of communication are oral, written and non-verbal.
Coordination deals with the task of blending efforts in order to ensure successful
attainment of an objective. Control is checking current performance against predeter-
mined standards contained in the plans with view to ensuring adequate progress and
satisfactory performance. Control involves three steps namely establishing standards,
measuring and comparing actual performance with standards and taking corrective
action.

QUESTIONS
(1) Explain in brief the meaning and nature of direction.
(2) What do you mean by leadership? Explain various styles of leadership.
(3) What do you understand by motivation? Why people are to be motivated?

(4) Explain in brief the following motivation theories.

(a) Maslow's need hierarchy theory.

(b) Hertzberg's two factors theory.

(c) Adam's equity theory.

(d) Mc Cleland needs theory.

(e) Skinner's reinforcement theory.

(5) With block diagram explain the communication process.

(6) Explainthe importance of feedback in communication.
(7) 'Without communication organization cannot function”.Justify the statement.
(8) Explainin brief formal and informal communication.
(9) Write a note on the followings
(a) Types of communication.

(b) Forms of communication.

(10) Define coordination. Distinguish it from cooperation.

(11) Write a note on the followings

(a) Importance of coordination.

(b) Techniques of coordination.

(12) Explain the steps involved in managerialcontrol.

(13) Explain the techniques of control.

(14) Explain in brief the essentials of good control system.

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MODULE-3
5.ENTREPRENEURSHIP
The world of Entrepreneurship and Entrepreneurs:
Most of you must have planned what you’ll be doing after finishing your studies,
and I’m sure, few of you would have made up your mind to start your own business or
enterprise. We’ll study the concept of entrepreneurship so that it helps in taking proper
decisions, while starting a new project.
The Concept of Entrepreneurship

Entrepreneurship is a process undertaken by an entrepreneur to augment his

businessinterests. It is an exercise involving innovation and creativity that leads towards
establishinghis/her enterprise. One of the qualities of entrepreneurship is the ability to
discover aninvestment opportunity and to organise an enterprise, thereby contributing to
real economicgrowth. It involves taking of risks and making the necessary investments
under conditions ofuncertainty and innovating, planning, and taking decisions so as to
increase production inagriculture, business, industry etc.Entrepreneurship is a composite
skill, the resultant of a mix of many qualities and traits -these. Include tangible factors as
imagination, readiness to take risks, ability to bring togetherand put to use other factors of
production capital, labour, land, as also intangible factors such asthe ability to mobilise
scientific and technological advances.A practical approach is necessary to implement and
manage a project by securing therequired licences, approvals and finance from
governmental and financial agencies. The personalincentive is to make profits from the
successful management of the project. A sense of costconsciousness is even more
necessary for the long-term success of the enterprise. However, bothare different sides of
the same coin.Entrepreneurship lies more in the ability to minimise the use of resources
and to put them to maximum advantage. Without an awareness of quality and desire for
excellence, consumeracceptance cannot be achieved and sustained. Above all,
entrepreneurship today is the product ofteamwork and the ability to create, build and
work as a team.
“Entrepreneurship is the propensity of mind to calculate risks with confidence to
achieve a pre-determined business or industrial objective. In substance, it is the risk-
taking ability of the individual, broadly coupled with correct decision—making”.The
entrepreneur is the maestro of the business orchestra, wielding his baton to which theband
is played.

Characteristics of Entrepreneurs

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1. Mental Ability - It consists of intelligence and creative thinking. An entrepreneur

must be reasonably intelligent, and should have creative thinking and must be able
to engage in the analysis of various problems and situations in order to deal with
them. The entrepreneur should anticipate changes and must be able to study the
various situations under which decisions have to be made.
2. Clear Objectives - An entrepreneur should have a clear objective as to the exact
nature of the business, the nature of the goods to be produced and subsidiary
activities to be undertaken. A successful entrepreneur may have the objective to
establish the product, to make profit or to render social service.
3. Business Secrecy- An entrepreneur must be able to guard business secrets.
Leakage ofbusiness secrets to tradeCompetitors is a serious matter, which should
be carefully guarded against by an entrepreneur. An entrepreneur should be able
to make a proper selection of his assistants.
4. Human Relation Ability - The most important personality factors contributing to
the successof an entrepreneur are emotional stability, personal relations,
consideration and tactfulness. Anentrepreneur must maintain good relation with
his customers if he is to establish relations thatwill encourage them to continue to
patronize his business. He must also maintain good relationswith his employees if
he is to motivate them to perform their jobs at a high level of efficiency.An
entrepreneur who maintains good human relation withcustomers, employees,
suppliers, creditors and the community is much more likely to succeed inhis
business that the individual who does not practice good human relations.
5. Communication Ability - It is the ability to communicate effectively. Good
communicationalso means that both the sender and the receiver understand each
other and are being understood.An entrepreneur who can effectively communicate
with customers, employees, suppliers and creditors will be more likely to succeed
than the entrepreneur who does not.
6. Technical Knowledge- An entrepreneur must have a reasonable level of
technicalknowledge. Technical knowledge is the one ability that most people are
able to acquire if the tryhard.

Concepts of entrepreneurship:
Entrepreneur traits, creativity, innovation, business planning and growth management are
five of the main concepts of entrepreneurship.
ENTREPRENEUR TRAITS
They classify these as the; "Great Person", Psychological, Classical, Management,
Leadership and Intrapreneurship schools of thought. "Great person" - Born entrepreneurs,
e.g. Fords, Rockefeller, Trump. Psychological - Entrepreneurial personality, behaviour
developed over time. Classical - Entrepreneurial key factors are innovation and creativity.
Management - Entrepreneurs can be developed or trained in the classroom. Leadership -

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Attract people to support a vision and transform it into reality. Intrapreneurship -
Encouraging people to work in semi-autonomous units.
They suggest that previous experience has an effect. These previous experiences
could be positive, such as role models and education, or they could be negative
displacements. Refugees and migrants may choose entrepreneurship if gaining
employment is difficult. Job dissatisfaction or job loss may be other stimuli to select
entrepreneurship.
CREATIVITY
Entrepreneurship can be partly described as a combination of creativity followed by
innovation, where creativity is the act of 'thinking' new things, coming up with ideas and
innovation is 'doing' new things or implementing the newly created ideas. Creativity is
also concerned with new ways of looking at opportunities and new approaches to solving
problems. This may require the entrepreneur to shift paradigms and discard old
assumptions and perspectives. Mukerjea(2003), in "Brain Symphony", describes sixteen
techniques that can be used by entrepreneurstostimulate.
Characteristics and Significance
A Function of High Achievement: People having high need for achievement are more
likely tosucceed as entrepreneurs, according to McClelland. Motive is high achievement
and profit is merely a measure of success and competency.
Innovation: According to Schumpeter, entrepreneurship is a creative activity. An
entrepreneur is basically an innovator who introduces something new into the economy.
Organization Building Function: According to Harbison, Organization Building skill
means the ability to “multiply oneself” by effectively delegating responsibility to others.
A Function of Managerial Skills and Leadership: Managerial skills and leadership
qualities are more important than financial skills.
A Function of Status Withdrawal: According to Hagen,” Creative innovation or change
is the fundamental feature of economic growth. He describes an entrepreneur as a creative
problem solver interested in things in the practical and technological realm.
Classification of Entrepreneurs :
Innovative Entrepreneurs-developed countries Aggressive assemblage of information
& analysing. Aggressive in experimentation and cleverly put attractive possibilities into
practice Sees opportunity for introducing a new technique, new product or a new market.
Raise money to launch an enterprise, assemble the various factors and choose top
executives and set the organisation going.
Imitative Entrepreneurs: Characterised by imitating the innovative entrepreneurs. They
imitate the technology & techniques innovated by others. They are important in
underdeveloped nations.
Adoptive or Imitative :Transform the system with the limited resources available. Face
less riskand uncertainty. Organizer of factors of production than acreator. He can set in
chain reaction andlead to cumulative progress.
Drone Entrepreneurs :Are laggards and operate in a traditional way. Conventional.

