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Unit – 1 Management
It uses the word ‘art’. To say management is merely an art is only half
truth. It also involves acquisition of knowledge, that is science
This definition does not throw light on various functions of a manager
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levels- top, middle and supervisory. Plans made by top management for the
organization as a whole may cover period as long as five to ten years; plans made by
middle or first line managers cover much shorter periods.
Directing: After the plans are made, and the organization has been established and
staffed, the next step is to move towards its defined objectives. In carrying out this
function, the manager explains to his people what they have to do, and helps them to
do it to the best of their ability. Directing thus has three sub functions:
communication, leadership and motivation.
Communication is the process of passing information and understanding from
one person to another. Leadership is the process by which a manager guides and
influences the work of his sub-ordinates. Motivation means arousing desire in the
minds of workers to give their best to the enterprise. It is the act of stimulating or
inspiring the workers. The two broad categories of motivation are financial and non-
financial.
Controlling: The manager must ensure that everything occurs in conformity with the
plans adopted, the instruction issued and the principles established. This is the
controlling function of management and involves three elements:
Innovation: These days it is not necessary for an organization to grow bigger- but
necessary to grow better. This makes innovation an important function of a manager.
Innovation means creating new ideas which may either result in development of new
products or finding new uses for the old ones.
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Q. What are the roles of a manager ? What skills must he posses?
Interpersonal roles:
Figure head: In this role, every manager has to perform some duties of a ceremonial
nature, such as greeting the touring dignitaries, attending the wedding of an
employee, taking an important customer to lunch etc.
Leader: As a leader, every manager must motivate & encourage his employees. He
must also try to reconcile their individual needs with the goals of organisation.
Liaison: In his role of liaison, every manager must cultivate contacts outside his
vertical chain of command to collect information useful to his organisation.
Informational role:
Monitor: As a monitor, the manager has to perpetually scan his environment for
information, interrogate his liaison contacts and his subordinates, and receive
unsolicited information, much of it as a result of the network of personal contacts he
has developed.
Disseminator: In the role of disseminator the manager passes some of his privileged
information directly to his subordinates who would otherwise have no access to it.
Spokesman: In this role the manager informs and satisfies various groups and people
who influence his organisation. Thus he advises shareholders about financial
performance, assures consumer groups that the organisation is fulfilling its social
responsibilities and satisfies government that the organisation is abiding by law.
Decision roles:
Entrepreneur: In this role, the manager constantly looks out for new ideas and seeks
to improve his unit by adapting it to changing conditions in the environment.
Disturbance handler: In this role, the manager has to work like a fire fighter. He
must seek solutions of various unanticipated problems- a strike may be in the offing,
a major customer may go bankrupt, a supplier may fault on his contract etc.,
Resource allocator: In this role, the manager must divide work and delegate
authority among his subordinates. He must decide who will get what.
Negotiator: The manager has to spend considerable time in negotiations. The CEO of
the company may negotiate with the union leaders regarding the new strike issue,
Foreman may negotiate with the workers a grievance problem etc.
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Skills requirement of a Manager:
(1) The conceptual skill: refers to the ability of a manager to take a broad and
farsighted view of the organisation & its future, his ability to think in
abstract, his ability to analyse the forces working in a situation, his creative
and innovative ability to asses the environment and changes taking place in it.
(2) The technical skill: The technical skill is the manager’s understanding of the
nature of the job that people under him have to perform. It refers to a
person’s knowledge & proficiency in any type of process or technique. In a
production department this would mean an understanding of the technicalities
of the process of production. This type of skill and competence will be more
important at the lower levels of management, as he moves higher up, its
relative importance diminishes. At the higher levels, the conceptual
component related to there functional areas become more important and the
technical component becomes less important.
(3) Human relations skill: is the ability to interact effectively with people at all
levels. This skill develops in the manager sufficient ability
- to recognise the feelings and sentiments of others
- to judge the possible reactions to, and outcomes of various courses of
actions he may undertake and
- to examine his own concepts and values which may enable him to
develop more useful attitudes about himself. This type of skill remains
consistently important at all levels.
Top
management
Supervisory Technical
level skill
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Q. Is Management & Administration same? Discuss.
A: There is a lack of unanimity among writers over the meaning and use of words
‘Management’ and ‘Administration’. According to one group of writers (Sheldon,
Spriegal and Milward) Administration involves ‘thinking’. It is a top level function
which centers around the determination of plans, policies and objectives of a
business enterprise. On the other hand management involves ‘doing’. It is a lower
level function which is concerned with execution and direction of policies and
operations. No two separate set of personnel are required, however, to discharge
administration and management functions. Each manager performs both activities
and spends part of his time administering and part of his time managing.
The third view as expressed by Peter Drucker, the basic difference between
management and administration lies in the use of these terms in different fields. The
governance of non business institutions (such as government, army, church etc) is
generally called administration, while the governance of business enterprise is called
management. If this argument is accepted, then economic performance becomes the
chief dimension of management.
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Where as under ‘science’ one normally learns the ‘why’ of a phenomenon,
under ‘Art’ one learns the ‘how’ of it. Art is thus concerned with the understanding
of how a particular work can be accomplished. Management in this sense is more an
‘art’. It is the art of getting things done through others in dynamic and mostly non-
repetitive situations. The resources like men, machine & money have to be co-
ordinated against several constraints to achieve the given objectives in the most
efficient manner. The manager has to constantly analyse the existing situation,
determine the objectives, seek alternatives, implement, co-ordinate, control and
evaluate information and make decisions. A theoretical body of lessons and
principles learnt in class room will not secure him the aimed results, unless he has
also the skill (or art) of applying such principles and body of knowledge to his
special problem. Knowledge of management theory and principles is a valuable aid
and kit of manager, but it can not replace his other managerial skills and qualities.
This knowledge has to be applied and practiced by the manager. In this sense the
management is an art.
The period between 1700 & 1850 highlights the industrial revolution and
the writing of classical economists. The advent of a factory system during this period
highlighted for the first time the importance of direction as a managerial function.
Several economists during this period explained in their writing the concepts and
functions of management.
During the last hundred years, management has become a more scientific
discipline with certain standards and principles and practices. The evolution of
management thought during this period can be studied in three parts as under:
(i) Time and motion study: under this, each motion of a job was timed with the
help of a stop watch, and shorter and fewer motions were developed. Thus the
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best way of doing a job was found. This replaced the rule of thumb knowledge
of workman.
(ii) Differential payment: Taylor introduced a new payment plan called the
differential piece work, in which he linked incentives with production. Under this
plan, a worker received low rate if he produced standard number of pieces, and
high rate if he surpassed the standard. Taylor thought that attraction of high piece
rate would motivate the workers to increase the production.
(iv) Scientific recruitment and training: Taylor emphasized the need for scientific
selection and development of the worker. Management should develop and train
each worker to bring out the best faculties and to enable him to do a higher, more
interesting and more profitable class of work than he has done in the past.
(v) Intimate friendly cooperation between the management and the workers:
Taylor said that for the above suggestions to succeed, a complete mental
revolution on the part of management and worker was required. They should
both try to increase production so that profits will increase which can be shared.
Time and motion study: this made us aware that the tools and physical movements
involved in a task can be made more efficient and rational.
Scientific selection of workers: made us recognise that without ability and training, a
person cannot be expected to do his job properly.
Finally the importance that scientific management gave to work design encouraged
managers to seek that ‘one best way’ of doing a job.
Limitations:
(1) Taylor’s belief that economical incentives are strong enough to motivate
workers for increased production proved wrong. A man’s behaviour is not
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always dictated by his financial needs. He has other needs such as security
needs, social and egoistic needs which motivate him far more potently than
his desire for money, at least after he has risen above the starvation level.
(2) Taylor’s time and motion study is not accepted as entirely scientific, this is
because two time studies done by two separate individuals may time the same
job entirely differently.
(3) Separation of planning and doing and the greater specialization inherent in
the system tended to reduce the need for skill and produce greater monotony
of work. Having a worker to take orders from many different bosses results in
confusion, besides increasing the overhead costs.
(4) Advances in methods and better tools & machines eliminated some workers,
who find it difficult to get other jobs. This caused resentment among them.
(1) Division of work: Division of work in the management process produces more
and better work with the same effort. Various functions of management like
planning, organizing, directing & controlling cannot be done by a single person
and hence must be entrusted to specialists in related fields.
(2) Authority and responsibility: as management consists of getting the work done
through others, it implies that manager should have the right to give orders and
power to exact obedience. A manager may exercise formal authority and also
personal power. Formal authority is derived from his official position, while
personal power is the result of intelligence, experience, moral worth, ability o
lead, past service etc., Responsibility is closely related to authority and it arises
wherever authority is exercised.
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and norms of performance, respect for agreements, sincere efforts to complete
the jobs, respect for superiors. The best means of maintaining discipline are:
(a) Good supervisors at all levels (b) clear and fair agreement between the
employees & employer (c) judicious application of penalties
(4) Unity of command: This principle requires that each employee should receive
instructions from one boss only.
(5) Unity of direction: There should be complete identity between individual and
organizational goals on one hand and between departmental goals inter se on
the other.
(7) Remuneration: The remuneration paid to the individual must be fair. It should
be based on general business conditions, cost of living, productivity of the
employee and also the capacity of the firm to pay. Fair remuneration increases
the workers efficiency and morale and fosters good relations between them and
the management.
(8) Centralization: the management must decide how much and what authority it
can keep and what could be delegated to the subordinates. It depends on the
circumstances, size of undertaking etc,
(9) Scalar chain: scalar chain means the hierarchy of authority from highest
executive to the lowest for the purpose of communication. It states superior-
subordinate relationship and the authority of the superiors in relation to
subordinates at various levels. As per this principle, the orders or
communications should pass through the proper channels of authority along
scalar chain. In case of need or emergency, the channels must be short circuited
and direct contact made.
(10) Order: to put things in order needs effort. Management should obtain
orderliness in work through suitable orgnisation of men and materials. The
principle of “right place for everything and for every man” should be observed
by the management.
(11) Equity: means equality of fair treatment. Equity results from a combination of
kindness and justice. Employees expect management to be equally just to
everybody. It requires managers to be free from all prejudices, personnel likes
and dislikes. Equity ensures healthy industrial relations between management
and labour which is essential for the successful working of the enterprise.
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(13) Initiative: Initiative means freedom to think and execute a plan. The zeal and
energy of employees are augmented by initiative. It is one of the keenest
satisfactions for an intelligent man to experience and hence management should
give sufficient scope to the employees to show their initiative.
