MANAGEMENT

THEORY AND PRACTICE

(Text & Cases)

Prof. P. Subba Rao

Pro Vice-Chancellor (ASA)
The University of Papua New Guinea
Papua New Guinea (Australia)

Formerly: Professor and Dean

Faculty of Commerce and Management
Sri Krishnadevaraya University
Anantapur - 515 003 (AP), INDIA
E-mail: pulapas@rediffmail.com

Assisted by:
Venkatram Tej Kumar
(MS in BA and MIS)
Texas Tech University at Lubbock, USA

MUMBAI • NEW DELHI • NAGPUR • BANGALORE • HYDERABAD • CHENNAI • PUNE • LUCKNOW • AHMEDABAD • ERNAKULAM • BHUBANESWAR • INDORE
© Authors
No part of this publication should be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording and/or otherwise without the prior written permission of the editors and publisher.

First Edition : 2010

Second Revised Edition : 2014

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 P R E FAC E TO SECOND EDITION

It is quite difficult to predict, control and manage organisations from time to time and from situation to situation.
Globalisation, liberalisation and competition resulted in multiplication of situations, complicating the task of planning,
organising, directing and controlling based on organisational strategies. But, the concepts, theories, principles and practices
of management help to manage organisations. Thus, the course on "Management: Theory and Practice" helps in managing
organisations.
Purpose
Our purpose of revising this book is to provide all latest developments to the readers and enable them to understand
concepts, theories and principles of management in a more comprehensive manner. This in turn helps our readers to
acquire skills which would enable them to manage organisations as efficiently as possible. This text will be useful to
students as well as practicing managers at different levels in various business organisations. This book is also useful to
executives and managers of all kind of organisations like business organisatons, public organisations, social organisations,
non-government organisations (NGOs), political organisations and religious organisations.
Approach
We have followed direct and lucid approaches in presenting the material in order to enable readers acquire the concepts
and skills and apply them appropriately.
Pedagogical Features
We have included relevant pedagogical features like practical examples, figures, exhibits, tables, boxes, cases, exercises,
games and suggestive situations for adaption of skills by the readers.
Each chapter contains a chapter outline, learning objectives at the beginning, key terms, questions for discussion and
references at the end.
Wide Coverage and Additions
We have covered all topis of the course on "Management: Theory and Practice". This edition contains a new chapter
on 'Basic Business Concepts' which is unique to this book. This chapter deals with different types of business, objectives
of business, risks and challenges of business and business skills. We have added other new chapters on 'Globalisation and
Competition' and 'International Management'.
In addition new theories, concepts, boxes, examples, exhibits, tables and figures are added wherever necessary.
Feedback
We request teachers, students and business executives to provide comments and suggestions for improvement of the
text. The same can be mailed to pulapas@rediffmail.com. Such feedback will be highly appreciated.
Acknowledgements
We would like to acknowledge the contribution of a number of individuals and organisations for their participation in
completion of this revised edition. We thank Prof. Albert C. Mellam, Vice-Chancellor of the University of Papua New
Guinea. We also thank all the teachers and students who provided feedback on the earlier edition of the book. Our special
thanks are due to the students and teachers of the University of Papua New Guinea who provided detailed comments on
the first edition of the book
We are also grateful to Sri Niraj Pandey, Ms.Nimisha, Ms.Archana, Sri Madhu, Sri Krishna Poojari and Sri G. Malleswara
Rao of Himalaya Publishing House (P) Limited for their feedback and assistance.

