Chapter 1

Nature and Significance of Management

Management is essential for all organizations big or small, profit or non-profit, services or manufacturing. Management is necessary so that individuals make their best contribution towards group objectives. Management consists of a series of interrelated functions that are performed by all managers.

Concept

People in organisations are performing diverse tasks but they are all working towards the same goal. Management aims at guiding their efforts towards achieving a common objective- a goal. Thus management has to see that tasks are completed and goals are achieved (effectiveness) with least amount of resources at minimum costs (efficiency). Management has been defined as a process of getting things done with the aim of achieving goals effectively and efficiently.

Process

Effectively&Effeciently

Process- primary function or activities that management performs to get things done.

Effectiveness- doing right task, completing activities and achieving goals.

Efficiency- doing the task correctly and with minimum cost.

Characteristic of Management

1. Management is a goal-oriented process: Aims at achieving specified goals in an organization. Management unities the efforts of different individuals in the organization towards achieving these goals.

2. Management is all pervasive: the activities involved in managing an enterprise are common to all organizations.

3. Management is multi-dimensional: three main dimensions-i) Management of work- organizations exits for the performance of work. Management translates this work in terms of goals to be achieved and assigns the means to achieve it.ii) Management of people- task of management is to make people work towards achieving the organization’s goal. Managing people has two dimensions-i) implies dealing with employees as individuals with diverse needs, ii) dealing with individuals as group of people.

Management Goal

iii) Management of operations: Managing those activities which are relevant for producing goods and services and making these available to customers.it is interlinked with both management of work and management of people.

4. Management is a continuous process: the process of management is a series of continuous, composite, but separate functions. These functions are simultaneously performed by all managers all the time.

5. Management is a group activity: Every member in an organization has different purpose for joining the organization but as members of the organization they work towards fulfilling the common organizational goal.

6. Management is dynamic function: It has to adapt itself to the changing environment as it interacts with the external environment which consists of various factors.

7. Management is an intangible force: it is an intangible force that cannot be seen but its presence can be felt in the way the organization functions.

Objectives of ManagementManagement fulfills three basic objectives: organizational, social and personali) Organizational Objectives: The main objective of any organization should be to

utilize human and material resources to the maximum possible advantage. i.e, to fulfill economic objectives of a business. Survival

Profit

Growth

ii) Social objectives: it involves the creation of benefit for society.it refers to consistently creating economic value for various constituents of society.

iii) Personal objectives: Organisations are made up of people who have different personalities and objectives. They become part of the organization to satisfy their diverse needs. Management has to reconcile personal goals with organizational objectives for harmony in the organization.

OrganisationalObjectives

Importance of Management:i) Management helps in achieving group goals: management is required for

achieving the goals of the organization. Manager gives commom direction to individual effort in achieving the overall goal.

ii) Management increases efficiency: The manager ais to reduce cost and increase productivity.

iii) Management creates a dynamic organization: organization functions in an environment which is constantly changing. Managemet helps people adapt to these changes so that the organizational goals are attained.

iv) Management helps in achieving personal objectives:Manager motivates and leads individuals in such a manner that they are able to achieve personal goals while contributing to over all organizational objectives.

v) Management helps in the development of society:an organization has multiple objectives. In the process of fulfilling these objectives management helps in the development of the organization and through that it helps in the development of society.

Nature of Management: the term management has several different meaning that highlight the different aspects of its nature.Management as Art: the basic features of an art are as follows:i) Existence of theoretical knowledge: Art presupposes the existence of certain

theoretical knowledge. Experts in their respective areas have derives certain basic principles which are applicable to a particular form of art.

ii) Personalised application: the use of this basic knowledge varies from individual to individual . therefore art has a very personalized concept.

iii) Based on practice and creativity: all art is practical. Art involves the creative practice of exiting theoretical knowledge.Management can be said to be an art since it satisfies the following criteria:i) A suucessful manager practices the art of management in the day to day

job of managing an enterprise based on study, observation and experience.

ii) There are various theories of management, a manager applies these scientific methods and body of knowledge to a given situation, an issue or a problem.

iii) A manager applies this acquired knowledge in a personalized and skillful manner in the light of the realities of a given situation.

Management as Science: the basic features of science is as followsi) Systematized body of knowledge: science is a systematized body of knowledge.

Its principles are based on a cause and effect relationship.ii) Principles based on experimentation: scientific principles are first developed

through observation and then tested through repeated experimentation..

iii) Universal validity: scientific principles have universal validity and applicationBased on the above features, we can say that management has some characteristics of science.i) Management has a systematized body of knowledge. It has its own

theory and principles that have developed over a period of time.ii) The principles of management have evolved over a period of time based

on repeated experimentation and observation.iii) Since the principles of management are not as exact as the principles of

science, their application and use is not universal.Management as a profession: A profession has the following characteristics:i) Well defined body of knowledge: All professions are based on a well defined

body of knowledge that can be acquired through instructions.ii) Restricted entry: The entry to a profession is restricted through an examination

or through an examination or thrugh acquiring an educational degree.iii) Professional association: All professions are affiliated to a professional

association which regulates entry, grants certificate, formulates and enforces a code of conduct.

iv) Ethical code of conduct:All professions arebound by a code of conduct which guides the behaviour of its members.

v) Service motive: the basic motive of a profession is to serve their client’sinterest by rendering dedicated and committed service.Management does not meet the exact criteria of a profession but it does have some features of a profession:i) Management is a systematic body of knowledge comprising well

defined principles based on a variety of business situatons. This knowledge can be acquired at different colleges and professionals instituites.

ii) There is no restriction on anyone being designated as manager in any enterprise.

iii) There are several associations of practicing mananagers , but there is no compulsion for managers to members of such an association.

iv) The basic purpose of management is to help the organization achieve its stated goal.

Levels of Management

Chairman, managing director, president, vice president

Production manager, Marketing manager, Finance Manager, human resource Manager, Plant Superintendent, project manager, Chief Information Officier Section officer, Foreman, Store managers

Functions of top level Management:i) Formulation of long term organizational objectives, plans, broad policies covering

entire organizational operations.ii) Prescribing overall organizational structure.iii) Appointment of key managers in the organization.iv) Providing guidance and direction to departmental heads.v) Coordinating the operations of different departments.vi) Reviewing and controlling overall organizational performance.

Functions of Middle Level Managementi) To formulate tactical pans involving short term plans for implementing long term

plans and policies formulated by top management.ii) Allocating resources- for different activities of the department.iii) Recruiting supervisory personnel.iv) Providing guidance and direction to supervisory management.v) Coordinating functions of various sections of the department.vi) Reviewing and controlling departmental functioning.

Functions of Supervisory Level Management i) Formulating day to day plans for carrying out business operations.ii) Providing resources.iii) Providing safe and congenial working conditions.iv) Supervising and guiding the employees. v) Providing training.vi) Maintaining good industrial relations.vii) Conveying grievances of operatives to top-level management.viii) Reviewing and controlling performance of operatives.

Functions of Management

Coordination: coordination is the process by which a manager synchronises the activities of different departments/sections.Characteristics of coordination:i) Coordination integrates group efforts: it integrates group effort and gives common focus

to group efforts to ensure that performance matches target.ii) Ensures unity of action: it acts as a binding force between departments and ensures that

all actions is aimed at achieiving the goals of the organization.iii) Continuous process: begins at the planning stage and continuous till controlling.iv) All pervasive function: coordination is requires at all levelsof management. It integrates

the efforts of different departments and different levels.v) Responsibility of all managers: it is the function of every managers in the organisations.vi) Deliberate function: Managers have to make effort for achieving coordination among

departments, sections and individuals.

Importance of coordination

Planning

organising

staffing directing

controlling

Growth in organisational size

Growth in organizational size: As organization grow in size, the number of people employed by the organization also icreases. It becomes necessary to ensure that all individuals work towards the common goals of the organization. Employees may have their own individual goals also. It is important to harmonise individual goals and organizational goal through coordination.

Functional differentiation: Functions of an organization are divided into departments, divisions and sections. All departments and individuals are interdependent and they have to depend on each other for information to perform their activities. The activity of each department needs to be focused on attainment of common organizational goals. The process of linking the activities of various departments is accomplished by coordination.

Specialisation: Specialisation arises out of the complexities of modern technology and the diversity of tasks to be performed. Specialist usually evaluate, judge and decide according to their professional criteria and do not take advice or suggestions from others and this often leads to conflicts amongst different specialists as well as others in the organization. Therefore coordination is required to reconcile the differences in approach, interest or opinion of the specialists.

Chapter 2: Principles of Management

Concept of Principles of ManagementIt is a general guideline for decision making and behaviour.They are not as rigid as principles of science as they are applied creatively in different situations.

Nature of Principles of Management1. Universal Applicability : These principles can be applied in all types of organisations (Small or

large, Public or Private, manufacturing or service). But how these principles are applied depends on the nature of the organisation.

2. General Guidelines : They are only guidelines and do not provide readymade solutions to managerial problems.

3. Formed by practice and experimentation : These principles of management are formed by experience, by collective knowledge of managers as well as experimentation.

4. Flexible : The principles of management are not rigid. They can be changed according to Demand.

5. Mainly behavioural : Management principles focus on influencing human behaviour. They enable a better understanding of the relationship between human and material resources on achieving goal of the company.

6. Cause and effect relationship : The aim of principles of management is to establish a relationship between cause and effect so that they can be used in similar situations.

7. Contigent : The application of principles of management depends upon the situation at hand.

Significance of Principles of Management(a) Providing managers with useful insights into reality : These principles help managers

understand real life situations. It increases their knowledge, ability and understanding inorder to deal with real life situations. It increases efficiency.

(b) Optimum utilisation of resources and effective administration : The principles ensures that both human and material resources in an optimum manner. Optimum use means that resources should give maximum output with minimum cost. The principle also prevent manager to take decisions free from bias and personal prejudice.

(c) Scientific decisions : Management principles helps managers to take decisions that are made on logic rather than blind faith, free from bias and prejudice.

(d) Meeting changing environment requirements : Even though the principles are general guidelines, they can be modified inorder to meet the changing environment. They are flexible and can adapt to the dynamic business environment.

(e) Fulfilling social responsibility : Principles have evolved as a result of the new demands and requirements of the public. The meaning also changes with time. Focus of business now is to fulfil their social responsibilities and management principles help then do this.

(f) Management training, education and research : Principles of management form the basis of management theory and this theory is very useful for management training, education and research.

Principles of Scientific Management(1) Science not Rule of Thumb : By using science, the management should identify the best method

to do a particular task. This method maximises efficiency. So instead of using different methods according to the likes of the manager, the organisation should use the identified method.

(2) Harmony, Not discord : There should be complete harmony between the management and the workers. Both should realise that the other is important. Complete mental revolution is the way to do this. This is a complete change in the thinking of both the management and the workers.

(3) Cooperation, Not Individualism : There should not be any competition between the management and the workers. They both should realise that they cannot function without each other. There should be open communication between them. There should be an almost equal division of work between them.

(4) Development of Each and Every Person to his or her Greatest Efficiency and Prosperity : This principle focused on worker development. Worker training is required to teach them the best method. Selection of an employee should also be scientific.

Techniques of Scientific ManagementFunctional ForemanshipThis leads to a separation between Planning and Execution function. This technique is applied to the factory floor.Under the factory manager there is a planning in charge and a production in charge.Under Planning in charge, there are four personnel :

- Instruction Card Clerk: provide instructions to the worker.- Route Clerk : Specify the process of production- Time and Cost Clerk : Prepare time and cost sheet- Disciplinarian : Maintain discipline at the work place

Under the Production in charge, there are four personnel :- Speed Boss : Timely and accurate completion of job- Gang Boss : Keeping machines and tools ready for operation- Repair Boss : keeping machinery in working order- Inspector : Check quality of work done

This system was developed because taylor believed that a single individual will not be able possess all the qualities so he created eight specialists to do the work.