(14) Esprit De Corps: this means team spirit. Since union is strength, the
management should create team spirit among employees. Harmony and unity
among staff are a great source of strength to the undertaking.
Fayol’s principles met with wide spread acceptance among writers on management
& by managers themselves. The followers of his thought are Colonel L Urwick &
Koontz & O’Donnel. Some of the principles evolved are:
(2) For many principles you can find equally plausible and acceptable and
contradictory principle.
(3) These principles are based on few case studies only and have not been tested
empirically.
(5) These principles are stated as unconditional statements while what is needed
in certain cases is conditional.
(5) These principles (speacialisation, chain of command, unity of direction and
span of control) results in a mechanistic structure which are sensitive to
social & psychological needs of employees.
(6) These principles are based on assumptions that organisation are closed
systems. But this is not so. Organisations are open systems.
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Bureaucracy:
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1. Over conformity to rules: the employees observe ‘stick to the rule’ policy
because they are afraid of getting penalized for the violation. They follow
only letter of the law without getting into the spirit.
2. Buck passing: in a bureaucratic organisation the employee’s initiative is
shifted. In situations where there are no rules, employees are afraid of taking
decisions independently. They shift decisions to others or postpone them.
3. Categorization of queries: in a bureaucratic organisation queries coming from
outside are generally classified in advance into a few broad categories.
Answers for each category are also prepared in advance. Differences, if any
between the queries within a category are ignored. On receiving a query, the
employee’s job is to simply determine its category and tick the reply
applicable to that category.
4. Displacement of goals: this is a very common phenomenon in a bureaucratic
organisation. Goal displacement takes place when an organisation substitutes
for its legitimate goal, some other goal for which it was not created, for
which resources were not allocated and which it is not known too serve.
5. No real right of appeal: The clients of a bureaucratic organisation generally
feel dissatisfied because they have no real right of appeal. Superiors very
often side with the view points of their subordinates.
6. Neglect of informal groups: Being social creature, men form informal group s
and play ‘group dynamics’ which is normal . But bureaucratic organisations
often ignore the existence of informal groups which carry out a big c hunk of
organizational work.
7. Rigid structure: Precise description of roles, and over conformity to rules
make bureaucratic structures rigid. Such structures though they work well in
stable environments, do not cope with changing environments. Organisations
today need flexible structures to be able to frequently interact with their
environments for collecting, processing and monitoring information and
changing the job descriptions and the role of their employees.
NEO-CLASSICAL APPROACHES:
The human relations movement has emerged because of the lacunae found in
Taylor’s scientific management and Fayol’s administrative management. These
theories ignored the ‘human’ aspects. The real inspiration for the human relations
movement came from Hawthorne experiments conducted by Prof. Elton Mayo & his
colleagues at western electric company. These experiments are described below:
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work in two different buildings. One group called the control group worked
under constant levels of illumination and the other group called the test group
worked under changing levels of illumination. The post test productivity of the
two groups was then compared and it was found that illumination affected
production only marginally.
2. Relay assembly test room: in this phase, the object of the study was broadened.
It now aimed at knowing not only the impact of illumination on productivity,
but also of such other factors as length of working day, rest pauses, their
frequency and duration and other physical conditions. A group of six women
workers, who were friendly with each other, were selected for this experiment.
These women workers were told about the experiment and were made to work
in a very informal atmosphere with a supervisor-researcher in a separate room.
The supervisor-researcher acted as their friend, philosopher and guide. During
the study, several variations were made in the working conditions to find
combination of conditions ideal for production. Surprisingly the researchers
found that the production of the group had no relation with working conditions.
It went on increasing and stabilized at a high level even when all improvements
were taken away and the poor pre-test conditions were re-introduced. The
following points emerged out of this experiment:
(b) Warm informality in the small group and tension free interpersonal
and social relations as a result of the relative freedom from strict
supervision and rules
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than those set of management. Workers would produce that much and no
more, there by defeating the incentive system. This artificial restriction of
production saved workers from a possible cut in the piece rates or an upward
revision of their standards by the management and protected weaker and
slower workers from being reprimanded or thrown out of the job.
Limitations:
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8. This approach is based on wrong assumption that safisfied workers are
more productive workers.
Behavioural Approach
Modern Approaches
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The focus of quantitative approach is on decision making – to provide
quantitative tools and techniques for making objectively rational decisions.
This approach facilitates disciplined thinking while defining management
problems and establishing relationship among variables involved.
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Unit -2 PLANNING
• Leads to Success
- Planning does not guarantee success, but studies have shown that, all things
being equal, companies which plan, not only out perform the non planners,
but also out- perform their own past results. Planning leads to success by
doing beyond mere adaptation to market fluctuations. It pro-acts.
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- Planning helps the manager to focus attention on the organizations goals &
activities. This makes it easier to apply & co-ordinate the resources of the
organization more effectively.
• Facilitates Control
- In planning, manager sets goals and develops plans to accomplish these
goals. These goals and plans, then become standard or bench marks against
which performance can be measured. The function of control is to ensure
that the activities conform to plans.
A Objectives are goals or aims which the management wishes the organization
to achieve. These are the end points which all business activities like organizing,
staffing, directing and controlling are directed. Only after having defined these end
points can the Manager determine the kind of organization, the kind of personnel &
their qualifications, the kind of motivation, supervision and direction and the kind of
control techniques which he must employ to reach these points.
Corporate Objectives
Divisional Objectives
Departmental Objectives
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• Objectives sometimes clash with each other: The process of breaking
down enterprise into units (eg. Production, Sales, Finance) requires that
objectives be assigned to each unit. This some times creates the problem
of potential goal conflict and suboptimisation.
• Objectives must be both clear and acceptable. The ultimate test of clarity
is the employee’s understanding of the objectives. The objectives must
also be acceptable to the people.
• Objectives must support one another: Sometimes objectives of different
departments clash with each others. In view of this, there is a need for
co-ordination and balancing the activities of entire organization.
• Objectives must be precise and measurable: An objective must always be
spelled out in precise measurable terms. Then it becomes easier to
achieve. It also motivates employees and they would develop their own
plans to achieve these goals. Once it is measurable, it will facilitate
managers to know whether they are succeeding or failing.
• Objectives should always remain valid: This means the manager must
constantly review, re-assess and readjust the objectives as per changing
conditions.
1. They provide a basis for planning and for developing other types of plans
such as policies, budgets and procedures.
2. They act as motivators for individuals and departments who pursue their
activities with a sense of purpose.
3. They eliminate haphazard action which may result in undesirable
consequences.
4. They facilitate coordinated behaviour of various groups.
5. They function as a basis for managerial control by serving as standards
against which actual performance can be measured.
6. They facilitate better management of the enterprise by providing a basis
for leading, guiding, directing and controlling the activities of people of
various departments.
7. They lessen misunderstanding and conflict and facilitate communication
among people by minimizing jurisdictional disputes.
8. They provide legitimacy to organizational activities.
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2. Deciding priorities among problems
3. Diagnosing the problem
4. Developing alternative solutions or courses of action
5. Measuring and comparing the consequences of alternative solution.
6. Converting the decision into effective action and follow up.
After having diagnosed the problem, the next step is to develop alternative
solutions. The creative process of developing alternates consists of five stages.
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The next step is to translate the decision into action. This requires the
communication of decisions to the employees in clear and unambiguous terms.
Further, efforts should be made to secure employees acceptance of the decision. If
there is any opposition or resistance, steps should be taken to win their co-operation.
It is desirable to associate the employees with the decision making process, so that
whole hearted co-operation and participation can be secured.
Certainty: By conditions of certainty, we mean that decision – maker can specify the
consequences of a particular decision. Even though it is very difficult to predict the
future environment, managerial decisions may be made in conditions approaching
certainty.
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decide upon policies or projects is an effective device for gaining their acceptance
and commitment.
In correct timing: In decision making, the problem is not merely of taking a correct
decision. It is also of selecting an appropriate time for taking decision. If the
decision is correct but the time is inopportune, it will not serve any purpose.
(a) Internal & External premises: Premises may exist within and
outside the company. Important internal premises include sales
forecast, policies & programs of the organization, capital
investment in plants & equipment, competence of Management,
skill of the Labour force etc. External premises may be classified
in three groups. Business environment, factors which influence
the demand for the products, and factors which affect the
resources available to the enterprise. Some of the important
external premises are general business & economical
environment, technological changes, Govt. policies & regulations,
population growth, political stability, sociological factors and
demand for the product.
(b) Tangible and intangible premises: Tangible premises are those
which can be qualitatively measured, while intangible premises
are those which being qualitative in character cannot be so
measured. Population growth, industry demand, capital and
resources invested are all tangible while political stability,
sociological factors, business and economic environment,
attitudes are intangible.
(c) Controllable and non-controllable premises: Controllable factors
are those which can be controlled and normally cannot upset well
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thought out calculations of the organization regarding plan. Some
examples of the controllable factors are: Company’s advertising
policy, competence of managers, skill of the labour force,
availability of resources etc., uncontrollable factors are those
which are beyond the control of the organizations and as such is
the reason why organizations revise the plans periodically with
current developments. Some important uncontrollable factors are
strikes, wars, natural calamities, emergency, Legislation etc.
• Deciding the Planning Period: Once the upper level managers have
selected the basic long term goals and planning premises, the next task is
to decide the period of the plan. Business vary considerably in their
planning periods. In some instances plans are made for a year, while in
others they span decades. In each case, however, there is always some
logic in selecting a particular time range for planning. Other factors
which influence the choice of a period are;
(a) Lead time in development and commercialization of a new product
(b) Time required to recover capital investments (or pay back period)
(c) Length of commitments already made.
• Finding alternative courses of action: The fourth step is to search for and
examine alternative courses of action. For ex. Technical know-how may
be secured by engaging a foreign technician or by training staff abroad.
Similarly products may be sold directly to the consumer by the
company’s salesman or through exclusive agencies.
• Evaluating and selecting a course of action: Having sought alternative
courses, the fifth step is to evaluate them in the light of premises and
goals, and to select the best course of action. This is done with the help
of quantitative techniques and operations research.
• Developing derivative plans: Once the plan has been formulated, its
broad goals must be translated into day-to-day operations of the
organization. Middle and Lower level managers must draw up
appropriate plans, programs & budgets for their sub units. There are
described as ‘derivative plans’. In developing these derivative plans,
lower level managers take steps similar to those taken by upper level
managers – selecting realistic goals, assessing their sub units particular
strengths and weaknesses and analyzing those parts of environment that
can affect them.