Port Moresby, Papua New Guinea PULAPA SUBBA RAO

12th April 2014 pulapas@rediffmail.com
 P R E FAC E TO FIRST EDITION

Intensified competition among domestic private and public sector companies and multinational companies consequent
upon globalisation along with strides in information technology brought paradigm shifts in principles of management. In fact
principles of management took a completely a new direction. The traditional principles of management like division of
labour, unity of command and specialization were relegated by multi skills, and generalization, individual responsibility is
shifted towards team work, unity of command and unity of direction is shifted to multi-direction.
The overwhelming response from the students, Lecturers, Professors and heads of various Business Schools of various
universities in India, Papua New Guinea and other countries to my various books viz., Management and Organisational
Behaviour, Business Policy and Strategic Management, International Business, Essentials of Human Resource Management
and Personnel and Human Resource Management prompted me to write a separate book on ‘Principles of Management’.
Many students particularly from Indian Universities, Business Schools and Management Institutes and the School of
Business Administration, UPNG, Papua New Guinea and students from other universities across the developing countries
provided on-line feedback for my earlier books. I, immensely thank them for their support and encouragement. Particularly,
I would like to express my gratitude to Prof. Albert C. Mellam, Executive Dean and Prof. David Kavanamur, School of
Business Administration, University of Papua New Guinea, Papua New Guinea and Prof M. Gangadhara Rao, my teacher
and the former Vice-Chancellor, GITAM University.
Mr. Niraj Pandey, Mrs. Ujjwale Pandey, Mr. Anju Pandey, Mr. Vijay Pandey, Mrs. Poopathi and Mrs. Nimisha of
Himalaya Publishing House have provided immense support in bringing out this revised edition. I thank all of them immensely.
I specially thank Mr. Madhu Srinivasa of Sri Siddhi Softtek, Bangalore for his DTP work.
My wife Mrs. Pulapa Rama Devi and my little friends Master Nitin Sai and Rohan Sai were put in inconvenience during
the period of revising this book. I express my gratitude to them.
I request the students, teachers and other readers to write to me with their comments and suggestions via e-mail.

Port Moresby, Papua New Guinea PULAPA SUBBA RAO

7th January 2010 pulapas@rediffmail.com
 CONTENTS

Chapter - 1 Basic Concepts of Business 1- 8

(A) What is Business?

(B) Types of Business Organisations
(C) Objectives of Business
(D) Risks and Challenges of Businesses
(E) Business People and Managerial Skills
(F) Need for Managerial Skills
Key Terms, Questions, References.

Chapter - 2 Nature and Functions of Management 9 - 26

(A) Introduction
(B) Definition of Management
(C) Management: A Science or an Art?
(D) Management: A Profession?
(E) Management vs. Administration
(F) Management Functions
(G) Managerial Skills
(H) Managerial Roles
(I) Management Levels
(J) Functional Areas of Management
(K) Universality of Management Principles
(L) International Management
Key Terms, Questions, References.

Chapter - 3 Development of Management Thought 27 - 46

(A) Introduction
(B) Scientific Management
(C) Administrative Management
(D) Towards Human Relations Approach
(E) Human Relations Approach
(F) Systems Approach to Management
(G) Contingency Approach
(H) Human Resource Management Approach
(I) Management Science Approach
(J) Conclusion
Key Terms, Questions, References.

Chapter - 4 Social Responsibilities of Business 47 - 58

(A) Introduction : Traditional View, Modern View

(B) Social Responsibilities of Business
(C) Influence of Environment
Key Terms, Questions, References.
Chapter - 5 Business Ethics and Value-Based Management 59 - 70

(A) Ethics
(B) Business Ethics
(C) Unethical Practices
(D) Business Code of Conduct
(E) Value-Based Management
Key Terms, Questions, References.

Chapter - 6 The Planning Process 77 - 86

(A) Introduction
(B) Nature of Planning
(C) Need for Planning
(D) Types/Hierarchy of Plans
(E) Steps in the Process of Planning
(F) Advantages and Limitations of Planning
(G) Planning practices in Japan, USA and China
Key Terms, Questions, References.

Chapter - 7 Objectives of Business 87 - 102

(A) Introduction
(B) Formulating Objectives
(C) Characteristics of Effective Objectives
(D) Importance of Objectives
(E) Nature of Objectives
(F) Formulation of Objectives
(G) Reasons for Change of Objectives
(H) Management by Objectives
Key Terms, Questions, References.

Chapter - 8 The Strategic Management Process 103 - 130

(A) Why Strategy?