Standardisation and Simplification of WorkStandardisation is the process of setting standards for every business activity. These standards are benchmarks which must be strictly followed during production. The objective are :

- Reduce the number of products to fixed types, sizes and characteristics- Manufactured parts and products can be interchanged- Establish standards of excellence and quality of products- Establish standards for performance of men and machines

Simplification is the process of removing unnecessary aspects of a particular product. It aims to remove unnecessary diversity in the productsIt saves cost. It results in reduced inventories, fuller utilisation of machinery and high turnover.

Method StudyThe process of identifying the best way to do a job. It is applied to every aspect of the work. The objective is to minimise the cost and maximise the quality.

Motion StudyThis process refers to the study of the movements done in doing a particular job. It aims at eliminating unnecessary movements so that it takes less time to do a particular job efficiently and effectively.Through this study the following movements can be identified :

(a) Motions which are productive(b) Motions which are incidental(c) Motions which are unproductive

Time Study It is the process of finding the standard time to be taken to perform a well defined job. The objective of time study is to find out how many workers are to be employed so that appropriate salaries can be decided and also labour costs can be identified.

Fatigue StudyFatigue study seeks to determine the amount and frequency of rest intervals in completing a task.There are many causes for fatigue like long working hours, unsuitable work, bad relations with the boss, bad working conditions.

Differential Piece Wage SystemThis system focused on differentiating between the efficient and inefficient workers. This division is made on the basis of standards that are set for the tasks to be done. Taylor introduced different rates of wage payment for those who performed above standard and for those who performed below standard. The difference in the two rates will be the motivation for the under performing worker to perform better.

Mental revolutionMental revolution is the change in the attitude and thinking of the workers and the management towards one another from competition to cooperation. Both should realise they need each other. Both should work towards increasing the profits and should eliminate conflicts. Management should share the profits and the workers should contribute towards the profits.

Fayol’s Principles of Management(1) Division of Work- Work is divided into small tasks- A trained worker is required to do the task.- Leads to specialisation and efficient and effective work(2) Authority and Responsibility

Authority refers to the right or the power to give orders. Authority can be official authority (power from official position) or personal authority(individual authority). Authority can also be formal and informal.Responsibility is the obligation to complete a task givenThere should be a balance between authority and responsibility.

(3) DisciplineIt refers to the obedience to organisational rules and employment agreements. Workers have to obey the rules set by the management and the superiors have to be clear and fair in the agreements and application of penalities.

(4) Unity of Command- There should be only one boss for every worker.- A worker should be answerable only to one superior- Dual subordination should be avoided(5) Unity of Direction

All departments of an organisation should move towards the same objective through coordination. There should only be one head and one plan which would ensure unity of action and coordination.

(6) Subordination of Individual Interest to General InterestThe overall interest of the organisation should always be given more importance that any single employee. Every individual has some interest in the working of the company but it should never become more important that the objectives of the company.

(7) Remuneration The pay and compensation should be fair to both the employee and the organisation. The employee should be able to maintain a reasonable standard of living. At the same time the company should be able to afford the payment.

(8) Centralisation and DecentralisationConcentration of decision making authority with the top management is called Centralisation. Dispersal of the decision making authority to the lower levels is called Decentralisation.

(9) Scalar Chain The formal lines of authority and communication from highest to the lowest ranks is known as scalar chain. This formal chain should not be violated in the normal course of communication.In the case of an emergency a shorter route can be used to speed up communication. This is known as Gang Plank.

(10) OrderThere is a fixed place for everything in an organisation and if everything is in its right place there will be no hindrance or delay in the work of the organisation.

(11) EquityThis refers to the fair treatment of all employees irrespective of nationality, race, caste, gender. It refers to kindliness and justice in the treatment of managers towards their workers. This will ensure loyalty and devotion on the part of the employees towards the organisation.

(12) Stability of Personnel Employee turnover should be reduced to ensure organisational efficiency. An employee should be selected after due consideration but once selected he should be given a chance to perform on the job for a minimum period.

(13) Initiative Workers should be encouraged to put forth their ideas for improvements in their work and their work environment. This will result in self motivation.

(14) Espirit de Corps Management should encourage team spirit, unity and harmony among the employees. This will ensure a spirit of mutual trust and belongingness among the members. There will be no need for penalties.

Chapter 3 : Business Environment

Meaning

It is the sum total of all individuals, institutions and other forces that are outside the control of the organisation. They influence the performance of the business enterprise. The features are as follows:

(a) Totality of external forces(b) Specific and general forces – specific forces affects an organisation directly. General forces

affect indirectly(c) Inter-relatedness- Different elements are integrated with each other.(d) Dynamic: It keeps changing(e) Uncertainity: we can’t predict the changes that take place in the environment.(f) Complexity: It consists of inter related and dynamic forces and therefore it becomes difficult

to understand it as whole. It will easy to understand it in smaller parts.(g) Relativity : the environment differs from country to country and region to region

Importance of Business Environment(1) Identify opportunities and get first mover advantage : Opportunities are positive events which

can improve the performance of a company. By being able to identify this, the company will have an advantage of being the first to identify its advantage.

(2) Identify threats and early warning signals : threats are negative events which can hamper the performance of a company. By being able to identify this, the company will be able to take precautionary measures.

(3) Helps in tapping useful resources : the company gets it s resources from the environment so they have to how to frame policies so that they can efficiently get the resources and at the same time use these resources to produce output which the environment wants.

(4) Helps in coping with rapid changes : Business environment is extremely dynamic and keeps changing at a fast pace. In order to manage this change the manager has to understand his environment and take necessary steps.

(5) Assists in planning and Policy formulation: The analysis and understanding can be the basis for deciding the future course of action.

(6) Helps in improving performance : the enterprise is closely connected to its environment. Suitable practices are undertaken after monitoring the environment.

Dimensions of Business Environment1. Economic Environment : Economic Factors that affect the management practices of an

organisation. Examples are interest rates, inflation rates, value of the rupee.2. Social Environment : Social factors that affect the business functioning like Customs and

Traditions, Values, Social trends and Society’s Expectations.Traditions define social practices that have been followed for a long time.Values refer to concepts that are held with high esteem by the society.Social trends are the current trends that can be opportunities and threats to the business.Society’s expectations are what the society expects from the business.

3. Technological Environment : This includes scientific improvements and innovations that provide new ways of producing the goods and services.

4. Political Environment: It includes the political conditions and the specific attitudes of the elected governments.

5. Legal Environment : It includes legislations passed, administrative orders, court judgements and decisions by different commissions. They refer to the laws of the land.

Economic Environment in IndiaA. Liberalisation : Economic reforms which focused on making Indian businesses free from

restrictions. It ended the licence permit quota raj. It resulted in the following :- Removing licencing requirements- Freedom to decide the size of the business- Removal of restrictions on the movement of goods and services- Freedom in fixing prices- Reduction in tax rates- Making imports and exports easier- Making it easy to bring foreign capital and technologyB. Privatisation : Increasing the role of the private sector by removing the public sector’s role in

Industry.It was done through disinvestment, which is the dilution of the government ownership by transferring it to the private sector.

C. Globalisation : It is the integration of different economies of the world. It involves an increased level of interaction and interdependence among the various nations of the world. Political boundaries were no longer barriers.

Impact of Government Policy Changes on Business and Industry(a) Increasing Competition : Due to change in policies, more companies have entered the Indian

market thereby increasing the level of competition faced by Indian companies.(b) More demanding customers : Customers have become more demanding as they are very aware of

what is available and have more choice available.(c) Rapidly changing technological environment : New technologies have created alot challenges to

smaller firms as they are not able to meet the demands.(d) Necessity for Change : After India became an open economy, there is major changes in the

market forces. This has forced companies to continuously modify their operations.(e) Need for developing human resources: Change in policy have resulted in the need for new skills.

More efforts have to be put in to train people so that the required manpower is available.(f) Market Orientation : The focus of the market is to first find out what the consumer wants and

then produce the products accordingly.(g) Loss of budgetary support to the public sector : As the government has reduced financial support

to the public sector, they are forced to perform so that they can survive.

Chapter 4: PlanningConcept of Planning

Planning is deciding in advance what to do and how to do it.

It requires taking decisions since it involves making a choice from the alternative courses of action.Planning involves setting objectives and these objectives provide direction for managers.

Importance of planning(a) Planning provides direction : Planning ensures that the goals or objectives are clearly

stated so that they act as a guide for deciding what action should be taken and in which direction.

(b) Planning reduces the risk of uncertainty : Risk of uncertainty cannot be eliminated but they can be anticipated through planning and the managerial response can be determined.

(c) Planning reduces overlapping and wasteful activities : Planning helps in avoiding confusion and misunderstanding. Planning ensures clarity in thought and action therefore there will be no repeated or wasteful activities.

(d) Planning promotes innovative ideas : During the planning process new ideas are introduced and discussed.

(e) Planning facilitates decision making : A number of different ideas are discussed and the manager has to decide on the most feasible ones.

(f) Planning establishes standards for controlling : It is in the process of planning that the goals are set. These goals become the standards for the controlling function.

Features of Planning(a) Planning focuses on achieving objectives : Planning has a purpose. It is focused on

achievement of the goals.(b) Planning is the primary function of management : Planning is the first function of

management as it provides the base for the other functions.(c) Planning is Pervasive : Planning is required at all levels of management as well as in all

departments.(d) Planning is continuous : Plans are for a specific period, once the period of time is over

then new sets of plans are prepared again.(e) Planning is futuristic : through forecasting, future events are anticipated and plans are

drawn.(f) Planning involves decision making : Planning involves choosing the best idea from all

the options.(g) Planning is a mental exercise : Planning uses logic and facts to develop the plans. It is a

thinking process.

Limitations of Planning1. Planning leads to Rigidity : Plans once drawn up cannot be changed, so when any change

takes place in the environment then it becomes difficult to adapt to the change.

2. Planning may not work in a dynamic environment : Nothing is constant in the business environment. Planning cannot predict everything, this could hamper effective planning.

3. Planning reduces creativity : Plans are made by the top management and everyone in the lower level is only expected to follow the plans. Hence, this could hamper the creativity of the lower level managers.

4. Planning involves huge costs : A lot of resources are required to formulate plans. Plans require scientific calculations which can be costly. Both time and money has to be invested in planning.

5. Planning is time consuming : Making plans takes time that there is less time invested in its implementation.

6. Planning does not guarantee success : Management tends to use previously used plans again and again, but these need not work every time.

Planning ProcessI. Setting Objectives Objectives are goals which the organisation wants to achieve.

Objectives are set for the entire organisation, for each department.They give direction.Management should participate in the setting of the objectives.If the objectives are clear then it becomes easier to work towards them.

II. Developing PremisesPremises are assumptions about the future.They are base material upon which the plans are drawn.Managers should be familiar with the premises before they start planning.Forecasting is an important technique in creating premises.

III. Identifying Alternative Courses of action Identifying the different ways by which the goals can achieved.The new alternative can be routine or innovative.

IV. Evaluating Alternative CoursesUnderstanding the negatives and the positives of each alternative.Evaluation is done on the basis of the outcome/goals to be achieved.It is also known as the Cost-benefit analysis.

V. Selecting an AlternativeThe best alternative has to be chose.The best is the one which is most feasible with the least consequences.Manager has to use his experience and judgement in making his decision.

VI. Implementing the PlanPutting the plan into action by taking all the necessary steps.

VII. Follow up ActionTo check whether the plans are being implemented in the right way.

Types of PlanSingle Use PlansDeveloped for a one time event or project.Not likely to be repeated in the futureConsists of budgets, programmes, and projects.