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Fabian Entrepreneurs :•Very cautious and sceptical while practicing any change.
•Neither thewill to introduce new changes nor the desire to adopt new methods. Shy and
lazyDon’t takerisks, Follow predecessors. Determined by custom, religion, traditions and
past practices. Theyimitate only in situations when it becomes absolutely necessary.
Functions of an Entrepreneur
Perceiving market opportunities,Gaining command over scarce resources,Managing
humanrelations within firms,Marketing of the products,Responding to the
competition,Dealing withbureaucracy, Managing finance,Upgrading process and product
quality,Managing costumer andsupplier relations,Introducing new production techniques
and products, Risk TakingOrganizationand management.
Qualities of a good entrepreneur
According to McClelland:An unusual creativeness,A propensity of risk taking,A strong
need forachievementAccording to Prof.Tandon : 1. Capacity to assume risks,2. Technical
Knowledge andwillingness to change 3.Ability to marshal resources,4.Ability of
organization andadministration.
Development of Entrepreneurship
We are a very young nation – just over 55 years since independence – setting out on apath
of sustained economic growth, for decades to come.We already have over a billion fellow
Indians. Within the next 20 years, we will have 400million people below the age of 35
years – more than the entire population of the United States.Each person, in this bold new
generation, will be in the prime of his or her life, striving for a better tomorrow –
creating, in the process, new growth opportunities, for budding entrepreneurs. On the
most conservative basis, our domestic consumption, in virtually any sector, has
thepotential to at least double, or treble, from current levels – perhaps, just to catch up
with a country like China. Then, there is the entire global opportunity, across diverse
sectors internationally, the "Made inIndia" tag is now an increasingly respected brand,
valued for quality, reliability, andcompetitiveness.Truly, with economic reforms inthe
country, and with the virtual removal of all trade barriers, the world is now our market –
and our opportunity. The pursuit of these opportunities requires an indomitable spirit of
entrepreneurship.
Scope of entrepreneurship development in India
In India there is a dearth of quality people in industry, which demands high level
ofentrepreneurship development programme throughout the country for the growth of
Indianeconomy.The scope of entrepreneurship development in country like India is
tremendous. Especially sincethere is widespread concern that the acceleration in GDP
growth in the post reforms period hasnot been accompanied by a commensurate
expansion in employment. Results of the 57th roundof the National Sample Survey
Organization (NSSO) show that unemployment figures in 2001-02 were as high as 8.9
million. Incidentally, one million more Indian joined the rank of theunemployed between
2000-01 & 2001-02. The rising unemployment rate (9.2% 2004 est.) inIndia has resulted
in growing frustration among the youth. In addition there is always problem

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ofunderemployment. As a result, increasing the entrepreneurial activities in the country is
the onlysolace. Incidentally, both the reports prepared by Planning Commission to
generate employmentopportunities for 10 crore people over the next ten years have
strongly recommended self-employmentas a way-out for teaming unemployed youth.
We have all the requisite technical and knowledge base to take up the
entrepreneurial challenge. The success of Indian entrepreneurs in Silicon Valley is
evident as proof. The only thing that islacking is confidence and mental preparation. We
are more of a reactive kind of a people. Weneed to get out of this and become more
proactive. What is more important than the skill andknowledge base is the courage to take
the plunge. Our problem is we do not stretch ourselves.However, it is appreciative that
the current generations of youth do not have hang-ups about theprevious legacy and are
willing to experiment. These are the people who will bring aboutentrepreneurship in
India.
We can take the example of Vikas Kedia - one of India's most eligible
entrepreneurs; he was barely 21 when he had turned his back on a possible $ 100,000-a-
year job. Vikas Kedia, agraduate from the Indian Institute of Management-Bangalore, is
much in demand. He has alsocreated history of sorts in the IIM circuit by starting his own
dot-com company in Bangalore,now he has his own company which is a California and
Kolkata based GRMtech. At present, there are various organizations at the country level
& state level offering support toentrepreneurs in various ways. The Govt. of India &
various State Govts. have beenimplementing various schemes & programmes aimed at
nurturing entrepreneurship over last fourdecades. For example, MCED in Maharashtra
provides systematic training, dissemination of theinformation & data regarding all aspects
of entrepreneurship & conducting research inentrepreneurship. Then there are various
Govt. sponsored scheme for the budding entrepreneurs.Recognizing the importance of the
entrepreneur development in economic growth &employment generation, Maharashtra
Economic Development Council (MEDC) has identifiedentrepreneurial development as
the one of the focus area for Council activities two years ago.Various Chambers of
Commerce & apex institutions have started organizing seminars &workshops to promote
entrepreneurship. Incidentally, various management colleges haveincorporated
entrepreneurship as part of their curriculum. This is indeed a good development.This
shows the commitment of the Govt. & the various organizations towards
developingentrepreneurial qualities in the individuals.
Promoting Entrepreneurship
In India, where over 300 million people are living below the poverty line, it is simply
impossiblefor any government to provide means of livelihood to everyone. Such
situations surely demandfor a continuous effort from the society, where the people are
encouraged to come up with theirentrepreneurial initiative.
Encouragement at attitudinal and social level
In the future, innovation and entrepreneurship needs to be encouraged at Social
levels,Governmental levels and Managerial levels. There must be a social attitude that
viewsinnovations with positive attitude and reject an innovation only when it is not

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acceptable.
Encouragement at physical level
At this level the encouragement will refer to two aspects necessary for entrepreneurship
to thrive,one is the provision of venture capital and the other being infrastructural support.
A real exampleis Export Processing Zones which are performing extremely well when
given the support.
Stages in entrepreneurial process:
Issuing an Initial Public Offering (IPO);Writing a Business Plan;Emailing a
QuestionnaireApplying for loans to finance the business;Conducting a Grand Opening for
thebusiness;Conducting taste tests at supermarkets;Studying market trends;Creating a 5-
year planfor the business;Selecting a location for the business;Looking for employees for
thebusiness;Conducting a demographic study of the business location;Listing potential
investors forthe business;Investigating patents for the business idea;Applying for a SBA
(Small BusinessAssociation) Loan;Matching your skills with market trends Conducting
daily businessactivities;Researching copyright protection for the business idea;Picking a
location for thebusiness; Examining consumer needs.
Role of entrepreneurs in Economic Development:
Serves as catalyst in the process of industrialization and economic growth.
•Capital wealth
•Increase in per capital income
•Employment Generation
•Development of new products, services and new businesses
•Improvement in living standards
Economic Development:•Backward Regional development
•Change in business structure andsociety
•Economic Independence/ Self Reliance
•Innovations.Reduces concentration of economicPower
•Promotes capital formation by mobilizing the idle saving of the public.
•Stimulatesequitable redistribution of wealth, income and political power.
•Promotes country’s export trade.

Entrepreneurship in India:
India was second among all nations in Total Entrepreneurship Activity as per the
GlobalEntrepreneurship Monitor Report of 2002. But after several years of data, India
appears tohave a TEA level rather close to the world average.India is ninth in the Global
Entrepreneurship Monitor (GEM) survey of entrepreneurialcountries. It is highest among
28 countries in Necessity based entrepreneurship, while 5thfrom the lowest in opportunity
based entrepreneurship.The liberalization, which was started in 1991, and the Information
Technology boom of themid-late 90’s, have been significant factors, leading to a wave of
entrepreneurship sweepingthrough the country.Indians have entrepreneurial capacity.
However the society and government are not veryencouraging towards entrepreneurship.