(B) What is Strategy?
(C) Why is Strategy More Complex?
(D) Strategic Management
(E) Strategic Management Process: Strategic Fit vs. Strategic Intent
Key Terms, Questions, References.

Chapter - 9 Decision-Making 131 - 158

(A) Introduction
(B) Problem and Opportunity Finding
(C) Nature of Managerial Decision-Making
(D) Approaches to Decision-Making
(E) Types of Decisions
(F) Process of Decision-Making
(G) Boards and Committees in Decision-Making: Group Decision-Making
(H) Tools and Techniques of Decision-Making
(I) Decision-Making under Abnormal Conditions
(J) Decision-Making Practices Abroad
Key Terms, Questions, References.
Chapter - 10 Delegation, Decentralisation and Span of Management 159 - 170

(A) Introduction
(B) Delegation of Authority
(C) Centralisation and Decentralisation
(D) Span of Management
Key Terms, Questions, References.

Chapter - 11 Fundamentals and Forms of Organisational Structure 171 - 202

(A) Introduction to Organisations

(B) Purpose of Organisations
(C) Characteristics of Organisations
(D) Nature of Organisation
(E) Organising: Entrepreneurship, Intrapreneurship and Creativity
(F) Business Process Reengineering and Organising
(G) Types of Organisations: Formal and Informal
(H) Organisation
(I) Structuring Organisation
(J) Forms of Organisation Structure
(1) Entrepreneurial Structure, (2) Functional Structure, (3) Product structure,
(4) Geographical Structure, (5) De-centralised Structure, (6) Strategic Business
Structure, (7) Matrix Structure, (8) Team Structure, (9) Virtual or Boundary-Less
Structure, (10) Learning Organisation, (11) Line and Staff Organisation Structure.
(K) Responsive Organisations
(L) Global Organising
Key Terms, Questions, References.

Chapter - 12 Organisational Culture and Effectiveness 203 - 220

(A) Definition
(B) Creating Organisational Culture
(C) Approaches to Organisational Culture
(D) How Employees Learn Organisation Culture?
(E) How to Measure Organisational Culture?
(F) Organisational Effectiveness
(G) Nature of Organisational Effectiveness
Key Terms, Questions, References.

Chapter - 13 Organisational Change, Innovation and Entrepreneurship 221 - 238

(A) Organisational Change: Meaning and Types

(B) Technology and Change
(C) Resistance to Change vs. Inviting Change: Reasons
(D) Approaches to Organisational Change
(E) Planning and Implementing Change
(F) Innovation
(G) Entrepreneurship
Key Terms, Questions, References.

Chapter - 14 Staffing: Human Resource Management 239 - 274

(A) Introduction
(B) What is HRM?
(C) Personnel Vs. HRM
(D) Significance of HRM
(E) Knowledge Workers
(F) Functions of HRM
(G) Objectives of HRM
(H) Organisation Design and Line and Staff
(I) Why Study HRM?
Key Terms, Questions, References.
Chapter - 15 Performance Appraisal and Development 275 - 304

(A) Introduction
(B) Strategic Management and Performance Appraisal
(C) Meaning, Need and Purpose of Performance and Development
(D) Who Will Appraise?
(E) Performance Analysis and Development
(F) Methods of Performance Appraisal
(G) System of Performance Appraisal
(H) The Post Appraisal Interview
(I) Managerial Appraisal
(J) Use of Performance Appraisal
(K) Problems of Performance Appraisal
Key Terms, Questions, References.

Chapter - 16 Employee Training 305 - 332

(A) Introduction
(B) Stages in Training
(C) Stage-2: Designing the Training Programme
(D) Stage-3: Implementation
(E) Stage-4: Evaluation of Training Programme
(F) Special Aspects of Training
Key Terms, Questions, References.

Chapter - 17 Directing (Morale, Committees and Co-ordination) 333 - 348

(A) Directing
(B) Morale
(C) Committees
(D) Co-ordinating
Key Terms, Questions, References.