• Measuring and controlling the Process: The process of controlling is a
critical part of any plan. Managers need to check the progress of their
plans so that they can take whatever remedial action is necessary to make
the plan work or change the plan if it is unrealistic.
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2. Communication: Best planning occurs when every manager in the
organization has access to complete information, not only pertaining to his
own area of planning, but also to others’ area. This is necessary to make him
understand how his department goals and policies tie in with those of the
enterprise as a whole. He should know what are the premises upon which he
is expected to plan.
4. Proper Climate: It is critical that top managers establish proper climate for
planning. This involves stimulating planning interest among the rank and file
of managers by setting their goals, establishing planning premises,
communicating policies, and developing a tradition of change in the
organization.
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Unit-3 ORGANISING & STAFFING
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there is a tendency to focus on minor departments whose managers are vocal.
The key departments should be placed directly under higher management.
4. Determining the levels at which various types of decisions are to be made:
After deciding the relative importance of various departments, the levels at
which various major and minor decisions are to be made must be determined.
Each organization must decide as to how much decentralization of authority
and responsibility it wants to have. Extreme decentralization may lead to loss
of control and effective co-ordination. Extreme centralization may lead to
wrong decisions at wrong times and may break down the morale of employees.
5. Determining the span of Management: The next step to be taken in
designing a structure is to determine the number of subordinates who
should report directly to each executive. The narrower the span, the taller
is the structure with several levels of management. This will affect
communication. A flat structure is generally desirable.
6. Setting up a co-ordination Mechanism : As individuals and departments
carry out their specialized activities, the overall goals of the organization
may become submerged or conflicts among organization members may
develop. Coordinating mechanisms enable the members to keep sight of
the organizations goals and reduce inefficiency and conflict.
Unity of Command: Each subordinate should have only one superior whose
command he has to obey. Dual subordination must be avoided, for it causes
uneasiness, disorder, indiscipline and undermining authority.
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Delegation: Proper authority should be delegated at the lower levels of
organization also. The authority delegated should be equal to the
responsibility.
Responsibility: The superior should be held responsible for the acts of his
subordinates. No superior should be allowed to avoid responsibility by
delegating authority to his subordinates.
Unity of Direction: There should be one objective and one plan for a group
of activities having the same objective. Unity of direction facilitates
unification and co-ordination of activities at various levels.
There are several bases for departmentalization. They are described below.
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1. Based on Functions
The most widely used base for departmentalization is function. Each major
function of the enterprise is grouped into departments. Eg. Production Dept.
Finance, Marketing etc.,
Advantages:
Drawbacks:
2. Based on Products
Advantages:
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4. Employees working within a department derive greater satisfaction
from identification.
Draw backs:
3. Based on Customers:
Advantages:
Drawbacks:
5. Based on time:
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In departmentalization by time, activities are grouped on the basis of timing
of their performance. Example: As a small machine shop grows in size,
owner can add shifts, or rent more shops. Generally departmentalization by
time is found in production function of the enterprise.
The disadvantages are:
1. Accidental occurrence such as Machinery breakdown may affect the
next shift also.
2. Workers from one shift tend to pass on some portion of incomplete
work to the next shift.
3. It becomes difficult to measure the performance of department.
6. Based on Process:
Advantages:
1. Facilitates use of heavy and costly equipment in an efficient manner.
2. Follows principles of specialization.
3. Suitable for manufacturing products which involve a number of
processes.
Drawbacks:
1. Does not provide good training ground and opportunity to develop
management talent.
2. When process is sequential, subsequent department complain about the
predecessor dept.
3. Difficult to compare performances of departments.
Combined base:
President
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R&D Contract Admin Engg group Mfg group
Project Mgr A R & D group contract admin engg group mfg group
Project Mgr B R & D group contract admin Engg group Mfg group
Project Mgr C R & D group contract admin Engg group Mfg group
Benefits:
Drawbacks:
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2. Co-ordination: The base should ensure proper co-ordination and control of
activities of different departments. The questions which need to be answered
for this purpose are:
- Which base provides the best hope of obtaining the required control
and co-ordination.
- Will a particular base increase the problems of achieving integration
or reduce them.
- How will the decision affect the ability of organization members to
communicate with each other, resolve conflicts and reach the
necessary joint decisions.
4. Whole task: The organization should be broken down, such that each
department has a ‘whole task’. Depending on the nature of the task, this
‘wholeness’ may be achieved either by technological departmentalization or
by time departmentalization or by a combination of these. Thus in each case,
the departmental heads have a realistic accountability and those who work
within the departments derive satisfaction from identification with a
recognizable goal.
Advantages of Committees:
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3. Committees provide an opportunity to many persons to participate in the
decision – making process. Since they participate in discussions, they
also take interest in implementing their decisions.
4. Committees are excellent means of transmitting information and ideas,
both upward and downwards.
5. By exposing members to different view points, committees contribute
indirectly to their training & development.
6. Committees are impersonal in action and hence their decisions are
generally unbiased and are based on facts.
Weaknesses:
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Responsibility: ‘Responsibility is the obligation of a subordinate to obey the
orders’. Responsibility has two dimensions.
- Responsibility for & Responsibility to.
Advantages of Centralisation:
Advantages of Decentralisation:
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A: The span of control indicates the number of sub ordinates who report directly to a
manager. Determination of an appropriate span of management is important for
two reasons: First, the span of management affects the efficient utilization of
managers and the effective performance of their subordinates. Too wide a span
means managers are overstraining themselves and their subordinates are getting
too little guidance or control. Too narrow a span may mean that Managers are
underutilized and their subordinates are over controlled. Second, there is a
relationship between span of management and organizational structure. A
narrow span results in a tall organization with many levels of supervision
between top management and the lowest organizational levels. This creates more
communication and cost problems. On the other hand a wide span for the same
number of employees means a flat organization with fewer management levels
between top and bottom.
1. Ability of Manager: Some managers are more capable than others and
can therefore handle a large number of subordinates. In planning an
organization, the span of management should be based on a manager of
average ability.
2. Ability of employees: If the employees are competent and possess
necessary skills and motivation, less attention of manager is required and
large span can be used. On the other hand, if employees are dissatisfied
with their jobs, or are incompetent and untrained, close supervision by the
manager is needed. This will reduce the span.
3. Type of work: If employees are doing similar jobs, the span can be larger.
If their jobs are different, a small span may be necessary.
4. Well defined authority & responsibility: If the authority and
responsibility of each employee are properly defined, then the burden of
supervising their work is reduced. The manager can then manage a large
number of subordinates.
5. Geographic Location: An office manager can supervise 25 employees if
they are all working in one room. But a sales manager who has 25 sales
people located in 25 different areas would find direct supervision
impossible.
6. Sophisticated information and control system: If a company uses a
sophisticated information and control system and objective standards to
detect deviations from established plans, then the need for close
supervision does not exist.
7. Level of Management: Span of management varies with each level in the
organization. The top level will control smaller span while at lower level
it keeps increasing.
8. Economic considerations: Economic considerations affect the choice of
span. Smaller spans means a larger number of managers with added
salaries and other costs. Wide spans also involve extra costs due to
inefficiencies due to reduced managerial leadership. Hence an economic
balance has to be arrived at between cost savings that result from large
span, and the added costs as the span grows too wide.
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STAFFING
A: Once the requirement of man power is known, the process of recruitment starts.
Recruitment is defined as the process of identifying the sources for prospective
candidates and stimulate them to apply for the jobs. The management should
have a proper plan of recruitment regarding the quantity and quality of personal
36
required and the time when it is needed. The process of recruitment and the cost
involved in it depends on the size of the undertaking and the type of persons to
be recruited.
The sources of recruitment can be broadly classified into two categories. Internal
and External. Internal sources refer to the present working force of a company.
Vacancies other than at the lowest level may be filled by selecting individuals
from amongst the existing employees of the company.
The results of a job analysis are set down in job description. The lower level job
descriptions are given by personnel department, but managerial job descriptions
are written by the incumbent executive himself or by his superior.
1. Application blank: Filling of the ‘application blank’ by the candidate is the first
step in the process of selection. In this form, the applicant gives relevant personal
data such as his qualification, specialization, experience etc. The application
blanks are scrutinized against requirement to decide the applicants who are to be
called for interview.
2. Initial Interview: Those who are selected for interview on the basis of particulars
furnished, are called for initial interview by the company. The interview is the
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most important means of evaluating the poise or appearance of the candidate. It is
also used for establishing a friendly relationship between the candidate and the
company. The interview must be properly planned, and the interviews, consisting
of specialists in different fields, must make the applicants feel at ease, overcome
personal prejudices and note their opinion about the applicant.
3. Employment tests: For further assessment of candidates nature and abilities, any
or combination of the following types of tests are used:
(i) Aptitude Test: This test measured the applicant’s capacity to learn the skill
required for a job. It helps in finding out whether a candidate is suitable for the
job.
(ii) Interest Test: This is used to find out the type of work in which the
candidate has an interest. It may not reveal his ability to do it. Usually well
prepared questionnaires are used in interest tests.
(iii) Intelligence Test: This test is used to find out the candidates intelligence.
By using this test, the candidate’s mental alertness, reasoning ability, power of
understanding etc., are judged.
(iv) Trade or performance or achievement tests: This test is used to measure the
candidate’s level of knowledge and skill in the particular trade or occupation in
which he will be appointed, in case he is selected.
(v) Personality test: Personality test is used to measure those characteristics of a
candidate which constitute his personality eg: self confidence, temperament,
initiative judgment, dominance, integrity, originality etc. This test is important
while selecting higher executives.
6. Final Interview: This interview is conducted for those who are ultimately
selected for employment. In this interview the selected candidate is given an
idea about their future prospects within the organization.
****
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Unit- 4 DIRECTING & CONTROLLING
Unity of Command: This principle implies that the subordinates should receive
orders and instructions from one boss only. The violation of this principle may lead
to conflicting orders, divided loyalties and decreased personal responsibility for
results.
Direct Supervision: Every superior must maintain face-to-face direct contact with
his subordinates. Direct supervision boosts the morale of employees, increases their
loyalty and provides then with immediate feed back.
Follow through: Direction is not only telling subordinates what they should do, but
also seeing that they do it the right way. The manager should therefore follow
through the whole performance of his subordinates, not merely to check their
activities but to help them in their act.
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Q. What is motivation. Discuss its nature
Physiological Needs are those which arise out of basic physiology of life viz Food
shelter, water etc., which are needed for survival.