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 Industrial Management & Entrepreneurship (BME501)
To a large extent, the Indian society is risk averse.
People usually seek secure and long-term employment, such as government jobs.
The physical infrastructure needs to be improved. Social Attitudes, lack of capital,
inadequatephysical infrastructure and lack of government support are major factors of
hindrance.India is the fifth largest economy in the world (ranking above France, Italy, the
UnitedKingdom, and Russia) and has the third largest GDP in the entire continent of
Asia. It isalso the second largest among emerging nations. The liberalization of the
economy in the1990s has paved the way for a huge number of people to become
entrepreneurs.
Entrepreneurship – its Barriers:
Operating in a competitive and increasingly complex environment arguably
demands Entrepreneurial behavior and, of course, people who have the competencies to
work within such a context.“This is the entrepreneurial age. Entrepreneurs are driving a
revolution that is transforming and renewing economies worldwide. Entrepreneurship...
gives a market economy its vitality. New and emerging businesses create a very large
proportion of innovative products that transform the way we work and live... They
generate most of the new jobs” The core competencies of the firm are shaped by the
entrepreneur in a number of ways including: The individual’s capacity for the pursuit of
effective personal entrepreneurial behaviour The way they design the organisation to
maximise the potential for effective entrepreneurial behaviour by all staff.The way that
the entrepreneur shapes the capacity of the business to develop and innovate overtime
The way that they design the organisation to enable it respond to, and indeed shape,
thedynamics of the task structure and interdependencies confronting it.The degree to
which the above are pursued in a socially responsible way thus laying the groundfor
wider acceptance of entrepreneurial ‘ways of doing things’ in business and society.
Technopreneurship
High-tech and entrepreneurial skills are driving our economy back to prosperity.
Technopreneursip-merging technology prowess and entrepreneurial skills- is the real
source of power in toda's knowledge-based economy. A technopreneur distinguishes logic
from tradition, tradition from prejudice, prejudice from common sense and common sense
from nonsense while integrating a variety of ideas from diverse groups and disciplines.
Technopreneurship is not a product but a process of synthesis in engineering the future of
a person, an organization, a nation and the world. Strategic directions or decision-making
processes are becoming more demanding and complex. This requires universities, and in
site professional development programs and training to produce strategic thinkers who
will have skills to succeed in a rapidly changing global environment.
Creativity is breaking the conventional mental blocks and playing with
imagination and possibilities, leading to new and meaningful connections and
outcomeswhile interacting with ideas, people and the environment. Technopreneurship is
the onlysource of long-run sustainable competitive advantage. In an era of man-made
brainpowerindustries, individual, corporate, and national economic success will all
require both newand more extensive skills sets than have been required in the past . By

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themselves skillsdon't guarantee success. They have to be put together in successful

organizations. Butwithout skills and technopreurship there are no successful
organizations.

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MODULE-4
SMALL SCALE INDUSTRY

Small scale industry means an industry that employs capital less than 1 crore.
Almost allitems can be manufactured in a small scale industry, but there are large
scale manufacturingactivities like rolling mills, extrusion presses, pilger mills etc.,
that cost much more.
Role of SSI in Economic development:
Small scale industries are vital to economic development as they are more likely
tobecome economically viable in a short time period & offer an incremental boost
to the local economy. They are also more likely to sustain operations over a longer
time frame as they utilize a more community based sense of existence than some
of the monolithic entities which will relocate causing unemployment &
dissension. Larger industries have become victims of their own largess in many
cases & are unable to respond to changing times, & often don't have the ability to
respond to the rapidly changing economic environment we now must adhere to.
Objectives; Scope of SSI in Economic Development:
Objectives:
Production
The small-scale industries sector plays a vital role in the growth of the country. It
contributesalmost 40% of the gross industrial value added in the Indian
economy.It has been estimated that a million Rs. of investment in fixed assets in
the small scale sectorproduces 4.62 million worth of goods or services with an
approximate value addition of tenpercentage points.
Employment
SSI Sector in India creates largest employment opportunities for the Indian
populace, next onlyto Agriculture. It has been estimated that 100,000 rupees of
investment in fixed assets in thesmall-scale sector generates employment for four
persons.
Generation of Employment - Industry Group-wise
Food products industry has ranked first in generating employment, providing
employment to0.48 million persons (13.1%). The next two industry groups were
Non-metallic mineral productswith employment of 0.45 million persons (12.2%)
and Metal products with 0.37 million persons(10.2%). In Chemicals & chemical
products, Machinery parts except Electrical parts, Woodproducts, Basic Metal
Industries, Paper products & printing, Hosiery & garments, Repairservices and
Rubber & plastic products, the contribution ranged from 9% to 5%, the
totalcontribution by these eight industry groups being 49%.
Per unit employment
Per unit employment was the highest (20) in units engaged in beverages, tobacco
& tobaccoproducts mainly due to the high employment potential of this industry
particularly inMaharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil
Nadu.Next came Cotton textile products (17), Non-metallic mineral products

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(14.1), Basic metalindustries (13.6) and Electrical machinery and parts (11.2.) The
lowest figure of 2.4 was inRepair services line.Per unit employment was the
highest (10) in metropolitan areas and lowest (5) in rural areas. However, in
Chemicals & chemical products, Non-metallic mineral products and Basic
metalindustries per unit employment was higher in rural areas as compared to
metropolitanareas/urban areas.In urban areas highest employment per unit was in
Beverages, tobacco products (31 persons)followed by Cotton textile products (18),
Basic metal industries (13) and Non-metallic mineralproducts (12).
Location-wise Employment Distribution - Rural
Non-metallic products contributed 22.7% to employment generated in rural areas.
Food Productsaccounted for 21.1%, Wood Products and Chemicals and chemical
products shared betweenthem 17.5%.
Urban
As for urban areas, Food Products and Metal Products almost equally shared
22.8% ofemployment. Machinery parts except electrical, Non-metallic mineral
products, and Chemicals& chemical products between them accounted for 26.2%
of employment.In metropolitan areas the leading industries were Metal products,
Machinery and parts exceptelectrical and Paper products & printing (total share
being 33.6%).
State-wise Employment Distribution
Tamil Nadu (14.5%) made the maximum contribution to employment.This was
followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%)
thetotal share being 27.7%.Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka
(6.7%) and Punjab (5.6%) togetheraccounted for another 27.4%.Per unit
employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and
Dadra &Nagar Haveli.It was 12 in Maharashtra, Tripura and Delhi.Madhya
Pradesh had the lowest figure of 2. In all other cases it was around the average of
6.
Export
SSI Sector plays a major role in India's present export performance. 45%-50% of
the IndianExports is contributed by SSI Sector. Direct exports from the SSI Sector
account for nearly 35%of total exports. Besides direct exports, it is estimated that
small-scale industrial units contributearound 15% to exports indirectly. This takes
place through merchant exporters, trading housesand export houses. They may
also be in the form of export orders from large units or theproduction of parts and
components for use for finished exportable goods.It would surprise many to know
that non-traditional products account for more than 95% of theSSI exports.The
exports from SSI sector have been clocking excellent growth rates in this decade.
It has beenmostly fuelled by the performance of garments, leather and gems and
jewellery units from thissector.The product groups where the SSI sector
dominates in exports, are sports goods, readymadegarments, woollen garments

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 Industrial Management & Entrepreneurship (BME501)
and knitwear, plastic products, processed food and leather products.The SSI sector
is reorienting its export strategy towards the new trade regime being ushered in by
the WTO.
Major Export Markets
An evaluation study has been done by M/s A.C. Nielsen on behalf of Ministry of
SSI. As per thefindings and recommendations of the said study the major export
markets identified havingpotential to enhance SSIs exports are US, EU and Japan.
The potential items of SSIs have beencategorised into three broad categories.
Opportunity & Scope:
The opportunities in the small-scale sector are enormous due to the following
factors:
• Less Capital Intensive
• Extensive Promotion & Support by Government
• Reservation for Exclusive Manufacture by small scale sector
• Project Profiles
• Funding - Finance & Subsidies
• Machinery Procurement
• Raw Material Procurement
• Manpower Training
• Technical & Managerial skills
• Tooling & Testing support
• Reservation for Exclusive Purchase by Government
• Export Promotion
• Growth in demand in the domestic market size due to overall economic growth
• Increasing Export Potential for Indian products
• Growth in Requirements for ancillary units due to the increase in number
ofgreenfield units coming up in the large scale sector. Small industry sector has
performedexceedingly well and enabled our country to achieve a wide measure of
industrial growthand diversification.
By its less capital intensive and high labour absorption nature, SSI sector has made
significantcontributions to employment generation and also to rural industrialisation. This
sector is ideallysuited to build on the strengths of our traditional skills and knowledge, by
infusion oftechnologies, capital and innovative marketing practices. This is the opportune
time to set upprojects in the small-scale sector. It may be said that the outlook is positive,
indeed promising,given some safeguards. This expectation is based on an essential feature
of the Indian industryand the demand structures. The diversity in production systems and
demand structures willensure long term co-existence of many layers of demand for
consumer products / technologies /processes. There will be flourishing and well-grounded
markets for the same product/process,differentiated by quality, value added and
sophistication. This characteristic of the Indianeconomy will allow complementary
existence for various diverse types of units. The promotionaland protective policies of the
Govt. have ensured the presence of this sector in an astonishingrange of products,