Chapter - 18 Motivation: Concepts, Theories and Applications 349 - 376

(A) Introduction
(B) Motivating
(C) Types of Motivation
(D) Theories of Motivation
(E) Motivation: Applications
Key Terms, Questions, References.

Chapter - 19 Communication 377 - 400

(A) Meaning
(B) Management Information System and Information Technology
(C) Methods of Communication
(D) Communication Channels
(E) Communication Networks
(F) Organisational Communication
(G) Barriers to Communication
Key Terms, Questions, References.
Chapter - 20 Leadership 401 - 428

(A) Introduction
(B) Leader vs. Manager
(C) Leadership Theories
(D) Leadership Styles
(E) Followership Styles – A New Approach
(F) Outstanding Leaders
(G) Leadership Skills
(H) Leadership Under Cross-Cultural Environment
(I) Women and Leadership
(J) Global Leading
(H) Key Terms, Questions, References.

Chapter - 21 Controlling 429 - 458

(A) Introduction
(B) Feedback and Feed-forward Control
(C) Basic Process of Control
(D) Control Techniques
(E) Problems of Control Process
(F) Requirements for Effective Control
(G) Human Response to Control
(H) Overall Control Techniques
(I) Total Quality Control and Integrated Control
(J) Global Control
(H) Key Terms, Questions, References.

Chapter - 22 Operations Management 459 - 468

(A) The Operations Function

(B) Decision-Making in Operations
(C) Product Design
(D) Who Will Appraise?
(E) Process Selection
(F) Facilities Design
(G) Inventory Management
(H) Quality Planning and Control
(H) Key Terms, Questions, References.

Chapter - 23 Globalisation and Competition 469 - 492

(A) Introduction
(B) Emerging Global Economy
(C) Drivers of Economic Globalisation
(D) Globalisation of Markets
(E) Globalisation of Production
(F) Globalisation of Investment
(G) Globalisation of Technology
(H) Globalisation: Advantages and Disadvantages
(I) Globalisation and Competition
(J) Competition among National and Global Business Centres
(H) Key Terms, Questions, References.
Chapter - 24 International Management 493 - 522

(A) Introduction to International Business

(B) Advantages of International Business
(C) What is International Management?
(D) Challenges of International Management
(E) Factors influencing International Management
(F) International Planning and Decision-Making Practices
(G) International Organising
(H) Motivation in International Organisations
(I) Communication in International Organisation
(J) Global Leading
(K) Global Controlling
(H) Key Terms, Questions, References.

Chapter - 25 Contemporary Issues in Management 523 - 536

(A) Introduction
(B) Deregulated Environment
(C) Competition and Customisation
(D) Information Technology Revolutions
(E) Contemporary Issues in Management
(F) Team Management
(G) Situational Approach to Management
(H) Key Terms, Questions, References.

Chapter - 26 Methods of Case Analysis 537 - 544

(A) Introduction
(B) How to Analysis a Case?
(C) Participating in a Class Discussion
(D) Methods of Case Discussion
(E) Format of the Written Case Analysis Report

Chapter - 27 Management Games 545 - 558

(A) Management: A Profession

(B) Why Management Games?
(C) Benefits of Management Games
(D) Need for Management Development Programmes
(E) Management Games

Index 559 - 564

 About the Book
The second edition of the book covers all significant and recent areas of Management.
Distinctive Features of the Book:
• Learner-Friendly Approach ;
• Wide and Comprehensive coverage;
• Integrated presentation of the text with boxes, figures, exhibits and tables;
• Refreshing modes like points to be remembered, key words and questions;
• Numerous examples;
• Presents Methods of Case Analysis, Cases and Management Games;
• Customised and Lucid Language; and
• On-line student and teacher manuals