40
Safety / Security Needs are those which makes a person feel free from economical
threat and physical harm. These include protection from arbitrary layoff and
dismissal, disaster and avoidance of unexpected.
Social needs are needs to associate with other people and be accepted by them: to
love & be loved:
Egoistic or esteem needs are those which relate to respect and prestige. A need for
dominance may be thought of as one of the egoistic needs. These are two types:
Self esteem and esteem from others. Self esteem is an individual’s need to feel
inside himself that he is worth; He has also the need that others think he is worthy.
Self fulfillment Needs are the needs for realizing one’s potential. This includes the
need for realizing one’s capabilities to the fullest – for accomplishing what one is
capable of accomplishing, for becoming what one is capable of becoming.
1. The theory helps to explain why men behave differently from one another in
a similar situation. It also tells that some needs are common to every one.
2. The theory is not confined to work place only, but covers entire area of man’s
life.
3. The theory gives some insight into history and future trends early nineteenth
Century, the emphasis on satisfaction of physiological needs. Then comes
the emphasis on security.
4. The theory points out to the fact that a satisfied need is not a motivator of
behaviour.
(i) The hierarchy of basic needs is not always fixed. The order is also not rigid.
Different people may have different orders. Some times all needs
simultaneously operate within an individual (eg: A person may be hungry and
at the same time need love & affection).
(ii) It is difficult to know about the needs and motives from the analysis of
behaviour. Behaviour is multi-motivated. Motives of all types and
intensities influence one another to accomplish a particular need. This makes
the search for motives very complex.
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(iii). This is a non testable theory.
To build high levels of motivation and job satisfaction a different set of factors is
necessary. However, if these factors are not present, they do not in themselves head
to strong dissatisfaction. Herzberg called these the ‘motivators’ or satisfiers’. These
are six in number:
As the list indicates, motivators are job-centered – They relate to the content of the
job itself.
Merits of the theory: Herzberg’s theory focuses on the work-related concepts. One
important way to increase job satisfaction is through job enrichment. By job
enrichment, is meant the deliberate upgrading of responsibility and challenges in
work. Job enrichment makes a job more interesting by increasing it’s planning and
controlling contents and reducing its ‘doing’ content. This can be accomplished by
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De-merits of the theory: The theory has been criticized for a number of reasons:
1. The theory has been developed by Herzberg based on a small sample of 200
engineers. Hence there is no justification is generalizing the theory.
(iii) The methodology has the bias of being able to recall only the
most recent job conditions and feelings. Further a currently
satisfied person who responds to his retrospective feelings
may have satisfied respondent bias.
According to McClelland, the three important needs are: the needs are: the
need for affiliation (nAff), the need for power (nPow) and the need for
achievement (nAch). The need for affiliation reflects a desire to interact
socially with people. A person with a high need for affiliation is concerned
about the quality of an important personal relationship. Thus social
relationships take precedence over tasks accomplishment for such a person.
A person who has a high need for power, concentrates on obtaining and
exercising power and authority. The person is concerned with influencing
others and winning arguments. A person who has a high need for
achievement has three distinct characteristics. These are
(ii) Doing most things himself rather than getting then done by
others. He wants to take personal responsibility for his
success or failure.
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The implications to manager of the McClelland theory are significant. If the
needs of the employee can be accurately measured, organizations can
improve the selection and recruitment process. For ex, an employee with a
high need for achievement could be placed in a position that would enable a
person to achieve. This could result in improved performance.
1. First and second level outcomes: There can be several job related goals of an
individual such as promotion, increase in salary, recognition, praise etc.,
These are second level outcomes. Each second level outcome holds some
distinct value for the individual. This is called valence. The valance of any
outcome may be positive, negative or zero. For a positive outcome,
individual prefers to attain, for negative, he does not prefer and for a zero he
is indifferent. Each second level outcome can be achieved by pressurizing
the management; These are called the first level outcomes.
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First, he determines the relative importance of his various personal goals such
as money, security, recognition etc., these are second level outcomes for him.
Finally he decides what his ability to achieve each first level outcome is.
This is expectancy.
This model has several implications for a manager. It tells him that to
motivate people, it is not enough to offer then rewards. They must also feel
1. Attracted to the awards
2. Convinced that the prescribed effort will lead then to those rewards; and
3. That they have ability to put in the prescribed effort.
This model, however operates only where the employees have freedom to
make their choices among alternative courses of action or behaviour.
5. Adam’s Equity theory: This theory is based on the assumption that a major
factor in job motivation, performance and satisfaction, is the individual’s evaluation
of the equity or fairness of the reward, he or she is receiving. In this theory, equity is
defined as the ratio between the job inputs (effort, skill, experience, education and
seniority) and the job rewards (such as pay or promotions) compared to the rewards
others are receiving for similar job inputs.
The theory (also known as operant conditioning Theory) has been developed
based on research conducted by BF Skinner. According to this theory, People
behave the way they do because, in past circumstances, they have learned that certain
behaviours are associated with pleasant outcomes and certain others with unpleasant
outcomes. Because people generally prefer pleasant outcomes, they are likely to
repeat behaviour.
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Skinner’s behaviour modification theory is criticized on two grounds, First, it
is said that it over emphasizes the importance of extrinsic rewards and ignores the
fact that people are better motivated by intrinsic rewards.
Q. What do you understand from the word ‘Communication’ and what are
its purposes?
46
7. Communication helps manager in his decision process.
There is no single set of functions that are performed by all leaders. It differs
situationally, however, in general there are 14 functions performed by leaders
under three categories as under:
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8. Administrator of rewards & punishments: As leaders, the supervisors
encourage, upgrade and promote deserving workers and reprove, transfer or
fine poor workers.
9. Arbitrator and Mediator: The leader seeks to maintain harmony among the
members of the organization.
Symbolic figure of the group
10. Exempler: In many organizations the leader serves as a model for others to
emulate.
11. Symbol of the group: In this role, the leader provides a kind of continuity and
stability for the group.
13. Father Figure: The leader may function as a father figure, fulfilling an
emotional role for the members of the group.
14. Scapegoat: The leaders functions as a scapegoat and provides a ready target
for the aggressions of the members.
Q : What are the various approaches to leadership and explain in detail the
Behavioural (Traits or contingency) approach
i) Traits approach
ii) Behavioural approach
iii) Contingency approach
Behavioural Approach
Authority : From the point of view of authority, leadership style can be autocratic,
democratic or free rein.
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Do as I say, or else ……….. is authoritarian ( creating fear)
Do what I say, because I am good to you .. is benevolent ( Gratitude or
obligation)
Both are disliked by employees.
The merits of this form of leadership is that it could result in increased efficiency,
saving of time, quick results in times of crisis or emergency. Those who dislike
making even minor decisions, who have a low tolerance for ambiguity enjoy this
form of leadership, because they understand the chain of command and division of
work very clearly.
The demerits are : due to one way communication, there is likely to be a lot of
misunderstanding, communication breakdown and costly errors. People don’t like
being bossed without human dignity or importance and hence there is more of
massive resistance, low morale and low productivity.
The merits of this kind of leadership are full participation of people because they are
part of the decision, generation of number of ideas, suggestions and optimum
utilization of talent and operating experience of people.
The demerits are it takes a lot of time for implementation of the decisions of the
leadership and some times loss of control, if not exercised properly and cleverly used
as an excuse to avoid responsibility
Free Rein : In this type of leadership, the leaders exercise absolutely no control. He
only provides information, materials and facilities to his men to enable them to
accomplish group objectives. The disadvantage of this kind of leadership is when
people are not competent and with less integrity may wreck havoc when given
freedom.
Autocratic
use of authority
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3 Supervision : From the point of view of supervision, leadership style can be
either employee oriented or production oriented.
Hi
(,1,9 ) (9,9)
gh
(5,5)
(1,1) (9,1)
(1,9 ) Country club management - No concern for task, high concern for people
(9,1) Task management - High concern for task, no concern for people
(9,9 ) Team management - Both high concern for task and people
(5,5 ) Middle of road mgt – mid path. Get results but don’t kill yourselves
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Traits approach :
There are certain traits which have been observed in successful leaders, and therefore
people believe that if they follow these traits, they will also become successful. Some
of the traits are as under :
Physical Qualities : The leader should possess a high degree of physical and mental
energy. They must be capable of putting in long hours of strenuous work and stand
up to the stress and strain of high office and responsibility.
Moral Qualities : First among the moral qualities is the moral courage. This enables
a person to stick to his goal without faltering, own responsibility of his actions and
take the blame if anything goes wrong. Next is the sense of fair play and justice.
Lastly a leader should have integrity.
Qualities of Head and Heart : First among these is social and emotional maturity.
The leader should neither favour nor fear his actions. Then comes the knowledge.
The leader’s knowledge of a subject or technique must be greater than those of his
followers. A leader should possess decisiveness. He must also possess empathy. It is
the ability to look at things objectively and understand them from another’s point of
view. Then comes the initiative. Initiative means doing the right things without being
told. Lastly a leader must possess intuition. It enables the leader to take decisions
under uncertainty conditions.
1 This approach has failed to identify any particular trait essential for leadership
2 The description of traits are subjective
3 There is no measurement possible for the traits
4 There is no single way/methodology to assess traits
5 The approach overlooks the situational nature of leadership qualities
6 Emphasises that training does not make a person a good leader
( leaders are born, not made)
Moral courage
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Integrity
emotional and social maturity
Qualities of Head Knowledge
and Heart Decisiveness
Empathy
Contingency Approach : This approach believes in the fact that there is no one
best style of leadership under all conditions. The effective leader needs to analyse the
situation and find out which style would be most appropriate for the given
circumstances. Important among contingency approach to leadership are :
1 Fiedler’s Model
2 Hersey and Blanchard’s model and
3 Robert J House’s model
Fiedler’s Model
This model postulates that the effective leadership style depends upon situational
favorableness, i.e, the ease and difficulty with which a leader can influence his
subordinates. Situational favorableness depends on three factors :
a) Leader – member relationship
b) Task Structure
c) Positional power
A good leader-member relations, highly structured task and high positional power
represents a very favourable situation for the leader
Fiedler’s Model
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Hersey and Blanchard Model :
Phase III : Subordinates grow in maturity . This needs leaders to have low in task
orientation and high in relationship.
Phase IV : As subordinates become highly mature, motivated and self directing, the
manager can reduce his concern for both the task and relationship.
Directive : A directive leader is one who lets subordinates know what is expected of
them, gives them specific guidance on what should be done and how should be done,
maintains definite standards of performance and asks people to follow definite rules
and regulations.