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particularly in consumer goods. However, the bugbear of the sector has beenthe
inadequacies in capital, technology and marketing. The process of liberalisation coupled
withGovernment support will therefore, attract the infusion of just these things in the
sector.
Small industry sector has performed exceedingly well and enabled our country to
achieve a wide measure of industrial growth and diversification.By its less capital
intensive and high labour absorption nature, SSI sector has made significantcontributions
to employment generation and also to rural industrialisation. This sector is ideallysuited
to build on the strengths of our traditional skills and knowledge, by infusion
oftechnologies, capital and innovative marketing practices. So this is the opportune time
to set upprojects in the small scale sector. It may be said that the outlook is positive,
indeed promising,given some safeguards. This expectation is based on an essential feature
of the Indian industryand the demand structures. The diversity in production systems and
demand structures willensure long term co-existence of many layers of demand for
consumer products / technologies /processes. There will be flourishing and well-grounded
markets for the same product/process,differentiated by quality, value added and
sophistication. This characteristic of the Indianeconomy will allow complementary
existence for various diverse types of units. The promotionaland protective policies of the
Govt. have ensured the presence of this sector in an astonishingrange of products,
particularly in consumer goods. However, the bug bear of the sector has been the
inadequacies in capital, technology and marketing. The process of liberalisation
willtherefore, attract the infusion of just these things in the sector.

Government policy towards SSI:

•Export Promotion
• Exim Policy for Small Scale Sector
• Export Promotion Programs & Measures
• National Small Industries Corporation

•General
Policies
• Policy of Reservation
• Items Reserved for manufacturing in SSI
• Licensing Policy
• Trade Policy - Imports & Exports
• Price & Purchase Preference Policy
• Labour Policies
• Rehabilitation of Sick Units

Schemes

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 Industrial Management & Entrepreneurship (BME501)

• Single Window Scheme

• Industrial Estates
• National Awards for Outstanding SSI Entrepreneurs
• National Awards for Quality Products in Small Scale Sector

• Priority Sector
Policies
• Policy for Tiny Sector, Cottage & Village Industries, Handicrafts, Khadi&
Handlooms
• Development of Backward Areas

Schemes
• Prime Minister's RozgarYozna
• Self Employment Scheme for Educated Unemployed
• Assistance to SC/ST Entrepreneurs

• Funding & Finance

Policies
• Policy of Fiscal Support
• Policy of Priority Credit
• Equity Participation
• OTC Exchange

Schemes
• Excise Exemption Scheme Tax Holiday
• Venture Capital
• National Equity Fund Scheme
• Factoring Services
• Other SIDBI Schemes
• NSIC Schemes

Modernization & Training

Policies
• Quality Certification Schemes (ISO9000)
• Application for the Reimbursement of Certification Charges for acquiringISO-
9000 Certification (or its equivalent)
• Policy of Technology upgradation (UPTECH)
• Technology Bureau for Small Enterprises
• Policy for Development of Information Technology

Schemes

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• Technology Development Fund Schemes

• Testing Centres
• Integrated Infrastructure Development
• Training Infrastructure
• Growth Centres
• Technology Development & Modernisation
• Quality Certification Schemes
• Modernisation of Small Scale Industries
• Ancillary Development
• Small Entrepreneur Management Assistants Scheme
• Entrepreneurship Development Programme
• Management Training Programme
• Skill Development Programme

• Energy & Environment

Policies
• Pollution & Control Measures
• Environmental Control

Schemes
• Pollution Control Schemes
• Energy Conservation Schemes
• Alternative Energy Use Schemes
• Ozone Depleting Substances Phase-out.

Government Support for S.S.I. during 5 year plans:

Package Announced By The Prime Minister For The SSI Sector
• Enhancement of excise duty exemption limit for SSI units from Rs. 50 lakh to Rs.100
lakh.
• Increase in composite loan limit to Rs.25 lakh
• Coverage of loans up to Rs.25 lakh under the Credit Guarantee Fund scheme.
• Increase in project cost limit under the National Equity Fund scheme to Rs. 50 lakh.
• Credit linked capital subsidy at 12 per cent of the cost of technological upgradation of
SSI
•units for modernisation of SSI units.
•The service and business related small scale units with a maximum investment limit
ofRs.10 lakh would also be covered under priority lending
• Enhancement of investment limit to Rs.500 lakh for hi-tech and export oriented sectors.
• Technology Bank would be set up for SSI sector by strengthening the existing
Technology Bureau for Small Enterprises (TBSE) of SIDBI.
• One time capital grant of 50 per cent to SSI associations for setting up international-

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 Industrial Management & Entrepreneurship (BME501)
level
• testing laboratories for SSI units.
• Preference to be given to tiny units while organising buyer-seller meets, vendor
development programmes and exhibitions.
• Conduct of Third Census on SSI.
• Integrated Infrastructure Development Centres (IIDC) scheme extended to all areas.
Government policies for SSI’s:
INDUSTRIAL POLICY PACKAGE FOR SSI 2001-02
This policy emphasizes the following:
a) The investment limit was enhanced from Rs 1 crore to Rs 5 crore for units in
hosiery and hand tool sub sectors.
b) The corpus fund set up under the Credit Guarantee Fund Scheme was increased
from 125 crore to 200 crore.
c) Credit Guarantee cover was provided against an aggregate credit of Rs 23 crore
till December 2001.
d) 14 items were de-reserved in June 2001 related to leather goods, shoes and toys.
e) Market Development Assistant Scheme was launched exclusively for SSI sector.
f) Four UNIDO assisted projects were commissioned during the year under theCluster
Development Programme.
INDUSTRIAL POLICY ON SSIS 2003-04
The following are the highlights of this endeavor:
a) 73 items reserved for exclusive manufacture in the SSI sector were de-reserved inJune
2003. These consist of chemical and their products, leather and leather products,
laboratory reagents etc.
b) Selective enhancement of investment in plant and machinery from Rs one crore to Rs 5
crore.It was for 13 items in stationary sector and 10 items of drugs and pharmaceuticals
sector, fromJune 2003.
c) Banks were directed to provide credit to SSI sector within an interest rate band of 2
percentabove and below their Prime Lending Rates (PLR).
d) The composite loan limit for SSI was raised from Rs 25 lakhs to Rs 50 lakhs.
e) The limit of dispensation of collateral requirement was raised from Rs 15 lakhs to Rs
25 lakhson the basis of good track record and financial position of the unit. 302
f) The lower limit of Rs 5 lakhs on loans covered under the Credit Guarantee Scheme
wasremoved. All loans up to Rs 25 lakhs were made eligible for guarantee cover under
the CreditGuarantee Scheme.
g) 417 specialised bank branches were made operational for SSIs.
h) Third all India census for SSI was conducted through out the country and its
finalresults were released on January 17, 2004.
i) 60 clusters were identified in July 2003 for focused development.
j) Small and Medium Enterprise (SME) fund of Rs 10000 crore was set up under SIDBI
to solvethe problem of inadequate finance for SSIs.
k) LaghuUdyami Credit Card Scheme was liberalized. Under this scheme, the credit limit