Standing PlansIt is a plan used for activities that happen often.Ensures internal operation go on smoothly.Enhances efficient n the daily functioning.Consists of policies, procedures, methods and rules.ObjectivesRefers to the goals to be achieved.Serves as a guide for overall business planning.Objectives have to be expressed in specific terms/measurable in quantitative terms.In the form of written statements that have to be achieved in a specific time period.StrategyRefers to future decisions defining the direction in which the organisation will go in the long run.It is a comprehensive planIt has three dimensions (i) Identifying long term objectives (ii) choosing a particular course of action (iii) allocating resourcesStrategy forms the organisation’s identity in the business environment.PolicyPolicies are general statements that guide the thinking.The ensure that the focus of the organisation goes in a particular direction.They help interpreting and implementing strategies.They define the area within which the manager can function.Manager uses his discretion to interpret policiesProcedureRoutine steps to do activities.They tell the exact way in with work has to be performed.They highlight the steps/sequence/actions to be followed.Usually in chronological order.They are interlinked with policies.Procedures are carried out within a broad policy frame work.

MethodProvides the prescribed way in which a task has to be completed.It deals with a particular step in the procedure and how it will be done.Varies from task to task

Selection of proper method saves time, effort and money.RuleSpecific statements that inform what has to be doneDoes not allow any flexilbilityProgrammeDetailed statements about a project which outlines all aspects of that project.BudgetA plan in the numerical form.Quantifies facts and figures.Allows for easy analysis.

Chapter 5: Organising

Meaning

It is the process of implementing plans by clarifying jobs, working relationships, using resources for achieving goals.

Steps in the Planning Process1. Identification and Division of work

Identifying the work that has to be doneDividing the work into smaller tasks so that it can be managed easily

2. DepartmentalisationSimilar tasks are grouped together which results in the creation of departments.

3. Assignment of dutiesJob positions are created and the suitable work is divided amongst them.Jobs are assigned on the basis of skill and competancies.

4. Establishing reporting relationshipsEvery individual has to know to whom he has to report to and receive order fromEstablishing the superior subordinate relationship.

Importance of Organising1. Benefits of Specialisation

Specific work is done by specific workers on a regular basis. This reduces the workload and also increases specialisation.

2. Clarity in Working RelationshipsOrganising creates working relationships and line of communication.Therefore there is no confusion in the movement of information and instructions.

3. Optimum Utilisation of resourcesProper assignment of jobs avoids overlapping of work, thereby making the best possible use of the resources.

4. Adaptation to changeOrganising allows the organisational structure to be modified to take into account the changes that are taking place in the environment.

5. Effective AdministrationA clear description of jobs are given, therefore, there is no confusion and duplication.Clarity of working relationships makes execution of work effective.

6. Development of personnelIn organising, delegation is possible. This allows managers to reduce their workload by giving routine tasks to subordinates.This is beneficial to both. Managers are able to use their time to explore new ideas, the subordinates are able to develop their skills and be trained to take up higher posts in the future.

7. Expansion and GrowthAllows for growth and diversification by enable it to move away from existing norms.

Organisation StructureIt specifies the relationship between people, work and resources.It is the framework within which managerial and operating tasks are performed.

Organisational ChartGraphical representation of the organisational structure

Span of ManagementIt refers to the number of sub ordinates that can be effectively manages by a superior.This determines the levels of management in the structure.

Types of Organisation StructureFunctional StructureGrouping similar jobs as per functions and the creating separate departments for each function.All departments have a functional head.Advantages:

(a) Leads to occupational specialisation.(b) Promotes control and coordination.(c) Increases managerial and operational efficiency.(d) Reduces duplication of work thereby reduces cost(e) Makes training of employees easier.(f) Ensures each function get complete attention.

Diadvantages :(a) More importance will be given to departmental/functional objectives than the

organisational objectives.(b) May lead to problems of coordination(c) Conflicts of interest if objectives of two departments don’t match.(d) Narrow perspectives may be formed among people working in the same departments.

Suitability : suitable for big organisations with many activities that need specialisation.

Divisional StructureThis structure has diversified into different product categories.It allows for better management of a complex situation.Each product forms a separate division and each division is further divided into a functional structure.So all functions related to a particular product are grouped together.Advantages:

(a) Leads to product specialisation

(b) Easy to fix responsibility as divisional heads are completely responsible for their division performance

(c) Promotes flexibility and initiative which allows faster decision making.(d) Easy expansion and growth. New division can be added without disturbing old ones.

Disadvantages:(a) Dispute relating to allocation of money may arise between different departments.(b) Duplication of work, therefore increase in cost.(c) Managers have complete control of activities of a division hence he might gain power

and ignore organisational interests.Suitability : Businesses with many products. Expansion is easy.

Formal OrganisationIt is the structure designed by the management to accomplish a particular task. Authority and Responsibility is fixed clearly. Can be either functional or divisional.Features:

(a) Relationships between jobs are clear so everyone knows who they have to report to.(b) It is created to achieve the objectives of the organisation.(c) Departments are coordinated, interlinked and integrated through this structure.(d) Created to ensure smooth functioning of the organisation.(e) More emphasis on work rather than relationships.

Advantages :(a) Easier to fix responsibilities as relationships are clearly defined.(b) Employees are very clear about their jobs and responsibilities.(c) Unity of Command is established through the Chain of Command.(d) Goals are completed effectively as structure enables operations to be clear.(e) Stability is present as behaviour of employees can be predicted.

Limitations :(a) Formal communication can have delay as the time taken can be long.(b) Creative talent may not be recognized due to certain rules that are followed.(c) Difficult to understand human relations and focus is on work.

Informal OrganisationThis structure is formed due to the social interactions amongst the employees in an organisation. Groups are formed due to friendships and mutual interests.Features :

(a) It is created from within the formal organisation through social interaction.(b) Group behaviour arises from group norms rather that official rules.(c) Flow of communication is created by the group themselves.(d) The informal group is not created by the management.(e) No definite structure as its a complex network of social relationships.

Advantages :

(a) Informal communication is faster.(b) Fulfils social needs of the members thereby increasing job satisfaction.(c) By removing the shortcomings of formal structure in ensure organisational goals are

achieved.

DelegationIt refers to the downward transfer of authority from superior to subordinate. A superior delegates a task to his subordinate. The subordinate now has the authority to make sure that the task is complete.Elements of Direction

(a) AuthorityIt refers to the RIGHT/POWER of an individual to command his subordinates. It refers to the right to tell people what to do and expect them to do it. It arises from the job position that a person holds.Authority is highest at the top and keeps reducing as u come down the management ladder.

(b) ResponsibilityIt is the obligation on the part of the employee to do the task assigned to him. Responsibility always flows from the subordinate to the superior.

(c) Accountability It refers being answerable to the superior for the task given and its outcome. Accountability cannot be delegated and flows upward.

Importance of Delegation1. Effective Management : manager s function more efficiently as they can concentrate on

more important matters.2. Employee Development: The employees get more chances to develop their managerial

skills. Hence the company has a set of trained employees who can take on higher post when need arises.

3. Motivation of Employee: Delegation of tasks means superior trusts the employee which will increase his self esteem and also improves his confidence.

4. Facilitation of Growth: The organisation will have a ready and trained workforce who can be used when expansion takes place.

5. Basis of management hierarchy: Delegation of authority establishes superior subordinate relationships. It tells who reports to whom. It decides the power of each job position.

6. Better coordination : The elements of delegation defines the powers, duties and answerability of various positions. This reduced overlapping and duplication of tasks.

Decentralisation and Centralisation

CentralisationWhen the decision making authority is retained by the higher management levels

DecentralisationWhen the decision making authority is distributed to the lower managerial levels.

Importance of Decentralisation1. Develops initiative among subordinates: Subordinates become self reliant and

confident as they are given the freedom to take their own decisions by using their own judgement.

2. Develops managerial talent for the future: Through decentralisation they are able to prove their abilities and there creates a pool of qualified manpower.

3. Quick decision making: As decisions are taken by employees who are closest to the task, it saves time when it comes to communication. It is faster therefore decisions are also made faster.

4. Relief to top management: it leaves the top management with more time so that they can take important policy decisions instead of taking routine decisions.

5. Facilitates growth: Decentralisation allows more freedom to lower levels which would increase the competition between the departments which can ultimately improve the organisation’s performance.

6. Better Control : Performance at each level can be evaluated and accountability and responsibility can be fixed hence better control can be established.

Chapter 6

STAFFING

Concept Staffing means putting people to jobs. It focuses on obtaining, utilising and maintaining a satisfactory and satisfied workforce. Importance is given to each and every person and it the worker who is to perform.

Importance of Staffing1. Helps in finding the right person for the jobs available.2. Ensures higher performance by putting right person for the job.3. Ensures survival and growth of the company through succession planning.4. Ensures optimum use of human resources.5. Ensure job satisfaction and high morale through performance assessment and reward.

Staffing as a part of Human Resource ManagementThe staffing function deals with the human element of management. In small organisations it is the job of the manager to perform the management function. His role is limited to the following:

- Placing the right person on the job- Introducing new employees- Training and development of employees- Maintaining morale and taking care of their needs

But as organisations grow, a separate department is created with specialists taking care of the human resource management. They dealt with specialised activities like :

- Recruitment- Analysing jobs by collecting information about them- Developing compensation and Incentive plans- Training and Development of employees

Staffing ProcessI. Estimating the Manpower requirements

Estimating the number of employees and qualification of them is what this step is about. It involves two types of analysis :

- Work load analysis: It is an assessment of the number and the types of human resources required.- Work force analysis: It is an assessment of the number and type of human resources that already

exists in the organisation.II. Recruitment

It is the process of searching for prospective employees and stimulating them to apply for jobs in the organisation. It focuses on creating a pool of candidates. It includes both internal and external sources.

III. SelectionIt is the process of choosing a specific candidate from the pool of candidates created for the job. It serves two important purposes:

- It ensures that the organisation gets the best person- It enhances the self-esteem and prestige of those selected

IV. Placement and OrientationPlacement refers to placing the selected employee on the job for which he was selected.Orientation/Induction is the process of introducing the selected employee to other employees and familiarising him with the rules and policies of the organisation.

V. Training and DevelopmentIndividuals are not just seeking a job but wants a career. Training is provided so that the employee can excel at his job by having the required skills.Development focuses on the all round growth of an individual so that he is able to grow in this/her career.

VI. Performance AppraisalIt is the process of evaluating an employee’s current/past performance against certain standards. This steps includes defining the job, appraising performance and providing feedback.

VII. Promotion and Career PlanningPromotions are very important to a person’s career. It is the area where employees are encouraged to grow and realise their full potential.

VIII. CompensationIt refers to all forms of pay/rewards that are paid to the employees. It includes direct and indirect financial payments.

RecruitmentIt is the process of attracting potential employees with the necessary characteristics or qualification. The various activities involved in the process of recruitment includes:

- Identification of the different sources of labour supply- Assessment of their validity- Choosing the most suitable source- Inviting applications from the prospective candidates.

There are two sources of recruitment which are Internal and External.

Internal SourcesTransfersIt is the horizontal movement of employees within the same organisation. This movement may have a change in duties, responsibilities and working conditions but not in salary.

Promotions It is the vertical movement of employees to a higher position. It leads to higher position carrying higher responsibilities, status and pay. It increases the motivation, loyalty and satisfaction level of the employee.Merits of Internal Sources

1. Employees are motivated to improve their performance. Promotions at one level can lead to promotions in the lower level.

2. Internal recruitment simplifies the process of selection and placement as the person is already known to the organisation.

3. Transfer is a tool of training.4. In transfer, surplus workforce can be shifted to areas where there is a shortage.5. Internal sources are cheaper than external sources.

Demerits of External Sources1. Introduction of fresh talent is reduced.2. Employees may become lazy if they are sure that they will get promotions based on experience.3. New companies cannot use this source.

4. There will be no competitive spirit among the employees5. Frequent transfers can reduce the productivity of the organisation.

External SourcesGetting new employees from sources outside the organisation. New blood can be introduced.The different sources are as follows:

(a) Direct Recruitment: Vacancies are advertised on the notice board outside the company and recruitment is done on the spot when candidates assemble outside.Useful for filling casual vacancies of unskilled or semiskilled jobs.Involves less cost.Suitable for filling temporary vacancies.