About the Author

Prof. PulapaSubbaRao has acquired his Ph.D. degree in Management area from Andhra University and has been
teaching various courses in the areas of Business Management since 1976. He is a teacher, researcher, trainer, consultant,
academic administrator and author in the areas of business and management, with a blend of national and international
systems and cultures. He is currently working as Pro Vice-Chancellor (Academic and Student Affairs) of the University of
Papua New Guinea. He was the Founding Professor of Business Administration, the Convener, Executive MBA Program,Head,
Human Resource Management Division of the School of Business Administration and the Director-Academic Audit, University
of Papua New Guinea. He worked earlier in Sir CRR College, Sri SathyaSai University, University of Asmara, and SK
Institute of Management, Sri Krishnadevaraya University, Anantapur, India.
He was the recipient of 'National Merit Scholarship' from Government of India, the 'Meritorious Teacher' award
from the Government of Andhra Pradesh, India and the President of the India Association of PNG Inc. He is a member of
the Advisory Board, Internal Revenue Commission and Technical Advisor, Papua New Guinea Vision: 2010-2050, Government
of Papua New Guinea.
 CHAPTER

1
Basic Concepts of Business

CHAPTER OUTLINE

(A ) What is Business?
(B ) Types of Business Organisations
( C ) Objectives of Business
( D ) Risks and Challenges of Businesses
(E) Business People and Managerial Skills
(F) Need for Managerial Skills
Key Terms, Questions, References

LEARNING OBJECTIVES
After studying this chapter you should be able to:
• Understand the meaning of business
• Discuss various types of business
• Analyse the objectives of business
• Understand various risks and challenges that business organisations encounter

12
 (A) What is Business?
We often use three terms viz., business, commerce and trade. Trade means buying and selling of goods and
services. Commerce is trade plus supporting services necessary to carryout trade. These services include banking,
logistics including transportation, warehousing and handling materials, insurance, communication, and options and
futures. Business is commerce plus manufacturing. Thus business is broader than trade and commerce.
Trade= Buying and selling of goods and services for a profit.
Commerce= Trade + Supporting services to trade.
Business= Commerce+ manufacturing/rendering services
Business is an economic activity carried-out by individuals and/or organisations on a continuous basis that involves
one or more of activities like buying of goods/services, selling of goods/services, manufacturing of goods or rendering
services for a profit and with a purpose of satisfying a particular need of the society.
Business activities are carried-out by different types of business organisations. Now, we study various types of
business organisations

(B) Types of Business Organisations

Business organisations are of several types. Now we study different types of business organisations.

1. Types of business organisations based on Economic Activity

Business organisations based on economic activates are of three types viz., businesses engaged in primary activities,
businesses based on secondary activities and businesses based on tertiary activities.
• Types of Business based on primary economic activities: These businesses are of two types
viz., (1) Extractive Businesses and (2) Genetic Businesses.
Extractive Business: These businesses include businesses engaged in agriculture, forestry, fishing,
extracting, mining, procuring and processing of natural resources like minerals and oil.
Genetic Business: These businesses include businesses engaged in breeding of plants, fish,
birds and animals covering horticulture farming, and floriculture.
Type s of B usine ss base d on Se condar y Ac tivitie s: These businesses a re of two types v iz.,
(1) Manufacturing Businesses and (2) Construction Businesses.
• Manufacturing Business: These businesses convert raw materials like minerals, metals,
components into finished products. Examples of this category include chemical producing business,
pharmaceuticals manufacturing business and textile business.
• Construction Businesses: Businesses of this category engage in construction of various types
of buildings, dams, roads, railway lines and airports.
Types of Businesses based on Tertiary Activities: Businesses of this type provide services in order to enable the
businesses of primary and secondary types to perform various operations. Types of businesses of tertiary category
include:
• Transport businesses like road transport, rail transport, sea transport and air transport
businesses;
• Banking organisations;
• Communication organisations;
• Insurance organisations;
 • Discount firms;
• Credit guarantee firms;
• Warehousing firms;
• Law firms; and
• Other service firms.