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wasincreased to Rs 10 lakhs from Rs 2 lakhs. But, it was only for borrowers with
satisfactory trackrecord.
POLICY INITIATIVES ON SSI 2004-05
Policy initiatives for this year are as follows:
a) The national commission on Enterprises in the Un-organized/Informal Sector was set
up inSeptember 2004. It suggested measures considered necessary for improvement in
theproductivityof these enterprises, generation of large scale employment opportunities,
linkage of the sector toinstitutional framework in areas like credit, raw material supply,
infrastructure, technology upmgradation, marketing facilities and skill development by
training.
b) 85 items were de-reserved in October 2004.
c) The investment limit in plant and machinery was raised from Rs one crore to Rs 5
crore inOctober 2004, in respect of seven items of sports goods to help to upgrade the
technology andenhance competitiveness.
d) The Small and Medium Enterprise (SME) fund of Rs 10000 crore was started by
SIDBI sinceApril 2004, with 80% of the lending for SSI units. The interest rate was 2%
below the prevailingPrime Lending Rate (PLR) of the SIDBI.
e) The reserve Bank of India raised the composite loan limit from Rs 50 lakhs to Rs one
crore.
f) Promotional Package for small enterprises was initiated.
POLICY PACKAGE FOR SME 2005-06
This policy package contains the following points:
a) The Ministry of Small Scale Industries has identified 180 items for dereservation.
b) Small and Medium Enterprises were recognized in the services sector, and were treated
on parwith SSIs in the manufacturing sector.
c) The corpus of the Credit Guarantee Fund was raised from Rs.1132 crore in March
2006 toRs.2500 crore in five years.
d) Credit Guarantee Trust for Small Industries (CGTSI) was advised to reduce the one
timeguarantee fee from 2.5 per cent to 1.5 per cent for all loans. 303
e) Insurance cover was extended to approximately 30,000 borrowers, identified as
chiefpromoters, under the CGTSI. The sum assured would be Rs.200000 per beneficiary
and thepremium will be paid by CGTSI.
f) The emphasis was laid on Cluster Development model not only to promote
manufacturing butalso to renew industrial towns and build new industrial townships. The
model is now beingimplemented, in nine sectors including khadi and village industries,
handlooms, handicrafts,textiles, agricultural products and medicinal plants.
Impact of Liberalization:
Small firms in India have a crucial and seminal role to play, which arises out of both
thelate industrialization context and the particular historical experience of
industrialization thathas contributed to the evolution of the industrial structure. Analyzing
the Indian reality in thecontext of the experiences of Japan and East Asia and the insights

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 Industrial Management & Entrepreneurship (BME501)
of Dennis Anderson (1982), it is argued that existing macroeconomic, trade, and
exchange-rate policies do not favor rapidgrowth and transformation of small firms, even
as they do not favor manufacturing. This isworrying because today Indian manufacturing
has to compete with many countries, but notablythe dynamic East Asian. Small
firms.comparative advantages lie in manufacturing especially initems that involve a
greater share of value added from labor. particularly semiskilled andskilled labor.and in
the Indian context even unskilled labor. Manufacturing is also themost tradable of all
sectors, and especially of output that is standardized, competitive, and hasa long shelf life.
Successful late industrialization episodes show the crucial role of
laborintensivemanufacturing in transforming the economy, especially in exports in the
early phaseof the transformation (Kojima and Ozawa 1985). Since small firms have a
comparativeadvantage in labor-intensive manufacturing, and this is amplified by the
schism in the labormarket. Therefore voluminous exports that exploit firms.dominant and
productive role. This alsogives criticality to the key complementary role of larger
firms.that give out subcontracts,aggregate, and trade in small-firm products. Indeed, in a
micro-action sense promotion of suchtrading houses and integrators as also freeing small
firms to perform this vital role may be crucial(Morris 1998). The key role of trading firms
is amply served in the case of East sia, especiallyJapan.

Impact of privitization on small scale industries:

Realistic prospects for disinvestment-privatization of the public sector appear
limited,since the bulk of public capital employed is in infrastructure and industries of
strategicimportance, where national interest demands public policy. Secondly, the
argument forownership as the principal basis for economic outcomes is not conclusive:
evidence onprivatization across the world fails to prove that private ownership necessarily
andsustainably improves firm-level performance. History and theory also do not support
stockmarket-based discipline, which is an inevitable result of disinvestment and
privatization, to bethe superior alternative. How to design an institutional mechanism that
limits the agencyproblem, puts hard budget constraint on firms, and reduces dysfunctional
political-bureaucratic interference. The solution seems closely tied to financing of
investment, with a financial systemthat provides resources for development and functions
as a disciplining device on firms. Inpractice it would imply Japanese- and German-style
interlocking of ownership ofcomplementary PSEs tied together with a bank that enforces
greater managerial accountabilityand encourages long-term outlook of output growth and
acquisition of technological capabilities.
Impact of globalization on small scale industries in India:
Globalization means the dismantling of trade barriers between nations and the
integrationof the nations economies through financial flow, trade in goods and services,
and corporateinvestments between nations. Globalization has increased across the world
in recent years due tothe fast progress that has been made in the field of technology
especially in communications andtransport. The government of India made changes in its
economic policy in 1991 by which itallowed direct foreign investments in the country. As

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a result of this, globalization of the IndianIndustry took place on a major scale.The

various negative Effects of Globalization on Indian Industry are that it
increasedcompetition in the Indian market between the foreign companies and domestic
companies. Withthe foreign goods being better than the Indian goods, the consumer
preferred to buy the foreigngoods. This reduced the amount of profit of the Indian
Industry companies. This happened mainly in the pharmaceutical, manufacturing,
chemical, and steel industries. The negativeEffects of Globalization on Indian Industry
are that with the coming of technology the number oflabor required decreased and this
resulted in many people being removed from their jobs. Thishappened mainly in the
pharmaceutical, chemical, manufacturing, and cement industries.
Effect of WTO/GATT Supporting Agencies of Government for S.S.I:
One of the most important developments in the millennium that had far
reachingimplications in the world economic system is the formation and functioning of
the world tradeorganisation. The economic history of the mankind can easily be divided
into pre and post WTOera. While the WTO regime is compelling every country to adjust,
reformat and, redesign theireconomic systems to synchronise with the WTO regime, these
countries are also doingconsiderable amount of research for developing prescriptions and
formulations to developappropriate strategies to meet the challenges of the new trade
order and to assure fair share ofbenefits out of the new economic order.The World Trade
Organisation (WTO) represents the culmination of a long drawn process directed at
establishing a formal world trade body after 47 years of de facto trade regulationunder
General Agreement on Tariffs and Trade (GATT). With the completion of the
UruguayRound of Trade Negotiations in December, 1993, the Final Act as well as the
MarrakeshAgreement Establishing the World Trade Organization were signed at the last
Ministerialmeeting of the GATT held in Marrakesh in April, 1994, paving the way for
beginning of a newera in world trade. The WTO formally commenced its operations on
1st January, 1995 and has144 countries as its members; the notable exceptions being
Russian Federation, Saudi Arabia,Nepal, amongst other nations, which are actively
seeking to join WTO, by fulfilling thecommitments enshrined in WTO agreements and
principles.The WTO marks the establishment of a legal and institutional base for
international trade thathad been previously absent under the GATT; a contractual
framework within which governmentscould formulate domestic trade policy; and the
platform upon which trading relations amongcountries could evolve through collective
debate, negotiation and adjudication.
The Guiding Principles of GATT that form the basis of the present WTO
1. Trade should be on a non-discriminatory basis.
2. Domestic industry should only be protected by means of customs tariffs and not
through other commercial measures.
3. The aim of consultations should be to avoid damage to the interest of the members.
4. GATT should serve as a forum within which negotiations could be held to reduce
tariffs and other trade.