(b) Casual Callers: Job seekers come directly to the company and submit their details. The company maintains a database of these candidates. The use this database when the need arises. Less expenditure on recruitment as the data is already with them.

(c) Advertisement: The company advertise in leading newspapers their requirement. A large choice is available to the company in this source.

(d) Employment Exchange: These are organisations run by the government. Umemployed people register themselves with the employment exchanges. They are good sources of recruitment for companies. But most times the data is outdated.

(e) Placement agencies and Management consultants: Placement agencies compile the bio data of a large number of candidates and recommend suitable names to companies who are their clients.Management Consultancy helps companies recruit technical, professional and managerial personnel. They maintain a data bank of qualified and skilled personnel and even advertise on behalf of their clients.

(f) Campus Recruitment: Direct recruitment by the company from educational institutions. They are a popular source for technical, professional and managerial posts.

(g) Recommendations of Employees: new applicants are bought in or suggested by the existing employees.

(h) Labour Contractors: Labour contractors are employees of the organisation who bring in the required amount of labour when the company needs it.

(i) Advertising on Television: The requirements and details of the job are advertised on television.(j) Web Publishing: Online job sites are available to both companies and job seekers.

Merits of External Source1. Qualified Personnel: The management can attract qualified and trained personnel to apply for

the jobs.2. Wider Choice: The company has a wider choice as the vacancies have been advertised over a

larger area.3. Fresh Talent: This source brings in fresh talent. The existing employees may not have the

required specifications or may not be sufficient.4. Competitive Spirit: Competition will increase among the employees when new talent come sin.

Limitations of External Source1. Dissatisfaction among Existing staff: Dissatisfaction and frustration can increase as they feel

that their chances are reduced.

2. Lengthy Process : The recruitment and selection is a long process3. Costly: Alot of money has to be spent on advertisement.

SelectionSelection is the process of identifying and choosing the best person from the pool of candidates.

Process of SelectionI. Preliminary Screening: It is the elimination of unqualified and unfit candidates.II. Selection tests: These tests aim to measure certain characteristics of the applicants. The

important tests are:(a) Intelligence test: to measure the level of intelligence of an individual and also his ability

to make decisions.(b) Aptitude Tests: Measures an individual’s ability to learn new skills and develop.(c) Personality Tests: Measures certain aspects of a person’s personality like emotions,

maturity and value systems.(d) Trade Tests: Measures the existing skills of an individual.(e) Interest tests: Measures the level of interest a per son has in areas apart from his job.

III. Employment Interview; It is a formal conversation between the interviewer and the job applicant to find out the suitability of the person for the job. Details have to be specifically asked and also provided.

IV. Reference and Background check: This is done to verify the information provided by the candidate.

V. Selection decision: After the candidate has passed through all formalities it is the job of the manger to make the final selection decision.

VI. Medical examination: This checks if the candidate is medically fit to perform on the job.VII. Job Offer: Job offer is made through a letter of appointment and contain the details of the job

and also includes a reporting date.VIII. Contract of employment: This contract includes specific details of the job like Job title,

responsibilities, pay package, leave etc

Training and developmentTraining: It is the process by which aptitudes, skills and abilities of the employees to perform specific jobs are increased. It is Job Oriented.Development: The focus is on overall development of the person and not just for doing his job. It is career orientedEducation: Process of increasing the knowledge and understanding of the employees.

Training MethodsOn the Job methods: When training is provided while the person performs his job at the workplace.Off the Job: When training is provided in an environment away from the place of job.

On the Job Methods and off the job methods of training:1. Apprenticeship Programmes: The trainee worker under a master worker.

It is useful when the trainee is expected to learn a specific skill from the master worker.

Usually for jobs that highly skilled.2. Internship Training: joint programme between companies and educational institutions.

Trainees get practical knowledge and skills.3. Induction training: this training involves providing relevant information to new employees.,

introduction of the organisation and its key personnel, terms and conditions of employment, human resources policies and practises, safety measures and procedures and business rules and procedures.

4. Vestibule training: employee learn their jobs on the equipment they will use in actual job performance but training is conducted away from the actual workplace. This training is given when employees are required to handle sophisticated machinery and equipment at actual workplace.

CHAPTER 7 DIRECTING MeaningDirecting refers to the process of instructing, guiding, counselling, motivating and leading people in the organisation to achieve its objectives.Main feature/characteristics:

1. Directing initiates Action

Other function only prepare the setting or the base but directing is the function that ensures that the work is done in the manner decided.

2. Takes place at every level of managementDirecting takes place wherever there is a superior subordinate relationship.

3. Directing is a continuous processIt takes place throughout the life of the organisation, irrespective of who comes and who leaves the organisation.

4. Directing flows from top to bottomIt starts at the top and moves downwards the hierarchy. Every manager can direct his subordinate.

Importance of Directing1. Directing ensures that action is done so that the objectives are achieved.2. Directing integrates the efforts of the employees to achieve organisational goals.3. Through motivation and leadership, directing allows employees to achieve their full

potential.4. Directing ensures that there is less resistance to change through motivation,

communication and leadership.5. Helps in bringing in stability and balance through cooperation and commitment.

SupervisionIt is the process of guiding the efforts of employees and other resources to achieve objectives.It is overseeing the work done by subordinates.It involves giving instructions to ensure resources are used in the proper way.

Functions of a Supervisor1. Supervisor maintains day to day contact and friendly relations with the workers.2. Acts as a link between the management and the workers.3. Maintain unity in the group by solving internal problems.4. Ensures targets are achieved and takes responsibility for it.5. Provides on the job training to the workers.6. Builds morale by influencing the workers through his leadership.7. Provides feedback as to develop work skills.

MotivationMotivation is the process of making subordinates act in a desired manner to achieve certain organisational goals.Features of Motivation

1. Motivation is an internal feeling that influences human behaviour.2. Motivation ensures that the behaviour of the work is for achieving the goals.3. Motivation can be positive(through rewards) and negative( through punishments).

4. Motivation is complex as u deal with heterogeneous individuals.

Maslow’s Need Hierarchy theoryThis theory is based on needs. Within every human there exists a hierarchy of five needs.

1. Basic Physiological NeedsMost basic needs and corresponds to primary needs. The salary helps to satisfy these needs.

2. Safety/ Security NeedsThese needs deal with security and protection from physical and emotional harm.

3. Affiliation/Belonging NeedsThese needs refer to affection, sense of belonging, acceptance and friendship.

4. Esteem NeedsFactors like self esteem, status come under this.

5. Self Actualisation NeedsRefers to the drive to become what one is capable off.

Assumptions of Maslow’s theory1. Behaviour is based on need. Satisfaction of needs influences behaviour.2. People’s needs are always as per the hierarchy.3. A satisfied need can no longer motivate.4. A per son moves to the next when one need is satisfied.

Financial and Non Financial IncentivesFinancial IncentivesThey are incentives which are in direct monetary form or measurable in monetary value.

1. Pay and Allowances Salary, basic pay, allowances, increments, hike in salary.

2. Productivity linked wage incentivesPayment on the basis of performance.

3. BonusIncentives offered over and above the basic payment.

4. Profit sharingWhen employees get a share in final profits of the firm.

5. Co-partnership/ Stock OptionsA scheme where employees are offered shares of the company at a price lower than the market value. They now have ownership in the company,

6. Retirement BenefitsFinancial security for the employees after their retirement.

7. PerquisitesPerquisites and fringe benefits like car allowances, medical, housing etc,

Non Financial incentives

Incentives which satisfies an individual’s psychological, social and emotional factors. They provide emotional satisfaction.

1. StatusRanking position in the organisation. It increases the prestige attached to a particular job or job position.

2. Organisational ClimateThe characteristics which describe the organisation and distinguishes one organisation from the other. The climate in an organisation can be positive or negative.

3. Career Advancement OpportunityManagers should provide opportunity to employees to improve their skills and be promoted to higher level jobs.

4. Job enrichmentIf jobs are enriched or made more interesting, the job itself becomes a motivation.It means designing jobs that have a variety of content, knowledge, skills, more authority and responsibility.

5. Employee Recognition Programmes6. Acknowledging and appreciating the employees for the work and the efforts they have

put in.7. Job security

They want to feel secure about the future of their job and the payment to be received.8. Employee Participation

Involving employees in the decision making function of issues which are directly related to them.

9. Employee Empowerment Giving more autonomy and powers to subordinates.Makes people feel that their jobs are important. Makes them use their skills and talents in a positive manner.

LeadershipLeadership is the ability of an individual to maintain good interpersonal relations with the followers and also motivate them to contribute towards the achievement of the organisational goals.Features of leadership

1. Leadership is the ability to influence the behaviour of others.2. It is the relationship between leaders and followers.3. It is required to achieve group goals.4. Leadership is a continuous process.

Leadership stylesI. Autocratic/Authoritarian Leader

This style of leadership has the following aspects:

- Leader gives orders and expects them to be obeyed- Communication is only one way(superior to subordinate)- He does not like being questioned.- He uses rewards and punishments to get his work done.- This style is effective in increasing productivity in a factory set up.II. Democratic/Participative leader

This style of leadership has the following aspects:- The leader develops plans and makes decision in consultation with his subordinates.- Encourages them to take part in decision making.- The leader believes that subordinates perform better when they make their own

objectives.III. Laissez faire/Free rein Leader

This style of leadership has the following aspects:- Leader does not use power unless its absolutely required.- Followers have a lot of freedom to form own objectives and also how to achieve them.- Followers take care of the issues by themselves.- Leader only supports and provides information if asked.- Subordinate assumes responsibility by themselves.

CommunicationCommunication is the process of transferring information from the sender to the receiver and ensuring that the receiver has understood it in the way they were supposed to.

Formal CommunicationFormal communication flows through official channels designed by the organisation.It flows between the superior and the subordinate.Can be oral and written but is always recorded and filed.Can be classified into two (i) Vertical and (ii) Horizontal

Vertical communication flows vertically(upwards and downwards). Upward communication flows from the subordinate to the superior, and downward communication flows from superior to the subordinate.

Horizontal/lateral communication takes place between two people/divisions on the same level.

There are different types of communication networks:1. Single Chain : Communication flows between the superior and the subordinate through a

single chain.2. Wheel : all subordinates of a superior communicate through him only.3. Circular : The communication moves in a circle.

4. Free flow: each person can communicate with others freely.5. Inverted V: Subordinate is allowed to communicate with his immediate superior as well

as his superior’s superior.

Informal CommunicationIt is also known as Grapevine communication.It arises from the need of employees to exchange their views which cannot be done through the formal channels.

Barriers to CommunicationBarriers are breakdowns which affect the free flow of communication.The different types of barriers can be classified as follows:

1. Semantic BarriersBarriers arising due to the meanings of words and sentences.It is concerned with the problems arising in the process of encoding and decoding of the message. They are as follows:

- Badly expressed message: This arises due to inadequate vocabulary, use of wrong words etc.

- Symbols with different meanings: since words can different meanings, the receiver make use one meaning instead of the other.

- Faulty translations: Sometimes the message may have been written in one language and then translated, there might problems in the translations.

- Unclarified assumptions: Receiver may have assumptions which may go unclarified.- Technical jargon; Terms and phrases which are technical in nature may not be understood

by the receiver.- Body Language and gesture decoding: The body language and the gestures used can be

misunderstood by the receiver.2. Psychological Barriers

These barriers are related to emotional or psychological barriers. They are as follows:- Premature Evaluation: Message is evaluated before the sender completes his message due

to pre-conceived notions.- Lack of attention: the receiver is pre occupied or not paying attention.- Loss in transmission and poor retention: The message may change during transmission.

The receiver may not be able to remember for a long time.- Distrust. The receiver does not trust the sender.3. Organisational Barriers

Barriers related to the organisational structure, authority relationships. They are as follows;

- Organisational Policy: The policy of the company may not support free flow of communication.