Supportive : A supportive leader is one who is friendly and approachable and
shows concern for the status and well being of his subordinates.
Achievement oriented : An achievement oriented leader is one who sets challenging
goals, has confidence in his subordinates and emphasizes excellence
Participative : A participative leader is one who takes decisions after consultations
with his subordinates
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Q : What do you understand by Manpower planning ? Explain in detail
Short term manpower planning : This planning is done to find a temporary match
between existing individuals and existing jobs. It aims at quick removal of anomalies
in postings and placements. The following are the steps involved in this planning :
1 The first step is to identify the weak and strong incumbents. Weak incumbents are
those whose skills fall short of their job requirements. Strong incumbents are those
whose skills far exceed their job requirements.
3 The last step is to think of persons who can be given additional charge of posts
falling unexpectedly vacant due to sudden death, resignation or transfer of original
incumbent.
Long term Manpower planning : This plan is done to find a proper match between
the future jobs and their future incumbents. The steps involved in this planning are as
follows:
1 The first step is to determine the requirements of manpower for a particular period.
This is done by Forecasts, which can range from 2 to five years.
For forecasting requirements of workers, it is better to make a forecast of sales. On
the basis of this, we can estimate the schedule of production for various products,
and the total quantity needed to be produced during a particular period. When the
output of various departments are ascertained, the requirement of manpower can be
easily estimated.
For the forecast of number of executives, first you should count the number of
managerial positions as per organization chart which are occupied; make allowances
for
a) foreseeable expansion or contraction of organization as per plan
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b) estimated death, retirement and turnover based on last five year’s average.
2 The next step is to match between what is required and what is needed. In case
requirement is more than existing, then consideration may be given to fill the posts
with either recruitment or through promotion. If the existing number is more than the
requirement, then we may consider whether to lay them off or asked to go on
premature retirement. Again due consideration should be given to those who are
a) promotable
b) not promotable, but retainable
c) not reatainable
d) about to retire
3. Lastly determine the need for and kind of training which must be given to the
existing and new employees.
(ii) Similarly, if the management wants its workers to improve their prospects
by participating effectively in the company’s programs and in the process of
production, it is desirable to follow a policy of recruitment from within. This
is because an outsider who lacks the knowledge of products and processes of
production cannot participate effectively.
(iii) If the training and specialization needed for a job are of a level possessed
by its own employees, organization may decide to recruit people from within.
Advantages Disadvantages
3 They do not need induction Trg may lead to inbreeding, without any new
ideas
4 Employees in lower ranks are For new products and new lines, existing
people
encouraged to look forward to will be unsuitable
55
rising to higher positions
(i) When all internal candidates are too advanced in age, it may become
imperative for management to tap outside sources for recruitment
(ii) The need for originality and initiative also determine this policy
Advantages Disadvantages
1 New blood brings in fresh outlook The internal employees feel frustrated
and
originality and new ideas their morale adversely affected.
2 Field of choice becomes very wide Present employee may lose sense of
security
and become disloyal to the employer.
Deterioration of employer-employee
relationship
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greater is the need for co-ordination. The units can be linked in any of the three
ways.
d. Direct contact: In order to prevent top executives over loaded with problems,
employees at lower levels resolve the problem by informal contacts. Needs
strong cross-functional links.
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f. Committees: As certain problems consistently arise, the task forces become
permanent. These groups are labeled committees. These committees eases
the rigidity of hierarchical structure, promotes effective communication and
understanding of ideas, encourages the acceptance of the commitment to
policies and makes their implementation more effective.
g. Induction: Inducting new employee into new social setting of his work is
also a co-ordianting mechanism. The employee will get to know the rules &
regulation of the organization, norms of behaviour, values and beliefs and
integrates his personal goal with organizational goal.
Establishing standards: The first step in the control process is to establish standards
against which the results can be measured. Key result areas such a profitability,
58
market position, productivity, Personnel development etc., are some fields where
control can be effectively exercised. Some standards which can be set are
Measuring and comparing Actual results against standards: The second step is to
measure the performance and compare it with the pre-determined standards. If the
control system is well organized, quick comparison of these figures with the standard
figures is possible. This will reveal variations. Some variations are desirable and
others are undesirable. Due consideration should be given whether control points are
established at various states of process or at the end.
Taking corrective Action: After comparing the actual performance with prescribed
standards and finding the deviations, the next step is to take corrective action, so that
normalacy can be restored. The remedial measures taken should depend on the
nature of causes of variation.
Suitable: The control system should be appropriate to the nature and needs of the
activity.
Timely & forward looking: The control system should be such as to enable the
subordinates to inform their superiors expeditiously about the threatened deviations
and failures. The feedback system should be as short and quick as possible this
would help the managers to take immediate corrective action before the problem
occurs.
Objective and comprehensible: The control system should be both objective and
understandable objective controls specify the expected results in clear and definite
terms. They avoid red tape and provide employees with direct access to any
additional information which they may need to perform their task.
Flexible: The control system should be flexible so that it can be adjusted to suit the
needs of any change in the environment.
Prescriptive & operational: An effective and adequate control system must not only
detect deviations from standards, but should also provide solutions to the problem
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that cause deviations. In other words, the system should be prescriptive and
operational. It must disclose where failures are occurring, who is responsible and
what should be done about them. It must focus more on action than on information.
Should not lead to less attention to other aspects: Control over one phase of
operation should not lead to less attention to other aspects. For Ex. If controls put
pressure on output, the quality, care of equipment should not be neglected.
A. A variety of tools and techniques have been used over the years to help
managers control the activities in their organization. These are classified as old &
New techniques.
Old Techniques: These have been long used by managers. The important techniques
are: budgeting, cost account, Break-even analysis, financial statements & ratio
analysis, auditing, reports, rules & personal observations.
Budgeting: A budget is a statement of anticipated results during a designated time
period expressed in financial and non financial terms. On the basis of purpose for
which budgets are prepared, they are classified as
1. Sales budget: It is a comprehensive sales program and plan for developing
sales.
2. Selling & Distribution cost budge: It includes advertising cost, R&D cost,
transport etc.,
3. Production budget- This is based on Sales budget. It lays down the quantity
of units to be produced during the budget period.
4. Production cost budget: This budget is based on the production budget. It
lays down the estimated cost of carrying out production plans.
5. Capital expenditure budget: This budget outlines capital expenditures for
plant, machinery, equipment, inventories and other items.
6. Cash budget: This budget gives the anticipated receipts and disbursements
for the budget period and shows the cash position arising from it.
7. Master Budget: A master budget gives a summary of all functional budgets
and shows how they affect the business as a whole.
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Standard costing: The cost of production determines the profit of an organization.
Standard costing is one of the techniques of cost control which involves the
following steps.
- Setting cost standards for various components such as raw materials, Labour
& overheads.
- Measurement of performance & control.
Financial Statements and Ratio Analysis: The trading profit and loss account and the
Balance sheet of a company are the usual financial statements. The ratio analysis
seek to extract information from the financial statements and determines the financial
health of the company. The commonly used ratios are
(i) Liquidity ratio – the measure of a company’s ability to pay back short term
debts by converting assets quickly into cash
Current Assets
(Liquidity ratio = _______________ )
Current Liabilities
(ii) Debt ratio: These are computed to assess a company’s ability to meet long
term commitments.
(iv) Operating ratios- These ratios measure how efficiently the manufacturing and
sales are being carried out
(inventory turn over ratio & total Assets ratio)
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Break even analysis help in deciding.
Standing orders, Rules and limitations: Standing orders, rules and Limitations are
also control techniques used by the management. These are to be followed by
subordinates in letter & spirit.
Personal observation: A manager can exercise fruitful control over his subordinates
by observing them when they are engaged in work.
PERT & CPM: Program Evaluation & Review Technique and Critical Path Method
are two major techniques used in project management. It helps to determine the
project duration and the bottlenecks in executing and the additional resources to
complete the project a head of its schedule.
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ENTREPRENEURSHIP
(i) Innovation
(ii) Decision making under uncertainty
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Q: What are the functions of an entrepreneur?
2. Business Decisions: The entrepreneur has to decide the nature and type of goods
to be produced. He enters the particular industry which offers him the best prospects
and products and produces whatever commodities he thinks will pay him the most
and employs those methods of production which seem to him the most profitable.
He effects suitable changes in the size of the business, its location, techniques of
production and does every thing that is needed for the development of the business.
• Business entrepreneur
• Trading entrepreneur
• Industrial entrepreneur
- Large
- Medium
- Small
- Tiny
• Corporate entrepreneur
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• Agricultural entrepreneur
- Plantation
- Horticulture
- Dairy
- Forestry
• Retail entrepreneur
• Service entrepreneur
Business entrepreneusr: Are individuals who conceive an idea for a new product or
service and then create a business to materialize their idea into reality. They tap both
production and marketing resources. The setup may be big establishment or small
business unit (Printing press, Ad-agency, readymade garments or confectionery).
Trading entrepreneur: Is one who undertakes trading activities and is not concerned
with the manufacturing work. He identifies potential markets, stimulates demand for
his products and creates a desire and interest among buyers to go in for his product.
He is engaged in both domestic and overseas trade.
- Technical entrepreneur
- Non Technical entrepreneur
- Professional entrepreneur
- High tech entrepreneur
- Low tech entrepreneur
Technical entrepreneur: Is essentially an entrepreneur of ‘Craftsman type’. He
develops new and improved quality of goods because of his craftsmanship. He
concentrates more on production than marketing. He demonstrates his
innovativeness in matters of production of goods and rendering services.
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Non Technical entrepreneur: Non technical entrepreneurs are those who are not
concerned with technical aspects of the product. They are concerned with only
developing alternative marketing and distribution strategies to promote business.
3. According to Motivation
- Pure entrepreneur
- Induced entrepreneur
- Motivated entrepreneur
- Spontaneous entrepreneur
Motivated entrepreneur: Now entrepreneurs are motivated by the desire for self
fulfillment. They get into business because of the possibility of making some new
product for the use of consumers.
4 According to Growth
- Growth entrepreneur
- Super Growth entrepreneur
Growth entrepreneur: Are those who take up high growth industry. These
entrepreneurs choose an industry which has sustained growth prospects.
Super Growth entrepreneur: Are those who have shown enormous growth of
performance in their venture. The growth performance is identified by the Liquidity
of funds, profitability and gearing.
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- Modern entrepreneur
- Classical entrepreneur
Modern Entrepreneur: Is one who undertakes those ventures which go well along
with the changing demand in the market. They undertake those ventures which suit
the current marketing needs.