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MODULE -5
INSTITUTIONAL SUPPORT
NATIONAL SMALL INDUSTRIES CORPORATION (NSIC)
The National Small Industries Corporation (NSIC), an enterprise under the unionministry
of industries was set up in 1955 in New Delhi to promote aid and facilitate the growthof
small scale industries in the country. NSIC offers a package of assistance for the benefit
ofsmall–scale enterprises.
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.
6. Marketing assistance programme: NSIC participates in government tenders on
behalf of small enterprises to procure orders for them.
SMALL INDUSTRIES DEVELOPMENT ORGANIZATION (SIDO)
SIDO is created for development of various small scale units in different areas. SIDO is
asubordinate office of department of SSI and ARI. It is a nodal agency for identifying the
needs ofSSI units coordinating and monitoring the policies and programmes for
promotion of the smallindustries. It undertakes various programmes of training,
consultancy, evaluation for needs ofSSI and development of industrial estates. All these
functions are taken care with 27 offices, 31SISI (Small Industries Service Institute) 31
extension centers of SISI and 7 centers related toproduction and process development.The
activities of SIDO are divided into three categories as follows:
(a) Coordination activities of SIDO:
(1) To coordinate various programmes and policies of various state governments
pertaining to
small industries.
(2) To maintain relation with central industry ministry, planning commission, state level
industries ministry and financial institutions.
(3) Implement and coordinate in the development of industrial estates.
(b) Industrial development activities of SIDO:
(1) Develop import substitutions for components and products based on the data available
for
various volumes-wise and value-wise imports.

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(2) To give essential support and guidance for the development of ancillary units.
(3) To provide guidance to SSI units in terms of costing market competition and to
encourage
them to participate in the government stores and purchase tenders.
(4) To recommend the central government for reserving certain items to produce at SSI
level
only.
(c) Management activities of SIDO:
(1) To provide training, development and consultancy services to SSI to develop their
competitive strength.
(2) To provide marketing assistance to various SSI units.
(3) To assist SSI units in selection of plant and machinery, location, layout design and
appropriate process.
(4) To help them get updated in various information related to the small-scale industries
activities.

SMALL INDUSTRIES SERVICE INSTITUTES (SISI)

The small industries service institutes have been set up in state capitals and other
placesall over the country to provide consultancy and training to small entrepreneurs both
existing andprospective.
The main functions of SISI include:
(1) To serve as interface between central and state government.
(2) To render technical support services.
(3) To conduct entrepreneurship development programmes.
(4) To initiate promotional programmes.
The SISIs also render assistance in the following areas:
(1) Economic consultancy/information/EDP consultancy.
(2) Trade and market information.
(3) Project profiles.
(4) State industrial potential surveys.
(5) District industrial potential surveys.
(6) Modernization and in plant studies.
(7) Workshop facilities.
(8) Training in various trade/activities.
SMALL SCALE INDUSTRIES BOARD (SSIB)
The government of India constituted a board, namely, Small Scale Industries
Board(SSIB) in 1954 to advice on development of small scale industries in the country.
The SSIB isalso known as central small industries board. The range of development work
in small scaleindustries involves several departments /ministries and several organs of the
central/stategovernments. Hence, to facilitate co-ordination and inter-institutional
linkages, the small scaleindustries board has been constituted. It is an apex advisory body
constituted to render advice tothe government on all issues pertaining to the development

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of small-scale industries. Theindustries minister of the government of India is the

chairman of the SSIB.The SSIB comprises of 50 members including state industry
minister, some members ofparliament, and secretaries of various departments of
government of India, financial institutions,public sector undertakings, industry
associations and eminent experts in the field.
STATE SMALL INDUSTRIES DEVELOPMENT CORPORATIONS(SSIDC)
(Karnataka State Small Industries Development Authority KSSIDC in Karnataka State)
The State Small Industries Development Corporations (SSIDC) were sets up in
variousstates under the companies’ act 1956, as state government undertakings to cater to
the primarydevelopmental needs of the small tiny and village industries in the state/union
territories undertheir jurisdiction. Incorporation under the companies act has provided
SSIDCs with greateroperational flexibility and wider scope for undertaking a variety of
activities for the benefit of the small sector. The important functions performed by the
SSIDCs 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
theirmaintenance.
• To extend seed capital assistance on behalf of the state government concerned
providemanagement assistance to production units.

DISTRICT INDUSTRIES CENTERS (DIC)

The District Industries Centers (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 andprogrammes. Registration of small industries is done at the district
industries centre and PMRY(Pradhan MantriRojgarYojana) is also implemented by DIC.
The organizational structure ofDICS consists of General Manager, Functional Managers
and Project Managers to provide technical services in the areas relevant to the needs of
the district concerned. Management of DIC is done by the state government.The main
functions of DIC are:
(1) To prepare and keep model project profiles for reference of the entrepreneurs.
(2) To prepare action plan to implement the schemes effectively already identified.
(3) 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.
(4) To guide entrepreneurs in matters relating to selecting the most appropriate machinery
and equipment, sources of it supply and procedure for importing machineries.

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(5) To provide guidance for appropriate loan amount and documentation.
(6) To assist entrepreneurs for availing land and shed equipment and tools, furniture and
fixtures.
(7) To appraise the worthness of the project-proposals received from entrepreneurs.
(8) To help the entrepreneurs in obtaining required licenses/permits/clearance.
(9) To assist the entrepreneurs in marketing their products and assess the possibilities of
ancillarization.
(10) To conduct product development work appropriate to small industry.
(11) To help the entrepreneurs in clarifying their doubts about the matters of operation of
bankaccounts, submission of monthly, quarterly and annual returns to government
departments.
(12) To conduct artisan training programme.
(13) To act as the nodal agency for the district for implementing PMRY (Prime Minister
RojgarYojana).
(14) To function as the technical consultant of DRDA in administering IRDP and
TRYSEMprogramme.
(15) To help the specialized training organizations to conduct Entrepreneur
developmentprogrammes.In fine DIC’s function as the torch-bearer to the
beneficiaries/entrepreneurs in setting up andrunning the business enterprise right from the
concept to commissioning. So the role of DIC’s inenterprise building and developing
small scale sector is of much significance.
TECHNICAL CONSULTANCY SERVICES ORGANIZATION OF
KARNATAKA(TECSOK).
TECSOK is a professional industrial technical and management consultancy
organizationpromoted by the government of Karnataka and other state level development
institutions wayback in 1976. It is a leading investor-friendly professional consultancy
organization inKarnataka. Its various activities are investment advice, procedural
guidance, managementconsulting, mergers and acquisition, process reengineering studies,
valuation of assets fortakeovers, impact assessment of socio-economic schemes, critical
infrastructure balancing; ITrelated studies, detailed feasibility studies and reports.
TECSOK with its pool of expertise invaried areas can work with new entrepreneur to
identify a product or project. In addition to thisTECSOK sharpens the project ideas
through feasibility studies, project reports, market surveys,and sources of
finance,selection of machinery, technology, costing and also providing turnkeyassistance.
To help entrepreneurs to face the global competition TECSOK facilitates
globalexposures,updated technology, market strategies, financial restructuring and growth
to improveprofitability of an industry.TECSOK can identify sickness in existing industry
and facilitate itsturn around. TECSOK has expertise in rehabilitation of sick industries by
availing rehabilitationpackages offered by the government and financial institutions. In
addition it offers expertprofessional services to various institutions and departments of the
state and central government.TECSOK undertake the assignment in the field of
• Technical and market appraisal of projects.