- Rules and Regulations: There are a lot of procedures to overcome.- Status: The position of the superior might prevent free flow of communication between

the superior and the subordinate.- Complexity in organisational structure: If there are a lot of levels them communication

can be effected.- Organisation facilities: The company does not have systems or facilities that allow

effective flow of communication.4. Personal Barriers: Personal factors of both the sender and the receiver. They are as

follows:- Fear of challenge to authority: If a particular communication affects the authority of a

superior he might not allow the communication to go through.- Lack of confidence of the superior in his subordinate: If he does not trust the subordinate

then he might not trust the subordinate.- Lack of incentives: If there is no motivation/incentive then communication might not be

effective.

Improving Communication Effectiveness1. Clarify the ideas before communication

There should be clarity in the message to be communicated by the superior. If there is no clarity then it will be difficult for the subordinate to understand the message.

2. Communicate according to the needs of the receiverThe level of understanding of the receiver should be taken into consideration before the communication is done.

3. Consult others before communicatingThe sender should involve others in developing the plan of communication.

4. Be aware of languages, tone and content of messageThe manner in which the information is communicated play a very important role in making the communication effective.

5. Convey things of help and value to listenersThe information conveyed should have some relevance to the listener inorder to get a response from them.

6. Ensure proper feedbackThe sender should ensure that there is a effective way to check the feedback so that the sender is clear that the receiver has understood it clearly.

7. Communicate for present as well as futureCommunication should meet present as well as future goals.

8. Follow up communicationsThere should be regular follow up on the communication done, it will remove the hurdles in the implementation of the instructions.

9. Be a good listener

Superior should a good listener and only then will the communication process be complete.

CHAPTER 8

CONTROLLING

1. Meaning of Controlling:

Controlling means ensuring that all the activities in an organisation are performed as per the plans and the resources are being used effectively and efficiently.

Controlling is a goal oriented function.

Controlling function of a manager is a pervasive function.

2. ‘Controlling should not be misunderstood as a last function of management .’ Why?It is a function that brings back the management cycle back to the planning function.Controlling also finds out the deviations between the standard and actual and takes corrective action.it improves planning in the next cycle.

3. Importance of controlling:i. Accomplishing organizational goals: controlling function guides the organisation by

measuring the progress towards the goals and brings light to the deviations.ii. Judging accuracy of standards: An efficient control system keeps a careful check on the

changes taking place in the organisation and in the environment and helps to review and revise the standards in light of such changes.

iii. Making efficient use of resources : In controlling each activity is performed in accordance with predetermined standards and this helps to reduce the wastage and spoilage of resources.

iv. Improving employee motivation: In a good control system employees know well in advance the expected standards of performance on the basis of which they will be appraised . It motivates them to give better performance.

v. Ensuring Order and Discipline: controlling helps to minimize dishonest behavior on the part of the employees by keeping a close check on their activities.

vi. Facilitating coordination in action: Here each employee and department is governed by predetermined standards which are well coordinated with one another.

How Planning and Controlling are related:

PLANNING CONTROLLINGStandards of performance are provided by planning.Plan is operational

Planning is the prerequisite of controlling

Planning seeks consistent, integrated and articulated programmes.Planning is an intellectual process

Planning is looking ahead. Because plans are prepared for future and are based on forecasts about future conditions.

Control presupposes the existence of certain standards.Control is to monitor the progress measure it and discover the deviationsControlling cannot be possible without planningControlling seeks compel events to conform to plans.Controlling checks whether decisions have been translated into desired action.Controlling is looking back. Because it is like a postmortem of past activities to find out deviations from standard. So it is a

Planning is guided by past experiences and corrective actions initiated by controlling function. So planning and controlling are both backward-looking as well as a forward -looking function.

Controlling Process:

Step 1: Setting Performance Standards: Standards are the criteria against which actual performance would be measured and they serve as the benchmarks towards which an organisation strives to work. Examples for quantitative standards are cost to be incurred, revenue to be earned, time to be spent in performing a task etc. Examples of Qualitative standards are improving goodwill and motivation level of employees. The standards should be flexible enough to be modified whenever required.

Step 2: Measurement of actual performance: The techniques used for measuring the performance includes personal observation, sample checking , performance reports etc. The performance should be measured in the same units in which the standards are set and this makes the comparison easier. Measurement of the work should be done during the performance .

Measurement of performance of an employee may require preparation of performance report bhy supervisor. A company’s performance is measured by using gross profit ratio , net profit ratio, ROI etc.

Sample checking is the checking of quality specifications by checking certain pieces at random.

Step 3: Comparing Actual Performance with Standards: in this step the actual performance is compared with the standard and this will reveal the deviation.

Step 4: Analysing deviations: it is important to find the acceptable range of deviations and deviations in key areas of business. Crtitical point control and Management by exception should be used by the manager in this regard.

i. Critical Point Control: Control should focus on key result areas (KRAs) which are critical to the success of an organisation. These KRAs are set as the critical points. If anything goes wrong at these points the entire organisations suffers.

ii. Management By Exception: it can also be referred to as control by exception.instead of controlling everything only the significant areas which go beyond the permissible limit should be brought to the notice of the management.

After this the exact cause of deviation is to be analysed. Then it is to be reported and corrective action taken at appropriate level.

Step 5 : Taking corrective actions: if the deviations are within the acceptable limits then no corrective action is required. But if it goes beyond the range in important areas then it demands immediate managerial attention .

Corrective action might involve training of employees , in case of projects assigning of additional workers and equipment to the project and allowing overtime work. If the deviations cannot be corrected then the standards may have to be revised.

CHAPTER 9

FINANCIAL MANAGEMENT

Meaning of Business finance: It is the money required for carrying out the business activities. These activities include establishing or expansion of a business, buying of variety of assets and running day-to-day operations like payment of bills , salaries etc.

Financial management: It is concerned with optimal procurement as well as the usage of the finance.

Optimal procurement is the reducing of cost of the funds procured by keeping the risk under control. The returns from the investment should exceed the cost at which the procurement has taken place.

Importance of Financial management: Almost all items in the business are affected directly or indirectly by the financial management decisions.

i. The size and composition of fixed assets of the business: ii. The quantum of current assets and its break-up into cash, inventory and receivables:

With an increase in the investment in fixed assets , there is a commensurate increase in the working capital requirement. The quantum of current assets is also influenced by financial management decisions.

iii. The amount of long-term and short-term funds to be used: An organisation wanting to have more liquid assets would raise relatively more amount on the long-term basis.

iv. Break-up of long-term financing into debt, equity etc: The amounts of debt , equity share capital, preference share capital are affected by the financing decision, which is a part of financial management.

v. All items in the Profit & Loss Account, eg: Interest, Expense, Depreciation etc: Higher a,ount of debt means higher interest expense in future and use of higher equity may result in higher payment of dividends.

Objectives: Primary aim is to maximize the current price of equity shares of the company or to maximize the wealth of owners of the company .ie, wealth maximization concept

Financial Decisions: The finance function is concerned with three broad decisions . They are:

i. Investment decisionii. Financing decisioniii. Dividend decision

(i) Investment decision: It relates to how the firm’s funds are invested in different assets. It can be long-term or short-term.The long-term Investment decision is also called a Capital Budgeting Decision means committing the finance on a long term basis. Examples are, acquiring a new asset by replacing an old one , opening a new branch etc. Short-term investment decisions or Working capital decisions are concerned with the decision about the levels of cash, inventory and receivables. These affect the liquidity as well as profitability of the business.

Factors affecting Capital budgeting decision(Long-term):

(a) Cash flows of the project: The cash involved in the investment decision of a huge amount are in the form of a series of cash receipts and payments over the life of an investment. So it should be carefully analysed before considering a capital budgeting decision.

(b) The rate of return: These calculations are based on the expected returns from each proposal and the risk involved.

(c) The investment criteria involved: The decision involves number of calculations regarding amount of investment, interest rate , cash flows and rate of return. Before selecting the proposal some of the capital budgeting techniques are applied to evaluate the proposal.

(ii) Financing Decision: It is about the quantum of finance to be raised from various long-term sources. A firm needs to have a judicious mix of both debt and equity in making financing decisions.

Floatation cost is the cost associated with raising the fund.

Factors affecting Financing decisions(long-term):

(a) Cost: A prudent financial manager would normally opt for a source which is the cheapest.(b) Risk: risk associated with each of the source is different.(c) Floatation cost: higher the floatation cost, less attractive the source.(d) Cash flow position of the company: A stronger cash flow position is good to make debt financing

than funding through equity.(e) Fixed operating costs: if a company has more fixed operating costs then lower debt financing is

better. If it is less more of debt financing is preferred.(f) Control considerations: more equity leads to less control of management over the business .(g) State of Capital market: when stock market is rising , more people will invest in equity and

depressed capital market results in the difficulty of issuing equity shares.

(iii) Dividend Decision: Dividend is the portion of profit which is distributed to shareholders.The decision involved is how much of the profit earned by the company is to be distributed to the shareholders and how much is to be retained in the business.

Factors affecting dividend decision:

(a) Amount of Earnings: Dividends are paid out of current and past earnings.(b) Stability Earnings: A company having stable earning is in a better position to declare higher

dividends.(c) Stability of dividends: Dividend per share is not altered if the change in earnings is small or seen

to be temporary in nature.(d) Growth opportunities: Companies having good growth opportunities retain more money out of

their earnings so as to finance the required investment.(e) Cash flow position: Availability of enough cash in the company is necessary for the declaration

of the dividend.(f) Shareholders’ preference: while declaring dividends , managements must keep in mind the

preferences of the shareholders in this regard.(g) Taxation policy: if tax on dividend is higher it is better to pay less dividends and higher dividends

may be declared if the tax rates are relatively lower.(h) Stock market reaction: The possible impact of dividend policy on the equity share price is one of

the important factor while taking decision.(i) Access to capital market: large and reputed companies have easy access to the capital market and

they may depend less on retained earnings and pay higher dividend than smaller companies.(j) Legal constraints: provisions of the Companies Act place restrictions on dividend payment.(k) Contractual constraints: restrictions on payment of dividends by the lender while granting loans.

Financial Planning: it is the preparation of a financial blueprint of an organisation’s future operations.it aims at smooth operations by focusing on fund requirements and their availability in the light of financial decisions.

Objectives of financial planning: (i) To ensure availability of funds whenever required: In this funds required for different purposes as well as the time at which these funds are made available are properly estimated. It also tries to specify possible sources of these funds.

(ii) To see that the firm does not raise resources unnecessarily: good financial planning would put excess fund in the best possible use instead of keeping it as idle and don’t add unnecessarily to the cost.

Importance :

i. It may help in forecasting what may happen in future under different business situations.ii. It helps in avoiding business shocks and surprises and helps to prepare for the future.iii. It helps in co-coordinating various business functions.iv. It reduces waste, duplication of efforts and gaps in planning.v. It tries to link the present with the future.vi. Provides a link between investment and financing decisions on a continuous basis.vii. Specification of detailed objectives makes the evaluation of actual performance easier.

Capital Structure: Owners fund consists of equity share capital, preference share capital and reserves and surplus or retained earnings. Borrowed funds can be in the form of debentures, loans, public deposits etc. capital structure refers to the mix between owners and borrowed funds.

Factors affecting the Choice of Capital Structure:

1. Cash Flow Position: Company has cash payment obligations for normal business operations, investment in fixed assets and for meeting the debt service commitments. So size of projected cash flows must be considered before borrowing.

2. Interest Coverage Ratio (ICR): it refers to the number of times earnings before interest and taxes (EBIT) of a company covers the interest obligation. ICR = EBIT/ InterestHigher the ratio , lower the risk of meeting interest payment obligations.

3. Debt Service Coverage Ratio( DSCR) : The cash profits generated by the operations are compared with the total cash required for the service of the debt and the preference share capital.

4. Return On Investment (RoI): if the RoI of the company is higher it can choose to use trading on equity to increase its Earnings Per Share (EPS).