Classical Entrepreneur: Is one who is concerned will the customers and marketing
needs through the development of a self supporting ventures. He is a stereotype
entrepreneur whose aim is to maximize his economic returns at a level consistent
with the survival of the firm with or without an element of growth.
6 According to area:
- Urban entrepreneur
- Rural entrepreneur
- Men entrepreneur
- Women entrepreneur
8 Other unclassified
- Professional entrepreneurs
- Non professional entrepreneurs
- Modern entrepreneurs
- Traditional entrepreneurs
- Skilled entrepreneurs
- Non Skilled entrepreneurs
- Imitating entrepreneurs
- Inherited entrepreneurs
- Forced entrepreneurs
- National entrepreneurs
- International entrepreneurs
- Bureaucratic entrepreneurs
- Entrepreneur entrepreneurs
- Immigrant entrepreneurs
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A. Project identification is the first step of a new venture. A right decision will
take an entrepreneurs to a new height. Project identification is concerned with the
collection, compilation and analysis of economic data for the eventual purpose of
locating possible opportunities for investment and with the development of
Characteristics of such opportunities. There is an element of risk also involved. We
have to select such projects so as to minimize both resource consumption and risks
and to optimize the returns or gains.
The next important source for project identification is the plan document
published by Government. The plan document generally analyses the existing
economic situation and also pinpoints the investment opportunities which fit into the
overall planning effort. Considerable information can, therefore, be gathered from
the plan document.
Location: A new entrepreneurs should locate his project to the extent possible, in
and around a state head quarters. There are many backward areas around such cities.
It is necessary to have such a location to attract competent managers. This will also
facilitate liaison with State electricity board, state Industrial development corporation
and various other agencies.
68
Technology: The first project should not be a product which requires high
technology, necessitating foreign technical collaboration. It is better to go for a
product with a proven technology that is indigenously available.
Equipment: The entrepreneurs should select the best equipment based on the advise
of experienced technical consultants. He should not compromise on the quality of
the equipment.
Marketing: It is not advisable to get into a project, particularly the first, which would
mean survival amidst cut throat competition involving direct selling to the ultimate
consumer. It is preferable if one could go in for products with a limited number of
industrial customers.
(i) Whether import restrictions or the items selected are banned items.
(vii) Whether the product comes under Licensing from government or is it de-
licensed category.
(viii) Whether the location is a free trade zone or in backward areas with special
incentives & concessions.
69
project on time within budget, in conformance with predetermined programme
specifications’.
Every project has starting point and end point with specific objectives.
Project Identification: Projects are selected which presumably have a good market
potential. The selection process starts with the generation of a product idea. In order
to select most promising project, the entrepreneurs needs to generate a few ideas
about the possible projects he can undertake. The project ideas can be discovered
from various internal and external sources.
Based on the above, the entrepreneur short lists four or five projects to be further
evaluated.
Project Selection: Project selection starts from where project identification ends.
After having some project ideas, these are analysed in the light of existing economic
conditions, the government policy and so on. A tool generally used for this purpose
is SWOT Analysis: The entrepreneurs analysis his strengths & Weaknesses as well
as opportunities & threats offered by each of project idea. On the basis of this
analysis, the most suitable idea is finally selected to covert it into an enterprise –
This is known as zeroing in process.
70
The next task of entrepreneurs is to analyse aspects of raw material, Potential
Market, Labour, capital, location, forms of ownership etc., Each of these aspects
have to be evaluated independently and in relation to each other
First and the most important, the project report is like a road map. It
describes the direction the enterprise is going in what its goals are where it wants to
be and how it is going to get there. It also enables an entrepreneur to know that he is
proceeding in the right direction.
The second function of project report is to attract Lenders and investors. The
preparation of project report is beneficial for those small enterprises who apply for
financial assistance from financial institutions and commercial banks. It is on the
basis of project report that financial institutions make the appraisal of whether to
sanction loan or not and how much. Various other organizations which provide
various assistance such as work shed, raw materials, seed/ margin money etc., also
peruse the project report before they can act.
71
1. General information : Information on product profile & Product details.
72
working capital, arrangements for meeting the
cost of setting up the project.
Normally small scale enterprises do not include all the information as in case
of large scale Industry. In fact, what & how much information should be given in
the project report depends on the size of the unit as well as nature of production.
(iii) Market Potential: While preparing a project report, the following aspects
relating to market potential of product should be stated.
73
(vi) Other financial Aspects: In order to judge the profitability of the project, a
projected profit and loss account indicating likely sales revenue, cost of
production, and profit should be prepared. A projected balance sheet, and
cash flow statements should be prepared to indicate the financial position and
requirements at various stages of project.
Months 1 2 3 4 5 …… 15
Tasks
74
11. Commercial production
75
intermdiates, fuel, utilities, labour, repair and maintenance, selling
and other expenses.
A : Project appraisal means the assessment of a project. Appraisal is made both for
executed and proposed projects. It is a cost and benefit analysis of different aspects
of proposed project with an objective to adjudge its viability. A project involves
employment of scarce resources. An entrepreneur needs to appraise various
alternative projects before allocating the scarce resources for the best project. For
appraising a project, its economic, financial, technical, market, managerial and social
aspects are analysed.
76
cash within a period of one week. Current liabilities refer to those
obligations which can be payable within a period of one week. In short
working capital is that amount of funds which is needed in day-to-day
business operations. It is a circulating money, changing from cash to
inventories to receivables to cash. Therefore the requirements of working
capital should be clearly provided for. Inadequacy of working capital not
only affect the operation but also bring enterprise to a grinding halt.
Market Analysis: Before the production actually starts, the entrepreneur needs to
anticipate the possible market for the product. He has to anticipate who will be the
possible customers, where and when his product will be sold. Knowing the
anticipated market for the product to be produced becomes an important element in
every business plan. The commonly used methods to estimate the demand for a
product are as follows;
(i) Opinion polling method: In this method, the opinions of the ultimate users
i.e., customers of the product is estimated. This can be done for all customers
or sample customers. Complete survey: If there are N customers of X
product and if every one want D items, then total demand =Σ Di
Vicarious Method: Under this method, consumers of the product are not
approached directly, but indirectly through some dealers who have a feel of
their customers. The dealer’s opinion about the customer’s opinion are
elicited. This method suffers from the bias on the part of the dealers.
(ii) Life cycle segmentation Analysis: Every product has a life cycle. In
practice, a product sells slowly in the beginning. Backed by Sales promotion
strategies the sales pickup. In due course of time, the peak sale is reached.
After that point, the sales begin to decline. After sometime the product loses
its demand and dies. Considering these stages, the sales at different stages
can be anticipated.
Technical Feasibility: The term implies the adequacy of the proposed plant and
equipment to produce the product within the prescribed norms. It should be ensured
77
whether the know-how is available with the entrepreneur or is to be procured from
elsewhere. If project requires any collaboration, then terms and conditions of the
collaboration needs to be spelt out comprehensively. In case of foreign collaboration,
one needs to be aware of the legal provisions in force from time to time specifying
the list of products for which only such collaboration is allowed. While assessing the
technical feasibility of the project, the following also needs careful consideration.
78
SMALL SCALE INDUSTRY
A. The term Small scale Industry has been defined in three ways.
79
Q. What are the characteristics of small industries ?
Empirical studies have shown that small scale Industries are an important
vehicle for meeting the growth and equity with social justice objectives of
developing economies. They play a key role in the economic development. They
act as breeding ground for entrepreneur. More importantly, it is a stepping stone for
entrepreneurs to grow from small to big. It provides in-plant training to
80
entrepreneurs and motivates them to become innovative to improve economy. As
such development of SSI should be given special attention.
2. The equality Argument: The equality argument suggests that the income
generated in a large number of small enterprises is dispersed more widely in a
community than income generated in a few large enterprises. Thus, the
income benefit of small enterprises is derived by a large segment of the
population.
3. The Latent resource argument: This argument suggests that small enterprises
are able to tap latent resources like entrepreneurial ability, hoarded wealth
etc., small enterprises encourage the growth of a class of small enterprises
which introduces a dynamic element in the economy.
The need for broad basing the entrepreneurial class in India arises from the
need to speed-up the process of activating the factors of production leading to
a higher rate of economic growth, dispersal of economic activities,
development of backward and tribal areas, creation of employment
opportunities, improvement in the standard of living of weaker sections of the
society, in the process of economic growth.
81
Small Industries contribute as much as 45 percent of Industrial production, 65
percent of services, so percent employment generation and 35 percent of
India’s exports.
Policy for SSI: The industrial policy of 1956 assigns the following tasks to SSIs:
(i) To create big scale employment opportunities for people with relatively Low
capital investment per head.
(iii) To bring about mobilization of capital and entrepreneurial skills in vast areas
of the country, especially in rural areas which otherwise would be lying
unused.
(v) To make available foreign markets for the products of SSI by taking
measures to make then export-oriented.
82
…..heavy industries in public sector may obtain some of their requirements
of the lighter components from private sector, while the private sector in turn would
rely for many of its needs on the public sector”.
Over the years, small enterprises have emerged as leaders in the industrial
sector in India. In recognition of their significance and stature, the government
announced policy measures for promoting and strengthening of small, tiny and
village enterprises. (1991). The primary objective of SSI policy during the nineties
would be to impart more vitality and growth impetus to the sector so that the sector
could contribute in terms of growth of output, employment and export.
For SSI
Tiny Sectors
(i) Investment
(ii) Broadening the concept of service sector
(iii) Locational
(iv) Simplification of rules
Handloom Sector
83
Handicraft sector
A. Since independence, India has several Industrial policies to her credit. Some
of them are described here:
For the first time, the importance of SSIs in overall industrial development of the
country was accepted.
India adopted the socialistic pattern of society as the basic aim of social and
economic policy. Against this background, declaration of a new industrial policy
resolution seemed essential. This came in the form of IPR – 1956.
As per this policy, along with continuation of the IPR 48 policy it aimed to
ensure that decentralized sector acquired sufficient vitality to become self supporting
and its development is integrated with that of large scale industry. Around 128 items
were reserved for exclusive production in the SSI. Specific development projects
like rural industries project and Industrial Estates project were stated to strengthen
the small sector.
After 1956, the economy witnessed lopsided development, skewed in favour of large
and medium sector, on one hand and increase in unemployment on the other. This
situation led to a renewed emphasis on industrial policy.
The IPR –1977 classified the small sector into three categories:
84
(ii) Tiny sector incorporating investment in industrial units in plant &
machinery upto Rs. 1 lakh and situated in towns with a population
of less than 50,000.