2. Types of business organisations based on Public and Private

Ownership
Business organisations based on public and private ownership are of three types viz., public sector business
organisations, private sector organisations and joint sector business organisations.
Public sector business organisations: Public sector businesses are owned, managed and controlled by the
Government of the country concerned. Public sector businesses are of three types viz., departments, statutory
corporations and government companies.
Departments: Government creates a department under its own administration to operate and
manage a particular business. Government discharges its responsibilities to the public through
these businesses like providing communication services, transport services, water and power.
Government creates these types of organisations to provide public utilities and as such they are
run based on business and social principles. Thus these businesses don’t run purely based on
business principles. For example Department of Posts, Department of Telecommunications and
Department of Railways of Government of India.
Statutory Corporations: Statutory corporations are also called public corporations.
Government by an Act of Parliament or State Legislature establishes a business unit to run the
business on business principles subject to the provisions of the Act concerned. These are corporate
entities, having perpetual successions and common seal with powers subject to the provisions of
the Act concerned. For example, University of Hyderabad, Andhra University, Coal Authority of
India Limited, and Steel Authority of India Limited.
Government Company: Governments establish businesses on joint-stock company basis to
run then purely based on business principles. Government owns at least 51% of the paid-up share
capital of these companies. These companies are called public sector companies or state owned
enterprises.
Private sector business organisations: Private sector businesses are owned, managed and controlled by private
individual investors and/or group of investors. These businesses are of four types’ viz., sole proprietorship, partnership,
joint-stock companies and cooperative societies.
Sole proprietorship: Sole proprietor means single owner. Individual invests capital, operates,
manage and controls business activities.
Partnership: Two or more than two individuals invest and/ or manage businesses in partnership
organisations.
Joint-stock Companies: Many individuals join together to invest large amount of capital to
establish large-size businesses. These large numbers of individuals contribute to capital to establish
business. Such businesses are called joint stock companies. Stock here is referred to capital.
These companies are established under the company’s act of the country concerned. These
companies enjoy limited liability of the shareholder (or owner who contribute to the stock) Thus
the stock is contributed jointly. Joint stock companies are of two types viz., private limited and
public limited companies. Private limited companies are normally established by a few individuals
and/or organisations whereas public limited companies are established by a large number of
individuals and/or organisations.
 Cooperative Societies: Cooperative society is a business established by the consumers/
producers who contribute capital, operate, manage and control all operations and share profit,
benefits and bear risks.
Joint sector Business organisations: Government and private individuals and/organisations jointly establish
large size business. Such business is called joint sector business.

3. Types of business organisations based on Geographical

Spread
Domestic Business: Domestic businesses are those business organisations operating their activities including
investment and management within a country.
Global Companies: Global companies produces in home country (home country means the country in which the
business organisation is incorporated or registered) or in a single country and focuses on marketing the products
globally or produces globally and focuses on marketing these products domestically.
International Companies: International Company conducts business operations in one or more foreign countries,
but with domestic orientation. These companies believe that the practices adapted in domestic business, the people and
products of domestic business are superior to those of other countries. These companies extend the domestic products,
price, promotion and other practices to foreign markets.
Multinational Companies: Multinational companies respond to specific needs of different countries regarding
products, price, promotion and the like. These companies operate in more than one country, but operate like a domestic
company of the country concerned it operates.
Transnational Companies: Transnational companies produce, market, invest and operate across the world, treating
the entire world as a single country.