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• 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. It has business partnerships with reputed national
and multinational consultants and out sources expertise for professional synergy.
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. “KaigarikaVarthe” a monthly is published by TECSOK. In addition it
publishes “Guide to Entrepreneurs” “Directory of Industries” on a regular basis.
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. TECSOKundertakes studies and project proposal for availing assistance from
the Indian RenewableEnergy Development Authority (IREDA).
Environment and ecology: TECSOK undertakes assignments relating to environment
education,environment impact assessment, environment management plan and pollution
controlmeasures.TECSOK has joined hands with Karnataka cleaner production center
(KCPC) toprovide total consultancy support in the area of environment.Human Resource
Development: TECSOK designs and organizes business developmentprogrammes,
management development workshops, skill development programmes and in-
housetraining packages. It undertakes programmes of empowerment of women
entrepreneurs,organization of self-help groups. In order to encourage local entrepreneurs
TECKSOK organizesawareness campaigns and motivation programmes in taluks and
districts throughout Karnataka.
Other TECSOK activities:
• Guidance in product selection and project identification.

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• Market survey and market development advice.

• Consultancy for agro-based industries of a nodal agency of the government of
India.
• Diagnostic studies and rehabilitation of sick industries.
• Environment impact assessment studies environment management plans and
propagation ofcleaner production techniques.
• Energy management and audit.
• Valuation of assets for mergers and takeovers.
• Infrastructure development project reports.
• Port tariff study and related areas.
• System study and software development.
• Management studies, company formation, corporate plan, enterprise restructuring
etc.
• Designing and organizing training programme.

SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)

For ensuring larger flow of financial and non-financial 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. The SIDBI has taken over the outstanding portfolio of the IDBI relating to the
small scale sector. The important functions of IDBI are as follows:
(1) To initiate steps for technological upgradation 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.
The SIDBIs financial assistance to SSIs is channeled through existing credit delivery
system comprising state financial corporations, state industrial development corporations,
commercial banks and regional rural banks. In 1992-93 it has introduced two new
schemes. The first is equipment financescheme for providing direct finance to existing
well-run small-scale units taking up technologyupgradation/modernization and refinance
for resettlement of voluntarily retired workers of NTC. The other new scheme was
venture capital fund exclusively for small-scale units, with an initial corpus of Rs 10
crore. SIDBI also provides financial support to national small industries corporation
(NSIC) for providing leasing, hire-purchase and marketing support to the industrial units
in the small scale sector.
KARNATAKA INDUSTRIAL AREAS DEVELOPMENT BOARD (KIADB)
The Karnataka industrial areas development board is statutory board constituted under
theKarnataka industrial area development act of 1996. Since then it is in the business
ofapportioning land for industries and gearing up facilities to carryout operations. The
KIADB nowacquires and provides developed land suited for industrialization, by drawing
up well laid-outplots of varying sizes to suit different industries with requisite

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infrastructure facilities. Thefacilities include roads, drainage, water supply etc.

Theamenities such as banks, post offices, fire stations, police outposts, ESI dispensaries
etc are alsoprovided. It also plans to initiate the provision of common effluent treatment
plants wherevernecessary. KIADB has acquired a land of 39,297 acres out of which
21,987 acres had beendeveloped till March 1996. Developed industrial plots had been
allotted to 7882 units.Application forms for the allotment of land may be obtained from
the executive member,KIADB Bangalore or general manager DIC of concerned district or
from the Zonal office ofKIADB located at Mysore, Mangalore, Dharwad, Gulbarga,
Bidar, Hassan and Belgaum.
Applications duly filled must be accompanied by:
(a) A brief project report.
(b) Details of constitution of the company
(c) Provisional registration certificate
(d) EMD of Rs 500/- per acre, subject to a maximum of Rs 10,000/- along with 20%,
15% and5% of the land cost for various districts. On receipt of applications for all
districts other thanBangalore, a discussion with the promoters regarding the project will
be held in the concerneddistrict headquarters. The district level allotment committee will
take a decision on allotment ofland to the SSI units. In case of Bangalore, the screening
committee comprising of executivemember KIADB, director of SISI, chief advisor
TECSOK with discuss the project and makenecessary recommendation to a sub-
committee. The sub-committee will in turn allot the land. Once land is allotted the
remaining payment should be made within six months of the date ofissue of allotment
letter. The industry should be started after obtaining the
necessarylicense/clearance/approval from the concerned authorities. Plans for the
proposed factory/building or other structure to be erected on the allotted sites are
executed only after priorapprovalof the board. On being satisfied that the land is not being
put to the prescribed use, the boardreserves the right to re-enter and take procession of the
whole or any part of the land. Ifnecessary the leasehold rights on the allotted land may be
offered as security in order to obtainfinancial assistance from the government or corporate
bodies. However, prior permission of theboard has to be obtained for creating second
andsubsequent charges of the land.
KARNATAKA STATE FINANCIAL CORPORATION (KSFC)
The KSFC was established by the government of Karnataka in 1956 under the state
financialcorporation act 1951 for extending financial assistance to set up tiny, small and
medium scaleindustrial units in Karnataka. Since 1956 it is working as a regional
industrial development bankof Karnataka. KSFC has a branch office in each district;
some districts have more than onebranch.KSFC extends lease financial assistance and
hire purchase assistance for acquisition ofmachinery/equipment/transport vehicles. KSFC
has merchant banking department which takesup the management of public issues
underwriting at shores, project report preparation, deferred payment guarantee, and
syndication of loans, bill discounting andsimilar tasks.

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KSFC give preference to the projects which are
(i) Promoted by technician entrepreneur.
(ii) In the small-scale sector.
(iii) Located in growth centers 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.
The eligible industrial concerns for financial assistance from KSFC are those engaged/to
beengaged in manufacture, preservation, processing of goods, mining, power generation
transport,industrial estate, hotels, R & D of any product or process of industrial concern,
weigh bridgefacilities, power laundries, photocopying, hiring of heavy material handling
equipment, cranesand other earth moving equipments,hospitals, nursing homes, medical
stores, computers, tourism related activities, construction ofroads, tissue and horticulture
software development, software parks, block board vehicles, officeconstruction, go down
and warehouse construction, mobile canteens, commercial complexes,training institutes,
office automation and so on.
Loan Schemes of KSFC
KSFC has evolved loan schemes for extending financial assistance to industrial
concernspromoted by rural artisans, weaker sections of society, disabled entrepreneurs,
ex-servicemen,women entrepreneurs and others.
Hire purchase: This scheme provides for a fast, easy alternative to ready
cash.Industrialconcerns in commercial production for two years and earning profits and
regular in repayment tofinancial institutions/banks can avail assistance of Rs. 1
lakh.Professionals and commercialoperators can also avail hire purchase assistance.

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PREPARATION OF PROJECT

Meaning of Project:
A project in business and science is a collaborative enterprise, frequently
involvingresearch or design, that is carefully planned to achieve a particular aim.
Project Identification:
Project Identification is a repeatable process for documenting, validating, ranking
andapproving candidate projects within an organization.
Purpose:
Due to the changing financial conditions within the total organization, it is necessary to
establisha stable process for approving projects for initiation. This process will...
• Validate the business reason for each candidate project.
• Provide the base information for more informed financial commitments to
projects.
• Establish a more objective ranking of candidate projects.
• Allow a more effective matching of skilled resources to the right project.
• Avoid over-allocating limited skilled resources.
• Anticipate future human resource quantities and skills.
• Provide a valid basis for staff training.
• Make Project Initiation faster and more efficient

Project Selection:
Projects are undertaken for various reasons. Each project should have clear
justificationnand methods defined to show its ‘worth’ taking it. Strategic goals of
organization, Market Need, Technological Advancement, Competitive Advantage,
Profitability, Project/Portfolio Management Office (PMO), Sponsors are key in project
selection. Below I presented the gist of few widely-used project selection methods.
Decisions are made based on the best information in hand about a particular project at a
given point of time. One can use either Benefit Measurement Methods(Comparative
approach) or Constrained Optimization Methods (Mathematical approach) or both to
arrive conclusion on project selection.Out of these two benefit measurement method is
most commonly used.Benefit measurement methods are based on measuring the benefits
in taking up the project and comparing the results against other projects or a strategy
benchmark. Cost-Benefit Analysis, Scoring Models, Economic Models, Discounted Cash
Flow (DCF), Net Present Value (NPV), Internal Rate of Return are different types under
Benefit measurement methods.