The measures suggested for the promotion of small scale and cottage
industries included.
IPR 1980
(i) Increase in investment ceilings from Rs.1 lakh to Rs.2 lakh in case
of tiny sector, Rs.10 Lakh to Rs.20 Lakh for SSIs and from Rs.15
lakh to Rs.25 Lakh in case of ancillaries.
IPR 1990
(i) The investment ceiling in plant and machinery for SSI was raised
from Rs.35 lakh to Rs.60lakh and correspondingly for ancillary
units from Rs.45 lakh to Rs.75 lakh.
(ii) Investment ceiling for tiny units increased from Rs. 2 lakh to Rs.5
Lakh for a population of.50,000 (1981census)
85
(iii) 836 items reserved exclusively for small scale sector
(iv) Subsidy exclusively for small scale sector in rural and backward
areas .
The main thrust of this policy is to impart more vitality and growth impetus
to the sector to enable it to contribute its mite fully to the economy, particularly in
terms of growth of output, employment and exports. The sector has been
substantially delicenced.
The salient features of this new small enterprise policy are as under;
86
8. To accord priority to small and tiny sector in the allocation of
indigenous raw material.
10. To wider the scope of the National Equity Fund (NEF), to enlarge the
single window scheme and also to associate commercial banks with
provision of composite loans.
By the end of first five year plan, six boards were established:
All India Handloom board, All India Handcrafts Board, All India KVIC, SSI
Board, Coir board and Central Silk board.
The third five year plan stressed on the extension of the coverage of small
scale industries.
The fourth five year plan continued the policy adopted in the third five year
plan. As a result, small sector witnessed significant diversification and expansion
during the fourth plan period. 346 Industrial estate were established and
employment generated was for about 82,700 persons. Production reached 100
crores.
The main thrust in fifth year plan was to develop SSI to remove poverty and
in equality.
87
In the sixth plan, the number of items reserved for exclusive production in
small sector was 836, Reservation of 409 items for exclusive purchase from SSIs;
SIDO was established to provide consultancy services in Technical managerial and
marketing; council for Advancement of Rural Technology (CART) was established
for providing necessary technical inputs to rural Industries. Exports touched Rs.4557
crores and employment reached to 315 lakhs.
In order to fulfill this objective, small and village industries have been
assigned an extremely important role. The important plan proposals include.
The new policy initiative in 1999-2000 in small scale sector are as follows;
88
• To disseminate information regarding WTO policies from time to
time.
1. Choose a Line
2. Decide form of ownership – sole proprietary, partnership, co-operative or
company.
3. Decide whether to purchase a going concern or start a new one.
4. Obtain project report from SISI/elsewhere/prepare yourself.
5. Decide on Location & Site.
6. Arrange the work shed with facilities (Preferably on rent)
7. Obtain clearance for State/local authorities & SSI Registration number.
8. Plan finance
9. Plan sources of machinery
10. Place order for machinery (Preferably on hire purchase).
11. Apply for material (if imported) .
12. Plan buying
13. Install Machinery
14. Procure material
15. Recruit personnel
16. Trial run
17. Decide on pricing policy
18. Organise marketing
19. Produce & Sell
20 Plough back profits
21. Diversification
22. Modernisation.
23. Compete with others
24. Grow bigger
25. Ancillary Development.
Q Write notes on :
INSTITUTIONAL SUPPORT
NSIC under ministry of Industries was set up to promote, aid & foster the
growth of SSIs in the country. It provides a wide range of services, predominantly
promotional in character to SSIs. Its main functions are.
89
• To provide equipment leasing facility
• To help in export marketing of products of SSIs.
• To participate in bulk purchase program of government.
• To develop prototype machines and equipments to pass on to SSIs
for commercial production.
• To distribute basic raw material among SSIs thro’ raw material
depots.
• To help in development and upgradation of technology and
implementation of modernization programmes of SSIs.
• To impart training in various industrial estates.
• To set up SSIs in other developing countries on Turn-key basis.
• To undertakes the construction of industrial estates.
90
economic surveys and identify product lines and they to provide
investment advise to entrepreneurs.
It was established with the Prime objective of promoting and Assisting in the
rapid growth and development of Industries in the industrial areas.
The KIADB now acquires and provides developed land suited for
industrialization, by drawing up well laid out plots of varying sizes to suit different
industries, with requisite infrastructure facilities. These basic facilities include roads,
drainage, water & power supply. Amenities such as Banks, post offices, telephone
exchange, fire stations, Police out posts, canteens, ESI dispensaries, bus depots,
petrol Banks etc., are provided.
The KIADB has so far developed 68 industrial areas in almost all taluks of
the state.
91
Tecsok is a professional, industrial, technical and management consultancy
organization promoted by Government of Karnataka in 1976. It is a leading
investor-friendly professional Consultancy organization. It activities range from
giving appropriate investment advise, procedural guidance, management consulting,
mergers and acquisitions process re-engg studies, impact assessment of socio-
economic schemes, valuation of Assets for takeovers, critical infrastructure
balancing, TI-related studies, detailed feasibility studies & reports.
For Start ups: With its expertise, Tecsok can work with an entrepreneur to identify a
variable project or product. Tecsok sharpens the project ideas through feasible
studies, project reports, market surveys, sourcing of financace, selection of
machinery, technology, costing and also turnkey assistance. To help industrialists
meet the challenges of today’s complex Liberalized business environment, Tecsok
facilitates global exposures, Mp dated technologies, Different market Strategies,
Financial restructuring and growth plan to improve profitability of an industry.
For existing Enterprise: Sometimes, an industry may need our impartial outside
consultant to provide insight on its work. Tecsok can identify incipient sickness in
industry and facilitate its turn around. Tecksok has expertise in rehabilitation of sick
industries by availing rehabilitation packages offered by the Government and
financial institutions. Tecsok also offers expert professional services in technical
and market appraisal of projects, corporate planning, Industrial potential surveys and
many more.
2. Energy Management and audit: A lot of thrust is being given to use non
conventional Energy sources & Tecsok has been recognized as a body to
undertake energy audit and suggest energy conservation measures. Tecsok
undertakes studies and project proposals to avail assistance from Indian
Renewable Energy development Authority (IREDA).
3. Environment & Ecology: Over the years, Tecsok has developed expertise in
environment in environment related studies. If undertakes assignments
relating to environment education, environment impact assessment,
environmental management plans and pollution control measures.
92
Karnataka State Financial Corporation (KSFC)
A. From the beginning, SSI sector was over protected in India. This was done to
see that SSI would grow and compete with Medium and Large scale Industries. But
it was unfortunate that it did not happen. Some of the policies also discouraged the
93
growth of SSIs. But now with globalisation, the SSIs are now exposed to intense
competition both from Large scale sector and MNCs.
The Poor growth rate in the SSI sector during post liberalization period can
be attributed to various factors such as new policies of government towards
liberalization and globalisation without ensuring the interests or priority of sector.
Left to the mercy of Lending institutions and promotional agencies whose main
agenda is to serve big units and multinationals, the SSI sector has deteriorated in the
Quality of output, industrial sickness and retrograde growth.
Competition in the domestic market has further intensified with the arrival of
Multi-National Companies(MNCs) as the restriction on foreign direct
investments(FDI) have been removed. The 1990s witnessed the entry of many
multinational companies in the areas such as Automobiles and Electronics.
In the changed environment, the SSI sector needs to integrate itself with the
overall domestic economy and global markets by gearing itself to greater
interdependence by networking and sub contracting. To meet the present and further
requirements of the sector and the national economy satisfactorily, the policies and
projects for the SSI sector will have to be effective and growth oriented, so as to
achieve competitiveness, collective approach and capacity to upgrade.
94
• Provision of developed sites for construction of sheds
• Provision of training facilities
• Supply of machinery on hire-purchase terms
• Assistance for domestic marketing as well as exports
• Special incentive for setting up enterprises in backward areas and
elsewhere
• Technical consultancy and financial assistance for technological
upgradation.
While most of the institutional support services and some incentives are provided
by Central Government, others are offered in varying degrees by the State
Government, for attracting investments and promoting small industries with a
view to enhancing industrial production and generating employment in their
respective states.
A. The emerging challenges to the small-scale sector are due to the impact of the
agreements under the WTO to which India is a signatory along with 134 member
countries. The setting of WTO in 1995 has altered the framework of
international trade towards non-distortive, market oriented policies. This is in
keeping with the policy shift that occurred world wide since the early 1980s in
favour of free market forces and a tilt away from State regulation / intervention
in economic activity. This is expected to lead to an expansion in the volume of
international trade and changes in the pattern of commodity flows. The main
outcome of WTO stipulated requirements will be brought about through
reduction in export subsidies, greater market access, removal of non-tariff
barriers and reduction in tariffs.
95
Increased market access under the WTO requirements will also mean that our
industries can complete for export markets in both developed and developing
countries. But the expected surge in our exports can come only if the SSI sector
is restructured to meet the demands of global competitiveness, which is the key
to the future of small industries.
SSIs contribute about 54% of non traditional and 10% of traditional products
exports. However SSIs have to face threats and also avail opportunities owing to
WTO and its agreements.
Firstly national treatment (MFN) for exportable items across the countries all
over the world, with better market access through the internet.
Second, enlightened entrepreneurs have greater opportunities to benefit from
their comparative advantages due to lowering of tariff and dismantling of other
restrictions.
Lastly, Industries that are in constant touch with the Government which in
turn negotiates in their best interests in the on going dialogue with the WTO are
going to benefit.
India has a real chance of becoming a super power in the services sector,
particularly IT. It has already captured 25% of world exports. In Contrast, SSIs
have to face competition by way of cheap imports from different countries due to
the removal of Quantitative restrictions on import and lowering of tariffs. As a
result, every single individual enterprise, small or big, whether exporting or
serving the domestic market, has to face competition. In addition OGL opens up
the possibility of direct competition in the domestic market with the import of
high quality goods from developed countries, and cheap products from
developing or less developed countries. Further entry of MNCs has intensified
competition in the domestic market. However Indian SSIs are not in a position to
compete with others due to inherent weaknesses like poor quality goods, costly
credit, weak infrastructure traditional technology, inflexible Labour laws, lack of
information & international exposure and ineffective Association. Further export
market will become tougher because of competition among developing countries
with similar comparative advantages.