5. Cost of Debt: More debt can be used if debt can be raised at a lower rate.6. Tax Rate: Since interest is a tax deductible expense , cost of debt is affected by the tax rate .

Higher tax rate makes debt relatively cheaper.7. Cost of Equity: increase in debt increases the financial risk of equity shareholders. If debt is used

beyond a limit point , cost of equity may go up sharply and share price may decrease.8. Floatation Costs: the cost of public issue of shares and debentures is more in comparison to

getting a loan from a financial institution.

9. Risk Consideration: use of debt increases the financial risk of a business. Other than that higher fixed operating cost result in higher business risk. If a firm’s business risk is lower , its capacity to use debt is higher.

10. Flexibility: to maintain flexibility, the firm must maintain some borrowing power to take care of unforeseen circumstances.

11. Control: Public issue of equity reduces the management’s holding in the company.12. Regulatory Framework: choice of source of finance should depend on the regulatory framework

provided by the Law. Eg: SEBI guidelines on public issue of shares and debentures13. Stock Market Conditions: During bullish phase equity shares are more easily sold at a higher

price and during bearish phase the company may find difficulty in raising fund through equity so it may opt for debt.

14. Capital structure of other companies: Usage of debt-equity ratios of other companies in the same industry can be a useful guideline for capital structure planning.

Optimum Capital structure: A capital structure is said to be optimal when the proportion of debt and equity is such that it results in an increase in the value of the equity share. A company must choose that risk-return combination such which maximizes shareholders’ wealth . the debt-equity mix that achieves it , is the optimal capital structure.

Financial Risk: It is the chance that a firm would fail to meet its payment obligations.

Financial Leverage: The proportion of debt in the overall capital is called financial leverage.. it is computed as D/E or D/D+E when D is the debt and E is the equity.

Trading on Equity: In such cases where cost of debt is lower than the Return on Investment(ROI) the company uses more debt. With higher use of debt EPS increases. This is a situation of favourable financial leverage. In such cases companies use more of cheaper debt to enhance the EPS and this practice is known as Trading on Equity.

Fixed and Working capital:

Fixed capital: It refers to the investment in long-term assets and financed through long term sources of capital such as equity or preference share capital, debentures etc. the decisions on long term sources are also called Capital budgeting decisions.

The management of fixed capital or investment or capital budgeting decisions are important for the following reasons: i. Long term growth, ii. Large amount of funds involved ,iii .Risk involved, iv. Irreversible decisions.

Factors affecting the Requirement of Fixed Capital: 1. Nature of Business: The type of business has a bearing upon the fixed capital requirements.2. Scale of Operations: A larger organisation is having more requirements and they needs higher

investment in fixed assets compared to small organisations.3. Choice of technique: capital intensive organisation requires more investment in plant

&machinery as it relies less on manual labour.4. Technology Upgradation: organistions which use assets which are prone to obsolescence requires

higher fixed capital to purchase such assets.

5. Growth prospects: higher growth of an organisation generally requires higher investment fixed assets.

6. Diversification: diversification requires more investment in fixed capital requirements .7. Financing Alternatives: Alternative facilities like leasing in place of outright purchase of assets

avoids the huge investment of purchasing such assets.8. Level of collaboration: collaborations reduces the level of investment in fixed assets for each one

of the participating organisations.Working capital:The investment in current assets facilitates the smooth day-to-day operations of the business. This capital investment is known as working capital.Factors affecting Working Capital requirements:

1. Nature of business: basic nature of an organisation influences the working capital requirement. Example a trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.

2. Scale of operations: an organisation working on higher scale of operation requires large amount of working capital compared to the one working on a lower scale.

3. Business Cycle: in case of boom period the working capital requirement is more but it is less in periods of depression.

4. Seasonal factors: In peak season because of large level of activity more working capital is required.

5. Production Cycle: it is the time span between the receipt of raw material and their conversion into finished goods. Working capital requirement is higher in firms with longer processing cycle and lower in firms with shorter processing cycle.

6. Credit Allowed: a liberal credit policy result in higher amount of debtors, increasing the requirement of working capital.

7. Credit Availed: to the extent which the firm avails credit on purchases the working capital requirement is reduced.

8. Operating Efficiency: High operating efficiency reduces lower requirement in working capital.9. Availability of raw material: larger the lead time , larger the quantity of material to be stored and

larger shall be the amount of working capital required.10. Growth prospects: If the growth potential is higher the working capital requirement is larger11. Level of Competition: competition may also force the firm to extend liberal credit terms and

result in increase in working capital.12. Inflation: the requirement of working capital is higher with the higher rate of inflation.

CHAPTER 10

FINANCIAL MARKETS

A financial market is a market for the creation and exchange of financial assets such as issue and sale of equity shares, debentures and bonds.

Banks and financial markets are the competing intermediaries in the financial system and give households a choice of where to plant their savings. The process by which allocation of funds is done is called Financial Intermediation.

Functions of Financial Market:

1. Mobilization of saving and channeling them into the most Productive use: A financial market facilitates the transfer of savings from savers to investors.

2. Facilitating Price Discovery: In the financial market households are the suppliers of funds and business firms represents the demand. The interaction between them helps to establish a price for the financial asset which is being traded.

3. Providing Liquidity to Financial Assets: financial markets facilitate easy trading if financial assets and this provide liquidity to financial assets.

4. Reducing the Cost of Transaction: financial markets provide valuable information about securities being traded in the market and this helps to save time, money and effort of both buyers and sellers.

MONEY MARKET:

It is a market where low risk, unsecured and short term debt instruments that are highly liquid are issued and actively traded everyday.

The major participants in this market are Reserve Bank of India (RBI), Commercial Banks, Non-Banking Finance Companies, State Governments ,Large Corporate Houses and Mutual Funds.

Money market Instruments:

1. Treasuary Bill: It is basically an instrument of short-term borrowing by the Government Of India maturing in less than one year. they Zero-coupon Bonds. They are issued in the form of Promissory note. They have assured yield. They are issued at discount and repaid at par.

2. Commercial paper: it is a short term unsecured Promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short-term funds at lower interest rates with a maturity period of 15 days to one year.

3. Call money: it is a method by which banks borrow from each other to be able to maintain the cash reserve ratio.it is a short term finance repayable on demand with a maturity period of one day to fifteen days.the varied interest rate on this is known as Call rate.

4. Certificate of Deposit: these are unsecured , negotiable m short –term instruments in bearer form , issued by commercial banks and development financial institutions.

5. Commercial Bills: it is a bill of exchange used to finance the working capital requirement of business firms.when goods are sold on credit, the seller draws the bill and the buyer accepts the bill. On being accepted the bill becomes a marketable instrument and is called a Trade bill.

Capital Market: It refers to the facilities and institutional arrangements through which long-term funds , both debt and equity are raised and invested. The capital market consists of development banks, commercial banks and stock exchanges. It is divided into Primary market and Secondary market.

Distinction between Capital market and Money market:

Basis Capital Market Money MarketParticipants Financial institutions, banks ,corporate

entities, foreign investors, ordinary retail investors

RBI, Banks, financial institutions, finance companies

Instruments Equity shares, debentures, bonds, preference shares

Short term debt instruments like treasury bills, trade bills, commercial paper etc.

Investment outlay Value of units of securities generally low. Example: Rs.10, Rs.100

Transactions entail huge sums of money.

Duration Deals in medium and long term securities Term varies from one day to maximum of one year.

Liquidity They are liquid instruments because they are marketable in the stock exchange. But cannot be easily traded

Discount Finance House of India provides a ready market for this instruments and are highly liquid

Safety Riskier with respect to returns and principal repayment

Safer with a minimum risk of default.

Expected return Higher return than money market. Capital gain and high dividend if it kept for long period of time.

Low compared to capital market.

PRIMARY MARKET: It also known as new issues market. It deals with new securities being issued for the first time. The investors in this market are banks, financial institutions, insurance companies . mutual funds and individuals.

Methods of Floatation in the Primary market:

1. Offer through Prospectus: It is the most popular method of raising funds . This involves inviting subscriptions from the public through issue of Prospectus.it is a direct appeal to investors through an advertisement in newspapers. The issue may be underwritten and required to be listed in at least one stock exchange and provisions should be according to the guidelines of SEBI

2. Offer for sale: in this a company sells securities at an agreed price to brokers who, in turn , resell them to the investing public.

3. Private Placement: It is the allotment of securities by a company to institutional investors and some selected individuals and it is chosen by the companies which cannot afford a public issue.

4. Rights Issue: The shareholders are offered the ‘right’ to buy new shares in proportion to the number of shares they already possess.

5. e-IPOs : A company proposing to issue capital to the public through the on-line system of the stock-exchange has to enter into an agreement with the stock exchange. This is called an Initial Public Offer (IPO).

Secondary Market: secondary market is also known as the stock market or stock exchange.

It is the market for the purchase and sale of existing securities . Securities are traded, cleared and settled within the regulatory framework prescribed by SEBI.

Stock Exchange: Stock exchange is an institution help companies to raise finance, provide liquidity and safety investment to the investors and enhance the creditworthiness of individual companies.

According to the Securities Contracts (Regulation) Act 1956, stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying and selling or dealing in securities.

Functions of Stock Exchange:

1. Providing liquidity and marketability to existing securities: basic function of stock exchange is the creation of continuous market where securities are bought and sold.

2. Pricing Securities: A stock exchange is a mechanism of constant valuation through which the prices of securities are determined.

3. Safety of Transaction: Its dealing are regulated within the legal framework.4. Contributes to Economic growth: Because through stock exchange the process of

disinvestment and reinvestment of savings get channelized into most productive investments.5. Spreading of Equity Cult: stock exchange can play a vital role in ensuring wider share

ownership by regulating new issues better trading practices and taking effective steps in educating the public about investments.

6. Providing scope for Speculation: certain degree of healthy speculation is necessary to ensure liquidity and price continuity in the stock market.

Trading Procedure: Now trading in securities is now executed through an on-line , screen-based electronic trading system.

Now trading has shifted from the stock market floor to the brokers office who are members of the stock exchange. Every broker has to have access to a computer that is connected to the main stock exchange. In this a member logs on to the site and any information about the share he wishes to buy or sell and the price is fed into the computer. The transaction will be executed when a matching order is found from a counter party. Both the parties being able to see the prices of all shares going up and down at all times during business hours of the stock exchange. The computer in the brokers office is constantly matching the orders at the best bid and offer price. That are not matched remain on the screen and open for future matching.

Dematerialisation: It is a process where securities held by the investor in the physical form are cancelled and the investor is given an electronic entry or number so that the investor can hold it as an electronic balance in an account. This process of holding securities in an electronic form is called dematerialization.

Depository: It is like a bank and keeps securities in electronic form on behalf of the investor.it is a technology driven electronic storage system. In India there are Two depositories: National Securities Depositories Limited (NSDL) and National Stock Exchange.

SEBI (Securities And Exchange Board Of India):

It was established by the Government of India on 12April 1988 as an interim administrative body to promote orderly and healthy growth of securities market and for investor protection.

Objectives:

1. To regulate stock exchanges and the securities industry.2. To protect the rights and interests of investors.3. To prevent trading malpractices 4. To regulate and develop a code of conduct and fair practices by intermediaries like brokers,

merchant bankers etc.

Function of SEBI:

Regulatory functions: 1. Registration of brokers, sub-brokers and other players.

2. Registration of collective investment schemes and Mutual Funds.

3. Regulation of stock brokers, portfolio exchanges , underwriters etc.

4. Regulation of takeover bids by companies.

5. Calling for information by undertaking inspection, conducting enquiries and audits of stock exchanges and intermediaries.

6. Levying fee or other charges.

7. Performing and exercising the powers delegated by the Government of India.

Development Functions:

1. Training of intermediaries2. Conducting research and publishing information useful to all market participants3. Undertaking measures to develop the capital markets.