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Constrained optimization methods uses complex mathematical calculation based on

differentworst/best case scenarios and probability of outcome and then selecting project
on best results.Generally known methods are Linear programming, nonlinear
programming, multi objectiveprogramming.
Project Report: need & its Significance
A project report is analogous to a feasibility study. It is of no moment whether you are
alarge, medium or small-scale entrepreneur. In every investment, all angles must be
consideredand these likewise involve hard-earned money, valuable time and priceless
effort. Thus, anoverview or insight for any business undertaking must be fully scrutinized
particularly on theROI or return of investment which is done practically through a
feasibility study or projectreport.
A Business Plan/Project Report submitted to NEDFi for consideration should include
thefollowing information:
1. Description of the project.
2. Promoters, Management and Technical Assistance:
• Detailed Biodata of promoters including financial information.
• Proposed management arrangements.
• Description of technical arrangements (management, production, marketing,
financeetc.).

3. Market and sales:

• Basic market orientation: local, national, regional, or export.
• Projected production volumes, unit prices, sales objectives, and market share of
proposedventure.

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• Potential users of products and distribution channels to be used. Present sources of

supplyfor products.
• Future competition and possibility that market may be satisfied by substitute
products.
• Tariff protection or import restrictions affecting products.
• Critical factors that determine market potential.

4. Technical feasibility, manpower, raw material resources, and environment:

• Brief description of manufacturing process.
• Comments on special technical complexities and need for know-how and special
skills.
• Possible suppliers of equipment. Ideally three competitive quotations to be
enclosed.
• Availability of manpower and of infrastructure facilities (transport and
communications,power, water, etc.).
• Breakdown of projected operating costs by major categories of expenditures.
• Source, cost, and quality of raw material supply and relations with support
industries.
• Import restrictions on required raw materials.
• Proposed plant location in relation to suppliers, markets, infrastructure and
manpower.
• Proposed plant size in comparison with other known plants.
• Potential environmental issues and how these issues are addressed.

5. Investment requirements, project financing, and returns:

• Estimate of total project cost, broken down into land, construction of buildings
and civilworks, plant and machinery, miscellaneous fixed assets, preliminary and
preoperativeexpenses and working capital.
• Proposed financial structure of venture, indicating expected sources and terms of
equityand debt financing.
• Type of NEDFi financing (loan, equity, quasi-equity, a combination of
financialproducts, etc.) and amount.Projected financial statement, information on
profitability, and return on investment.
• Critical factors determining profitability.

6. Government support and regulations:

• Project in context of government economic development and investment program.
• Specific government incentives and support available to project.
• Expected contribution of project to economic development.

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• Outline of government regulations on exchange controls and conditions of capital

entryand repatriation.

7. Timetable envisaged for project preparation and completion.

Guidelines by Planning Commission for Project report
1. Name of the project and location.
2. Name of Administrative Department including name of the Secretary, telephone
number,fax and E.Mail addresses.
3. Method of execution of the project: (Whether the project is to be executed
departmentallyor through state PWD/Central Government Departments/ Public Sector
Undertakings/Nongovernmentalorganisations /Private Companies on a turn-key
basis,etc.)
4. List of consultants proposed to be contacted for preparation of Detailed Project Report.
5. Description of the Proposed Project (attach concept paper of 1-2 pages indicating
project objectives, background, project components, project rationale, manpower
requirementsand expected impact of the project on the sector concerned and the state’s
economy as awhole).
6. Schedule of clearances required for the processing of the investment proposal: Plan
ofaction and timetable for various steps.
7. Linkages with ongoing projects
8. Justification and need for seeking PCPPF assistance: suitability and prospects for
externalor institutional financing.
9. Gist of informal discussions on acceptability and funding prospects of project held
withexternal agencies, financiers, Government of India, Ministries.
Project appraisal:
Project appraisal is a generic term that refers to the process of assessing, in a
structuredway, the case for proceeding with a project or proposal. In short, project
appraisal is the effort ofcalculating a project's viability. It often involves comparing
various options, using economicappraisal or some other decision analysis technique.

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Process of project appraisal

• Project planning
• Project scheduling
• Project control
• Project team

– made up of individuals from various areas and departments within a company

➢ Matrix organization

–a team structure with members from functional areas, depending on skillsrequired

➢ Project Manager

–most important member of project team

➢ Scope statement

–a document that provides an understanding, justification, and expected result of aproject

➢ Statement of work

– written description of objectives of a project

➢ Organizational Breakdown Structure

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–a chart that shows which organizational units are responsible for work items
➢ Responsibility Assignment Matrix - shows who is responsible for work in a
project

PERT AND CPM

• Critical Path Method (CPM)
– E I Du Pont de Nemours & Co. (1957) for construction of new chemical plant and
maintenance shut-down
– Deterministic task times
– Activity-on-node network construction
– Repetitive nature of jobs
• Project Evaluation and Review Technique (PERT)
– U S Navy (1958) for the POLARIS missile program
– Multiple task time estimates (probabilistic nature)
– Activity-on-arrow network construction
– Non-repetitive jobs (R & D work)
PERT:
Advantages
• PERT chart explicitly defines and makes visible dependencies (precedence
relationships) between the WBS elements
• PERT facilitates identification of the critical path and makes this visible
• PERT facilitates identification of early start, late start, and slack for each activity,
• PERT provides for potentially reduced project duration due to better
understanding of dependencies leading to improved overlapping of activities and
tasks where feasible.
• The large amount of project data can be organized & presented in diagram for use
indecision making.

Disadvantages
• There can be potentially hundreds or thousands of activities and individual
dependency relationships
• The network charts tend to be large and unwieldy requiring several pages to print
and requiring special size paper
• The lack of a timeframe on most PERT/CPM charts makes it harder to show
status although colours can help (e.g., specific colour for completed nodes)
• When the PERT/CPM charts become unwieldy, they are no longer used to
manage the project.

FEASIBILITY ANALYSIS
The process to make changes in the current system in order to achieve new effective

Dept of Mechanical Engg, AJIET Mangalore

 Industrial Management & Entrepreneurship (BME501)

system. The feasibility study includes complete initial analysis of all related system.
Therefore the study must be conducted in a manner that will reflect the economic as
well as technical feasibility of the system proposal.
Types:
Economic Feasibility:
Economic feasibility is the most frequently used method for evaluating the
effectiveness of the candidate system that is proposed system, more commonly used
as cost/benefit analysis. The procedure is to determine the benefit and savings that are
expected from the candidate system and compare them with the coast, if the benefit
over weight cost then the decision is made to design and implement the system,
otherwise further justification in the proposed system will have it be made, if it has
chance to improve. Cost estimate for a system we consider several elements.
Hardware, Personnel, Facility, Operation, Supply cost etc.
Technical Feasibility:
In the technical feasibility the system analyst look between the requirements of the
organization,such as Suggest input device which can enter a large amount of data in
the effective time.Outputdevices which can produce output in a bulk in an effective
time.The choice of processing unit depends upon the type of processing required in
the organization.
Market feasibility:
Market Feasibility Study typically involves testing geographic locations for a real
estatedevelopment project, and usually involves parcels of real estate land.
Developers often conductmarket studies to determine the best location within a
jurisdiction, and to test alternative landuses for given parcels. Jurisdictions often
require developers to complete feasibility studiesbefore they will approve a permit
application for retail, commercial, industrial, manufacturing,housing, office or mixed-
use project. Market Feasibility takes into account the importance of thebusiness in the
selected area.
Resource feasibility:
This involves questions such as how much time is available to build the new system,
when it canbe built, whether it interferes with normal business operations, type and
amount of resourcesrequired, dependencies, etc. Contingency and mitigation plans
should also be stated here.
Cultural feasibility:
In this stage, the project's alternatives are evaluated for their impact on the local and
generalculture. For example, environmental factors need to be considered and these
factors are to bewell known. Further an enterprise's own culture can clash with the
results of the project.

Dept of Mechanical Engg, AJIET Mangalore