(C) Objectives of Business

Business organisations carry-out various activities in order to achieve various objectives. These objectives can be
classified as general and corporate objectives, production objectives, financial objectives, marketing objectives,
human resource objectives, social objectives and corporate governance objectives.
1) General and Corporate Objectives include:
• Survival even in during recessionary periods;
• Growth of activities;
• Survival and growth;
• Sustainable growth;
• Maximisation of shareholders’ wealth; and
• Maximisation of corporate brand image.
2) Production/Service Objectives include:
• Maximisation of production in terms of quantity;
• Producing best quality first time itself;
• Producing the best quality;
• Producing at the lowest cost;
• Producing based on customer needs; and
• Rendering services based on customer needs.
3) Financial Objectives include:
• Profit maximisation;
• Maximisation of rate of return on capital employed or maximisation of profitability;
• Minimisation of cost of capital; and
• Declaration of maximum rate of dividend.
4) Marketing Objectives include:
• Maximisation of sales growth;
• Expansion of markets;
• Maximisation of customer satisfaction; and
• Sustainable customer relationship.
5) Human Resource Objectives include:
• Maximisation of employee productivity;
• Maximisation of employee satisfaction;
• Maximisation of employee commitment and loyalty to the organisation;
• Maximisation of human resource development; and
• Providing protection to physically socially disadvantaged persons.
6) Social Objectives include:
• Production of socially desirable goods and rendering of socially desirable acceptable services;
• Resort to ethical business practices;
• Maximisation of contribution to solve various social problems;
• Rendering service to various communities;
• Providing various facilities like education facilities, medical facilities and recreation facilities
to various sections of the society.
7) Corporate Governance Objectives include:
• Maintenance of disclosures and transparency of business operations;
• Treating the shareholders equitably and discharging obligations to them;
• Performance of business ethically and an integrated manner;
• Following all legislations concerned;
• Behaving as a responsible corporate citizen of the nation;
8) National Objectives include:
• Creation of employment opportunities to the people;
• Contribution to the self-reliance of the country; and
• Utilisation of natural resources more responsibly.
9) Global Objectives include:
• Contribute to the balanced development of various countries;
• Production and marketing of globally qualitative goods and services;
• Practice globally best and acceptable culture and norms;
• Contribution of the overall development of the host countries; and
• Sustainable and responsible use of natural resources of host countries.
 Why Profit is a Basic Objective?
Basically business firms aim at earning profit as profit is the basic concern for earning a return on investment,
survival, growth and development, measure of efficiency, motivating investors and employees.
Businesses while striving for earning profit, they face some risks and challenges. Now, we study them.