Protective Function:

1. Prohibition of fraudulent and unfair trade practices2. Controlling insider trading and imposing penalties for such practices.3. Undertaking steps for investor protection4. Promotion of fair practices and code of conduct in securities market.

CHAPTER 11

MARKETING

Selling & Marketing: Concept :

Marketing involves a whole range of activities relating to planning, pricing , promoting and distributing the products that satisfy the consumers needs.

Selling is the function that includes promotion of goods and services through salesmanship , advertising, publicity and short-term incentives so that title of the product is transferred from seller to buyer .

Marketing Management:

Marketing management refers to planning, organizing, directing and control of the activities which facilitate the exchange of goods and services between producers and consumers or users of products and services.

According to Philip Kotler ‘marketing management as the art and science of choosing target markets and getting , keeping and growing customers through creating ,delivering and communicating superior customer values of management’.

Functions of Marketing:

1. Gathering and analysing market information: It is important to identify the needs and wants of the consumer as well as the available opportunities and threats and strengths and weaknesses these all done with the help of careful market analysis. With the growth of computers a new trend has emerged in the collection of marketing information.

2. Marketing Planning: A marketer has to develop appropriate marketing plans so that the marketing objectivities of the organisation can be achieved.

3. Product Designing and Development: The design of the product contributes to making the product attractive to the target customers. A good design can improve performance of a product and also give it a competitive advantage in the market.

4. Standardisation and Grading: Standardisation refers to producing goods of predetermined specifications ,which helps in achieving uniformity and consistency in the output.Grading is the process of classification of products into different groups on the basis of quality, size etc.

5. Packaging and Labelling: Packaging refers designing and developing the package for the products. Labelling refers to designing and developing the label to be put on the package. Packaging not only protects the product but act as a promotion tool.

6. Branding: Brand name helps in creating product differentiation.7. Customer Support Services: it includes after sales services, handling customer complaints and

adjustments, procuring credit services, maintenance services, technical services and consumer information. These all services aims at customer satisfaction.

8. Pricing of Product: In case of demand of the product, generally lower the price higher would be the demand. In this several crucial decisions are involved like setting the pricing objectives, determining the pricing strategies, determining the price etc.

9. Promotion: informing the customers about the firm’s product, it’s features etc and persuading them to purchase the product. The important methods of promotion are advertising, personal selling, publicity and Sales promotion.

10. Physical Distribution: this includes the decision regarding (i)the channels of distribution or the market intermediaries (ii)physical movement of product from the place of production to the place of usage.

11. Transportation : it is the physical movement of goods from one place to another.12. Storage or Warehousing: To fill the time gap between the production or procurement of goods

and their sale or use.

MARKETING MANAGEMENT PHILOSOPHIES:

1. The Production Concept: In earlier days of industrial revolution demand exceed the supply because of the limited number of producers. Anybody who could produce the goods was able to sell. Profits could be maximized by producing in a large scale. Greater emphasis were given to improve the production and distribution efficiency for profit maximization.

2. The Product Concept: Mere availability and low price of the product could not ensure increased sale and as such the survival and growth of the firm. Customers were started looking at the product quality, performance and features. So firms emphasis were shifted from quantity to quality of products. Thus product improvement became the key to profit maximization of the firm.

3. The Selling Concept: The product quality and availability did not ensure the survival and growth of the firms because of the large number of competitors .The philosophy changed to motivate and convince the consumers to buy enough products. So the firms started adopting promotional tools and focus of business firms shifted to pushing the sale of the product through aggressive selling techniques.

4. The Marketing Concept: Focus on satisfaction of consumer’s needs is the key to the success of any organisation in the market. By identifying the needs an organisation can achieve the long run objective of profit maximization. Customer satisfaction become the focal point of all organisations. Marketing concept is based on the following pillars:(i)identification of market or customer who are chosen as the target or marketing effort(ii)understanding the needs and wants of customers in the target market(ii)development of products or services for satisfying the needs of the target market.(iv)satisfying the needs of target market better than the competitors. (v)Doing all this at a profit.

5. Societal Marketing Concept: In the marketing concept it cannot be considered adequate if it is faced by the challenges like environmental pollution , deforestation population explosion etc.. so this concept holds that any organisation has to identify the needs and wants of the target market and deliver the desired satisfaction in the effective and efficient manner so that the long –term well-being of the consumers and the society is taken care of.

MARKETING MIX: It can be described as the set of marketing tools that a firm uses to pursue its marketing objectives in a target market.

The factors that affecting marketing decisions are classified into (i) controllable factor: these are the factors which can be influenced at the level of the firm like brand name, price of the product ,distribution networks etc. (ii) uncontrollable factors: these are not controllable at the firm’s level like environmental factors.

Elements of Marketing mix: They are known as four Ps of marketing.

1. Product: it means the goods or services or ‘anything of value’ which is offered to the market for sale.it includes not only the physical product but also the benefits offered by it from the view point of the customer. It also includes the extended product such as the after sales service, handling complaints ,availability of spare parts etc.

2. Price: It is the amount of money customers have to pay to obtain the product. Decisions have also taken in respect of discounts to customers, traders and credit terms etc.

3. Place: Place or Physical distribution include the activities that make firm’s product available to the target customers. Important areas of decision to be taken in this are selection of intermediaries and providing support to them. It includes managing inventory, storage, warehousing and transportation of goods from the place of production to the place of consumption.

4. Promotion: it means to communicate the availability, features, merits etc. of the products to the target customers ad persuade them to buy it. For the promotion of the goods certain tools are to be used by the firm such as advertising, personal selling and sales promotion.

PRODUCT

In common the word ‘product’ is used to refer only the physical or tangible attributes of product. Example: Cell phone

But the decision to buy the product is affected by certain non-tangible and psychological factors such as brand name, reputation, guarantee etc.

So in marketing Product is a mixture of tangible and intangible attributes , which are capable of being exchanged for a value, with ability to satisfy customer needs . Services , ideas, persons and places are also included in the concept of product.

Thus product may be defined as anything that can be offered to a market to satisfy a want or a need.

BRANDING: Generic name refers to the name of the whole class of the product Eg: Tyre, camera etc.. If products are sold by generic name it would very difficult for the identification. Thus marketers give name to their product for identification from the competitor’s product. The process of giving name or sign or symbol etc. to a product is called branding.

Brand name is the verbal component of a brand

Brand mark is appeared in the form of a symbol

Trade mark a brand that is given legal protection

PACKAGING: It refers to the act of designing and producing the container or wrapper of a product. It is a means to create product differentiation. Packaging protects the product as well as it act as a promotional tool.

LABELLING: labels are useful in providing detailed information about the product, its contents, method to use etc.

PRICE: (pricing): price is the amount of money paid by the buyer in consideration of the purchase of a product or a service.

Pricing is often used as the regulator of the demand of a product. Pricing is considered to be an effective competitive weapon. It is the single most important factor affecting the revenue and profits of a firm.

Factors Determining Price:

1. Product cost: This includes the cost of producing , distributing and selling the product. All the firms will strive to cover all these costs in the long run and in addition they aim at earning a margin of profit over these costs. There are broadly three types of costs namely, Fixed cost, Variable cost and semi-variable cost. Fixed costs are those costs which do not vary with the volume of production. Example: rent , salary. Variable costs are which vary with the level of activity. Example: cost of raw material, labour etc. Semi variable costs are those which vary with the level of activity but not in direct proportion with it.

2. The Utility and Demand: The product cost sets the lower limit of the price and utility provided by the product and the intensity of demand of the buyer sets the upper limit of the price . The price of the product is affected by the elasticity of demand of the product.

3. Extent of Competition in the Market: competitors’ prices and the anticipated reactions must be considered before fixing the price of a product. Not only the price but the quality and features of the competitive products must be examined carefully, before fixing the price.

4. Government and Legal Regulations: in order to protect the interest of the public against the unfair practices in the field of price fixing , government can intervene and regulate the price of commodities.

5. Pricing objectives: generally the objective to maximize the profits. Other objectives are: obtain larger share of the market, surviving in a competitive market and attaining product quality leadership in the market.

6. Marketing methods used: Price fixation is also affected by other elements of marketing such as distribution system , quality of salesman employed, quality and amount of advertising , sales promotion efforts, type of packaging, product differentiation etc.

PHYSICAL DISTRIBUTION: There are two important decisions related to this. One regarding physical movement of goods from producers to consumers and two, is regarding channels or intermediaries in the distribution process.

Components of physical distribution:

1. Order processing: A good physical distribution system should provide for an accurate and speedy processing of orders through the channel system.

2. Transportation : It is the means of carrying goods and raw materials from the point of production to the point of sale.

3. Warehousing : It is the act of storing and assorting products in order to create time utility in them. The basic purpose of warehousing activities is to arrange placement of goods and provide facilities to store them.

4. Inventory control: Important decision in respect of inventory is deciding about the level of inventory. Higher the level of inventory higher will be the level of service to the customers but

the cost of carrying the inventory will also be high because lot of capital would be tied up in the stock.Factors determining inventory levels include: firm’s policy regarding the level of customer service to be offered , Degree of accuracy of the sales forecasts , ability of the system to transmit inventory needs back to the factory and get products in the market and cost of inventory.

CHANNELS OF DISTRIBUTION: Channels of distribution refers to a team of merchants , agents and business institutions that combine physical movement and title movement of products to reach specific destinations. Mostly goods and services are distributed through a network of marketing channels. Sorting of goods , promotion of the products , risk taking etc are some of the functions performed by the channels.

Types of Channels:

1. Direct channel (Zero channel): This is the most simple and shortest mode of distribution where goods are made directly available to the customers. A straight and direct relationship is established between the manufacturer and the customer. Examples selling of the goods by the manufacturer through his own outlets.

2. Indirect channels: 1. Manufacturer –retailer-consumer (one level channel): In this only one intermediary is

between the manufacturer and the consumer ie,retailer. This type of distribution helps the manufacturer to cover wide area of operation while retaining the control over the channels.

2. Manufacturer –wholesaler-retailer-consumer (two level channel): this is the most commonly adopted network for most of the consumer goods like soaps ,oils, clothes etc.Use of two network enables the manufacturer to cover a larger market area.

3. Manufacturer –agent-wholesaler-retailer-consumer (Three level channel): In this manufacturer use their own selling agents or brokers who connect them with wholesaler and then the retailers. It is done when the manufacturer carries a limited product line and has to cover a wide market.

FACTORS DETERMINIG CHOICE OF CHANNELS:

1. Product related factors: it includes whether the product is an industrial or consumer product, whether it is perishable or non-perishable, what is the unit value of the product and the degree of complexity of the product. For Industrial goods like technical and expensive products , direct channels are used. Non-technical, less expensive and frequently bought products are sold through lengthy channels. Perishable products are distributed through shorter channels and non-perishables are through long channels. For low unit value products long channels and high unit value products direct channels.

2. Company characteristics: Financial strength of the company and the degree of control it wants to hold on the channel members. Employment of huge fund is involved in selling through direct channels and it is less in indirect channels.

3. Competitive factors: sometimes the same channels used by the competitor are used sometimes not. So it depends on the policy of the company.

4. Market factors: Size of the market, geographical concentration of potential buyers and quantity purchased are the market factors. If the number of buyers are small short channels are used. If the number of buyers are large them longer channels are used.

5. Environmental factors: This includes economic condition and legal constraints. In a depressed economy marketers use shorter channels to distribute their goods in an economical way.

PROMOTION: Promotion refers to the use of communication with the twin objective of informing the potential buyers about a product and persuading them to buy it.

Elements of Promotion are: Advertising, Personal selling ,Sales Promotion, Publicity.

Advertising: It is the most commonly used tool of promotion. It is an impersonal form of communication which is paid for by the marketers( sponsors) to promote some goods or services.

OBJECTIONS AGAINST ADVERTISING:

1. Adds to Cost: The opponents of advertising argue that advertising unnecessarily adds to the cost of product, which is ultimately passed on to the buyers in the form of high prices.