(D) Risks and Challenges to Businesses

Risks and challenges that the businesses can be categories as:
1) Commercial Risks and Challenges: These risks and challenges include:
• Fluctuations in demand for goods and services;
• Fluctuations in supply of goods and services;
• Supply of complementary goods and services. For example coffee is complementary to tea.
2) Economic Risks and Challenges: These risks and challenges include:
• Economic fluctuations like economic boom, economic recession of the total global economy;
• Economic fluctuations like economic boom, economic recession of the entire national economy
of a country;
• Economic fluctuations like economic boom, economic recession in a particular industry. For
example, there is boom in computer industry while there is recession in traditional movie
theatre industry.
3) Political Risks and Challenges: These risks and challenges include:
• Changes in political parties in power;
• Changes in policies of the government;
• Involvement of politicians in business activities and industrial relations.
4) Social Risks and Challenges: These risks and challenges include:
• Changes in social structures in business activities like entry of various castes, and communities
into business.
• Changes in culture in terms of eating habits, dressing habits, usage of variety of goods and
services and shifts in housing;
• Changes in customers’ tastes and preferences due to cultural shifts.
5) Technological Risks and Challenges: These risks and challenges include:
• Technological revolutions in manufacturing technology that results in development of new
machinery and production process. These cause challenges of adapting new manufacturing
machinery and technology.
• Developments in service technologies like transportation technology, banking machines and
the like.
• Fast changes in information technology like development of new versions of computers,
development of various gadgets, creation of new software cause risk of becoming obsolete
of existing information technologies.
6) Natural Risks and Challenges: These risks and challenges include:
• Natural calamities like floods, earth quakes, fire accidents etc;
• Climate changes due to global warming.
 (E) Business People Need Managerial Skills:
Some Cases
Mr. Prakash Chaturvedi while doing his Bachelor degree in Computer Engineering from Mumbai was inspired by
his professor to start a business to provide software solutions to small businesses. His instructor told the class that the
one who provides employment even for five people is great than a senior manager of a multinational company. But, Mr.
Prakash underestimated his managerial skills and competencies as he doesn’t have even an MBA degree.
Mr. Krisha Nair – a college drop-out was working as an accountant in a hotel in Bangalore. He is lur ed by the
money that the hotel owner was earning without much investment. He thought of starting his own hotel with the
money he saved, inherited and a loan. But his wife cautioned him as well discouraged him as he doesn’t have management
qualification and hence no managerial skills.
Mrs. Kranthi Sowjanya could not accept a number of job offers she got after acquiring a Bachelor degree in
Pharmacy due to her family commitments. Her children grew up and were admitted to high schools. Now she is
relieved of the family commitments. She applied for a number of jobs, but could not succeed in getting even a single
job offer. Then she decided to start a small pharmacy store in her home town. But her husband terrified her saying that
she may lose even capital as she doesn’t know how to run a business firm in view of lack of management qualification.
Mr. Prasanna Chandra has started a social organisation after completing his intermediate. He has been running the
organisation successfully since 2001. The organisation’s activities increased significantly and the number of employees
increased from just 5 in 2001 to 256 in 2012. Similarly the financial and marketing and public relations increased by
four-fold. He has been facing a variety of problems in managing the activities effectively. He felt that his inability in
managing the increased volume of activities was mostly due to lack of management qualification.
Mr. Chaitnya Chakravarhy – a chemical engineer in Hindustan Petroleum and Chemicals Limited was offered a
promotion from Senior Engineer to Manager of Visakhapatnam Unit based on his performance at the current job and
seniority. He was inclined to decline the offer as he doesn’t have a qualification in Management.
Mrs. Jayanti Natarajan has started a Bio-Chemical company after completing her Master degree in Bio-Chemistry
in 1991. She has been managing the company successfully and the profitability of the company increased from 12% in
1992 to 23% in 2008, when her daughter joined the business after completing her MBA degree. Ms. Sirisha daughter of
Mrs. Jayanthi has been confronting with her mother on several occasions and concluded that her mother has not been
managing the business professionally. Mrs. Jayanthi strongly felt that her daughter is right as she has an MBA degree
and hence able to assess the management of the company.
Dr. Yaswant – a cardiologist started a clinic in 1991 and became one of the top most cardiologist in Hyderabad by
2003. He was unable to manage his clinic due to abnormal increase in the number of patients. His managerial skills that
he acquired by experience could not help him in managing the increased activities of his clinic. He wanted to do MBA
from any university/college in Hyderabad, but could not find time to attend classes.

(F) Need for Managerial Skills

There are several cases like those discussed above in which absence of management skills, knowledge and expertise
was felt by even experienced executives, professionals and owners particularly of small business firms, family business
firms, service organisations, social organisations, religious organisations and the like. Similarly the executives with
basic qualifications in Engineering, Medicine, Pharmacy, Bio-Technology and the like also felt that lack of managerial
skills, knowledge and expertise has been
 the reason for low promotional opportunities for them. Thus a wide gap in managerial skills, knowledge and
expertise is identified among those who have been in need of the same.
Having acquired the basic concepts of business, we study the basic principles, theories, functions and practices of
management in the next chapter.

Key Terms
l BusiNess l Trade
l Commerce l Extractive Businesses
l Genetic Businesses. l Manufacturing Business

l Construction Business l Transport Business

l Banking Organisations l Communication
l Insurance Organisations l Discount Firms
l Credit Guarantee Firms l Warehousing Firms
l Law Firms l Public Sector Business
l Private Sector Business l Departmental Organisations

l Corporations l Government Companies

l Sole Proprietorship l Partnership
l Joint Stock Companies l Cooperative Societies
l Joint Sector Business l Domestic Business
l Global Companies l International Companies

l Transnational Companies l General Objectives

l Corporate Objectives l Production Objectives
l Service Objectives l Financial Objectives
l Marketing Objectives l Human Resource Objectives
l Social Objectives l Corporate Governance
l Global Objectives

Questions
1) What is business?
2) What are the types of businesses?
3) Discuss the types of business organisations based on public and private ownership.
4) What are the different types of business organisations based on geographical spread?
5) What are the different types of business organisations based on economic activity?
6) What are the different types of business objectives?

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