True, advertisement costs a lot of money but it helps to increase the demand for the product by creating awareness to the potential buyers and increases the demand . this leads to increase in production and this will reduce the per unit cost even after adding the advertisement expenditure also.

2. Undermines Social values: Another criticism is that advertising undermines social values and it promotes materialism.

But the truth is advertisement helps the buyers to know about the new products , which may be improvement over the existing product. The job of an advertisement is to inform. If the product satisfy some of the needs of the buyers then they will buy the product . They may be motivated to work harder to be able to purchase these products.

3. Confuses the Buyer: So many advertisements making similar claims will create confusion to the customers that which one will be the true one.

But the supporters of advertisements argue that buyers can clear the confusion by analyzing the information provided on the advertisements as well as from other sources before taking the purchase decision.

4. Encourages sale of Inferior products: It does not distinguish between superior and inferior products and persuade people to purchase even the inferior products.

But in reality , the desired level of quality will depend on the economic status and preferences of the target customers. No advertisements should however , make false claim about the quality of the product.

5. Some advertisements are in Bad Taste: These show something which is not approved by some people.

There may be some chances of misuse of advertising as a tool, which can be properly safeguarded by the law or by developing a code of conduct by the advertisers.

PERSONAL SELLING:

It is an oral presentation of message in the form of conversation with one or more prospective customers for the purpose of making sales.

Qualities of a good salesman

1. Physical qualities- sound health, good appearance, impressive voice, cheerful dipositon and impressive posture.

2. Mental qualities- also known as psychological qualities are intelligence, sharp memeory, self-confidence, hard-working, determination, patience , imagination, intiative and sound judgement.

3. Social qualities- maturity in behaviour, good manners, sincerity, courage, sound character, effective communication and respect for others.

4. Technical qualities- i) Knowledge of company- should have relevant knowledge of the compay for which he

works. It is required to make sales presentation effective and answer queries of customer.ii) Knowledge of product-shoild have complete knowledge of product which he offers to

customersiii) Knowledge of competitors- should have knowledge about competitors strength and

weakness of their products, price of products.iv) Knowledge of customers- relevant knowledge of customers, their buying motives,

liking/disliking attitude about products offered.v) Knowledge of selling techniques- should have knowledge of selling techniques so that he

can adopt technique which is most relevant in given situation.

SALES PROMOTION

It refers to a short term incentives , which are designed to encourage the buyers to make immediate purchase of a product or service. These include all promotional efforts other than personal selling , advertising and publicity, used by a company to boost its sales. Sales promotion activities include offering cash discounts, sales contests, free gift offers etc.

Sales promotion Activities or Techniques:

1. Rebate: Offering products at special prices , to clear off excess inventory.2. Discount: Offering products at less than the list price.3. Refunds: Refunding a part of price paid by the customer on some proof of purchase , sy one

return on empty foils or wrapper.

4. Product combinations: Offering another product as gift along with the purchase of a product.

5. Quantity Gift: Offering extra quantity of the product commonly used by marketer of toiletry products.

6. Instant draws and Assigned gifts: For example ‘scratch a card’ or ‘burst a cracker’ and instantly win a refrigerator, car, T-shirt etc.

7. Lucky Draw: For example, offer of a bathing soap, to win a gold coin on lucky draw .

8. Usable Benefit: Example, purchase of goods worth Rs.3,000 and get a holiday package worth Rs.3000 free.

9. Full Finance @0%: Many marketers of consumer durables such as electronic goods, automobiles etc. offer easy financing schemes such as 24easy installments .

10. Sampling: Offer of free sample of a product.

11. Contests: Competitive events involving application of skills or luck etc.

PUBLICITY : It generally takes place when favourable news is presented in the mass media about a product or service. It is an unpaid form of communication and no identified sponsor.

PUBLIC RELATIONS: It involve a variety of programmes designed to promote or protect a company’s image and its individual products in the eyes of the public. The business relates with number of groups including suppliers, shareholders , activist groups, government and other intermediaries or middlemen. The main task in public relations is to disseminate the information and build goodwill about the business.

Role of Public Relations: The public relations department performs Five functions:

1. Press relations: Information about the organisation needs to be presented in a positive manner in the press. Public relations department is in contact with the media to present true facts and a correct picture about the company.

2. Product Publicity: The public relations department manages the sponsoring of events which are created to publicise the new product. The company can draw attention to new products by arranging sports and cultural events like news conferences, seminars and exhibitions.

3. Corporate Communication: Companies rely on the materials such as newsletter , articles brochures, annual reports and audio-visual materials to reach and influence their target markets.

4. Lobbying: the organisatioan has to deal with government officials and different ministers in charge of corporate affairs , industry ,finance with respect to policies relating to business and the economy. Government also seeks to maintain a healthy relationship with associations of commerce and industry.

5. Counselling: The public relations department advises the management on general issues which affect the public and the position of the company would like to take on a particular issue. The company can build goodwill by contributing money and time to certain causes like environment , wildlife, children’s rights etc.

CONSUMER Protection

Consumers might be exposed to risks due to unsafe products, might suffer from bad health due to adulterated food products, might be cheated because of misleading advertisements, might have to pay a higher price when sellers engage in over pricing, blackmarketing etc. thus there is a need for providing adequate protection to consumers against such practices of the sellers.

Educate consumers—rights and responsibilities

Redressal of grievances

FROM CONSUMERS’S POINT OF VIEW

• consumer ignorance

• unorganized consumers

• widespread exploitation of consumers

FROM BUSINESS POINT OF VIEW

• long term interest

• business uses society’s resources

• social responsibility

• moral justification

• govt. intervention

Various Acts were passed to protect consumers : The Consumer Protection Act 1986, The Contract Act 1982 etc. (mention the names of different acts)

Consumer Protection Act 1986 (in detail)-applicable to all undertakings-confers rights to empower and protect.

IMPORTANCE OF CONSUMER PROTECTION

Consumer Rights: the Consumer Protection Council set up under the act, promotes and protects the various rights of consumer.

Six Rights are as follows:

•Right to Safety-consumer has the right to be protected against goods and services which are hazardous to life and health

•Right to be Informed-consumer has the right to have complete information about the product he intends to buy including its ingredients , date of manufacture etc.

•Right to Choose- consumer has the freedom to choose from a variety of product at competitive prices

•Right to be Heard- consumer has the right to file a complaint and to be heard in case of dissatisfaction with a good or a service

•Right to seek Redressal-consumer has right to get relief in case the product or service falls short of his expectations

•Right to Consumer Education- consumer has the right to acquire knowledge and to be a well- informed consumer throughout life. He should be aware of his right and relief.

Consumer Responsibilities:

Things to be kept in mind while purchasing, using and consuming goods and services :

Consumer Rights

Right to safety

Right to be informed

Right to choose

Right to be heard

Right to seek

Redressal

Right to consumer education

•Be aware of goods and services available in the market,so that an intelligent and wise choice can be made.

•Buy only standardized goods as they provide quality assurance, look for these marks on the goods purchased

•Learn about the risks associated with products and services, follow manufacturers instruction and use the products safely

•Read labels carefully so as to have information about prices, weight, manufacturing and expiry dates etc.

•Assert yourself to ensure that you get a fair deal

•Be honest in your dealings, choose only legal goods and services, discourage unscrupulous dealings, like black marketing, hoarding etc. ask for cash memo on purchase of goods or services-as proof of purchase

•File a complaint in an appropriate Consumer Forum in case of shortcoming in the quality of goods purchased or services availed

•Form consumer societies which would play an active part in educating consumers and safe guarding their interests.

•Respect the environment, avoid waste littering and contributing to pollution

Consumer’s awareness about his rights and responsibilities is just one of the ways in which the objective of Consumer Protection can be achieved.

• Self- regulation by business- socially resp. firms follow ethical standards and practices in dealing with customers-many firms set up their customer service and grievance cells to redress the problems and grievances of their consumers

• Business Associations-association of trade, commerce and business like FICCI &CII have laid down their code of conduct which lay down for their members the guidelines in their dealings with the customers.

WAYS AND MEANS OF CONSUMER PROTECTION

• Consumer Awareness-A well informed consumer would be in a position to raise his voice against any unfair trade practice or unscrupulous exploitation

• Consumer Organizations – plays an important role in educating consumers about their rights and providing protection to them, and can force business firms to avoid malpractices and exploitation of consumers

• Governments-can protect the interest of consumers by enacting various legislations eg. Consumer Protection Act 1986.The act provides for a three tier machinery at the district , state and national level for redressal of consumer grievances

THE THREE TIER ENFORCEMENT MACHINERY

• The District Forum

• The State Commission

• The National Commission

Who is a consumer?

Any person who buys any goods for a consideration, which has been paid or promised, or partly paid and partly promised, or under any scheme of deferred payment.

Any person who hires or avails of any service, for a consideration which has been paid or promised, or partly paid and partly promised, or under any scheme of deferred payment.

Who can file a complaint?

Any consumer; Any registered consumers’ association; The central Govt. or any state govt; One or more consumers, on behalf of numerous consumers having same interest; A legal heir or representative of a deceased consumer.

REDRESSAL AGENCIES UNDER CONSUMER PROTECTION ACT

CONSUMER COURTS

THE DISTRICT FORUM-consists of a President and two members, one of whom should be a woman-appointed by state Govt. A complaint can be filed when the value of the goods or services along with the compensation claimed does not exceed 20 lakhs……………If the aggrieved party is dissatisfied , he can appeal before the State Commission within 30 days of passing the order.

THE STATE COMMISSION- consists of a President and two members, one of whom should be a woman-appointed by state Govt. A complaint can be filed when the value of the goods or services along with the compensation claimed exceeds 20 lakhs but does not exceed 1 Crore……………If the aggrieved party is dissatisfied , he can appeal before the National Commission within 30 days of passing the order.

THE NATIONAL COMMISSION-- consists of a President and four other members, one of whom should be a woman-appointed by Central Govt. A complaint can be filed when the value of the goods or services along with the compensation claimed exceeds 1 Crore ……………If the aggrieved party is dissatisfied , he can appeal before the National Commission within 30 days of passing the order.

Order passed by the National Commission is appealable before the Supreme Court…………..

RELIEF AVAILABLE-If the consumer court is satisfied about the genuineness of the complaint it can issue one or more of the following directions to the opposite party.

• To remove the defect in goods or deficiency in service

• To replace defective product with new one

• To refund the price paid for the product or the charges paid for the service

• To pay a reasonable amount of compensation for any loss or injury suffered by the consumer

• To pay punitive damages in appropriate circumstances

• To discontinue the unfair or restrictive trade practices and not to repeat it in the future

• Not to offer hazardous goods for sale

• To withdraw the hazardous goods from sale

• To seize manufacture of hazardous goods and to desist from offering hazardous services

• To pay any amount ( not less than 5% of the value of the defective goods or deficient services provided) , to be credited to the Consumer Welfare Fund or any other organization or person to be utilized in the prescribed manner.

• To issue corrective advertisement, to neutralize the effect of a misleading advertisement

• To pay adequate cost to the appropriate party.

In India, several consumer organizations and non- governmental organizations (NGO) are playing an active role in protection and promotion of consumers’ interest.

• Educating the general public about consumer rights, by organizing training programmes, seminars, workshops

• Publishing periodicals and other publications to impart knowledge about consumer problems, relief available etc.

• Carrying out comparative testing of consumer products in an accredited lab for the benefit of consumers

• Encouraging consumers to strongly protest and take action against unscrupulous, exploitive &unfair trade practices of sellers

• Providing legal assistance to consumers

• Filing complaints in appropriate consumer courts

• Taking initiative in filing cases in consumer courts in the interest of general public not for any individual.

Names of some of the important Consumer Organizations and NGOS

• Consumer Coordination Council, Delhi

• Common Cause, Delhi

• Consumer Guidance Society of India, Mumbai

• Mumbai Grahak Panchayat, Mumbai

• Consumers’ Association, Kolkatta

ROLE OF CONSUMER ORGANIZATIONS AND NGOS