To over come the above uncertainty, the WTO agreement suggests ways by
which some of the adverse consequences could be neutralized. These are the use
of Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS),
Agreement on Trade Related investment measures (TRIMS) and stringent
hygienic, environmental and labour standards. In addition, these agreements
themselves provide certain in built safety mechanism like anti-dumping,
countervailing and safeguard measures. Further, strict vigilance at parts of entry
is required to ensure that imported goods are as per quality standards invoiced,
and carry the name of manufacturer and the maximum retail price. The WTO
prevents subsides, which directly affect competition of the product. It helps
activities of common interest, which act indirectly as subsidy to the enterprise.
96
Characteristics or features of SSI
2. Management & control: A small scale unit is normally a one man show and
even in case of partnership, the activities are mainly carried out by the active
partner and the rest are generally sleeping partners. These units are managed
in a personalized fashion. The owner is actively involved in all the decisions
concerning business.
6. Resources: SSUs use local and indigenous resources and as such can be
located anywhere, subject to availability of resources of labor & raw material.
7. Dispersal of units: SSUs use local resources and can be dispersed over a
wide territory. The development of SSUs in rural and backward areas
promotes more balanced regional development and can prevent exodus from
rural to urban of the work force.
97
8. Flexibility: SSUs are more change susceptible and highly reactive and
responsive to socio-economic conditions. They are more flexible to adopt
changes like new method of production, introduction of new products etc.,
Objectives of SSI
The small scale sector can stimulate economic activity and is entrusted with
the responsibility of realizing the following activities.
1. Small scale enterprises can be started with lesser investment which can be
contributed by the promoter, or arranged from friends and relatives.
2. SSUs carry on business on a small scale and as such the element of risk too is
less.
3. SSUs are generally based on local resources and as such there is no problem
regarding their availability.
5. SSUs can be located anywhere and thus help in the development of backward
areas of the country.
98
6. SSUs generally cater to the local demand and necessary modifications can be
made in the products keeping in mind the changing demand of people.
3. Optimum use of capital: Small scale enterprises require relatively less capital
as compared to Medium & Large Scale Industries. In our country, capital is
scarce, hence small scale sector acts as stabilizing force by providing high
output to capital ratio, as well as high employment to capital ratio. Moreover
due to shorter gestation period, SSIs provide early returns to the
entrepreneurs.
5. Use of Local resources: Small scale enterprises employ local resources like
raw materials, savings, entrepreneurial skill more effectively. In the absence
of these enterprises, these resources are likely to remain unutilised.
99
6. Balanced Regional Development: Large scale units are normally
concentrated at selected places and this results in generation of employment
opportunity, income and development of only these places. Whereas SSIs
utilize local resources and promote decentralized development of industries.
It is only through dispersal of Industries in rural and backward areas, that the
objective of balanced regional development can be achieved. Small scale
sector by providing employment to people in rural and backward areas help
in solving the problems of industrial slums, congestion and pollution in
industrial towns. They help in raising the standard of living.
10. Contribution towards national economy: SSIs have made rapid strides over
years and can produce variety of products having mass consumption. Nearly
50% of the industrial output of manufacturing sector is produced by SSIs.
SMALL SCALE INDUSTRY
A. The term Small scale Industry has been defined in three ways.
100
‘All manufacturing and processing activities, including maintenance and
repair services undertaken by both household and non-household small scale
manufacturing units, which are not registered under factories act’
101
entrepreneurship. Particularly in developing countries, small labour-intensive
industries have been favoured basically to create employment opportunities in an
economy with abundant unskilled labour even though such industries may not
always be supported on grounds of economic efficiency. In addition, a low capital
investment, given an appropriate market environment, stimulates growth of
numerous indigenous industries with wide regional dispersal. This helps to promote
balanced growth, more equitable income distribution, as well as diversification of
industrial infrastructure which leads to increased utilization of natural resources.
The process helps the entrepreneurial class and boost capital formation as well as
growth of industries in the small sector in urban and rural areas. Such a process
creates the basis for transformation of technology, management and pave the way for
creative development, while sustaining national heritage and skills.
Empirical studies have shown that small scale Industries are an important
vehicle for meeting the growth and equity with social justice objectives of
developing economies. They play a key role in the economic development. They
act as breeding ground for entrepreneur. More importantly, it is a stepping stone for
entrepreneurs to grow from small to big. It provides in-plant training to
entrepreneurs and motivates them to become innovative to improve economy. As
such development of SSI should be given special attention.
2. The equality Argument: The equality argument suggests that the income
generated in a large number of small enterprises is dispersed more widely in a
community than income generated in a few large enterprises. Thus, the
income benefit of small enterprises is derived by a large segment of the
population.
102
3. The Latent resource argument: This argument suggests that small enterprises
are able to tap latent resources like entrepreneurial ability, hoarded wealth
etc., small enterprises encourage the growth of a class of small enterprises
which introduces a dynamic element in the economy.
The need for broad basing the entrepreneurial class in India arises from the
need to speed-up the process of activating the factors of production leading to
a higher rate of economic growth, dispersal of economic activities,
development of backward and tribal areas, creation of employment
opportunities, improvement in the standard of living of weaker sections of the
society, in the process of economic growth.
Policy for SSI: The industrial policy of 1956 assigns the following tasks to SSIs:
(i) To create big scale employment opportunities for people with relatively Low
capital investment per head.
103
(iii) To bring about mobilization of capital and entrepreneurial skills in vast areas
of the country, especially in rural areas which otherwise would be lying
unused.
(v) To make available foreign markets for the products of SSI by taking
measures to make then export-oriented.
Over the years, small enterprises have emerged as leaders in the industrial
sector in India. In recognition of their significance and stature, the government
announced policy measures for promoting and strengthening of small, tiny and
village enterprises. (1991). The primary objective of SSI policy during the nineties
would be to impart more vitality and growth impetus to the sector so that the sector
could contribute in terms of growth of output, employment and export.
For SSI
104
(xiii) Simplification of rules and procedures
(xiv) Tapping resources.
Tiny Sectors
(v) Investment
(vi) Broadening the concept of service sector
(vii) Locational
(viii) Simplification of rules
Handloom Sector
Handicraft sector
A. Since independence, India has several Industrial policies to her credit. Some
of them are described here:
For the first time, the importance of SSIs in overall industrial development of the
country was accepted.
India adopted the socialistic pattern of society as the basic aim of social and
economic policy. Against this background, declaration of a new industrial policy
resolution seemed essential. This came in the form of IPR – 1956.
105
As per this policy, along with continuation of the IPR 48 policy it aimed to
ensure that decentralized sector acquired sufficient vitality to become self supporting
and its development is integrated with that of large scale industry. Around 128 items
were reserved for exclusive production in the SSI. Specific development projects
like rural industries project and Industrial Estates project were stated to strengthen
the small sector.
After 1956, the economy witnessed lopsided development, skewed in favour of large
and medium sector, on one hand and increase in unemployment on the other. This
situation led to a renewed emphasis on industrial policy.
The IPR –1977 classified the small sector into three categories:
The measures suggested for the promotion of small scale and cottage
industries included.
IPR 1980
(iv) Increase in investment ceilings from Rs.1 lakh to Rs.2 lakh in case
of tiny sector, Rs.10 Lakh to Rs.20 Lakh for SSIs and from Rs.15
lakh to Rs.25 Lakh in case of ancillaries.
106
(vi) Promotion of village and rural Industries to generate economic
viability in the village well compatible with the environment.
IPR 1990
(ix) The investment ceiling in plant and machinery for SSI was raised
from Rs.35 lakh to Rs.60lakh and correspondingly for ancillary
units from Rs.45 lakh to Rs.75 lakh.
(x) Investment ceiling for tiny units increased from Rs. 2 lakh to Rs.5
Lakh for a population of.50,000 (1981census)
(xii) Subsidy exclusively for small scale sector in rural and backward
areas .
The main thrust of this policy is to impart more vitality and growth impetus
to the sector to enable it to contribute its mite fully to the economy, particularly in
terms of growth of output, employment and exports. The sector has been
substantially delicenced.
The salient features of this new small enterprise policy are as under;
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2. Inclusion of industry-related services and business enterprises
irrespective of their location, as small scale industries.
10. To wider the scope of the National Equity Fund (NEF), to enlarge the
single window scheme and also to associate commercial banks with
provision of composite loans.
By the end of first five year plan, six boards were established:
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All India Handloom board, All India Handcrafts Board, All India KVIC, SSI
Board, Coir board and Central Silk board.
The third five year plan stressed on the extension of the coverage of small
scale industries.
The fourth five year plan continued the policy adopted in the third five year
plan. As a result, small sector witnessed significant diversification and expansion
during the fourth plan period. 346 Industrial estate were established and
employment generated was for about 82,700 persons. Production reached 100
crores.
The main thrust in fifth year plan was to develop SSI to remove poverty and
in equality.
In the sixth plan, the number of items reserved for exclusive production in
small sector was 836, Reservation of 409 items for exclusive purchase from SSIs;
SIDO was established to provide consultancy services in Technical managerial and
marketing; council for Advancement of Rural Technology (CART) was established
for providing necessary technical inputs to rural Industries. Exports touched Rs.4557
crores and employment reached to 315 lakhs.
In order to fulfill this objective, small and village industries have been
assigned an extremely important role. The important plan proposals include.
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The new policy initiative in 1999-2000 in small scale sector are as follows;
1. Choose a Line
2. Decide form of ownership – sole proprietary, partnership, co-operative or
company.
3. Decide whether to purchase a going concern or start a new one.
4. Obtain project report from SISI/elsewhere/prepare yourself.
5. Decide on Location & Site.
6. Arrange the work shed with facilities (Preferably on rent)
7. Obtain clearance for State/local authorities & SSI Registration number.
8. Plan finance
9. Plan sources of machinery
10. Place order for machinery (Preferably on hire purchase).
11. Apply for material (if imported) .
12. Plan buying
13. Install Machinery
14. Procure material
15. Recruit personnel
16. Trial run
17. Decide on pricing policy
18. Organise marketing
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19. Produce & Sell
20 Plough back profits
21. Diversification
22. Modernisation.
23. Compete with others
24. Grow bigger
25. Ancillary Development.
Q Write notes on :
INSTITUTIONAL SUPPORT
NSIC under ministry of Industries was set up to promote, aid & foster the
growth of SSIs in the country. It provides a wide range of services, predominantly
promotional in character to SSIs. Its main functions are.
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- State Industrial Potential survey
- Modernization and implant studies
- Workshop facilities
- Training in various trades/ activities
It was established with the Prime objective of promoting and Assisting in the
rapid growth and development of Industries in the industrial areas.
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The KIADB now acquires and provides developed land suited for
industrialization, by drawing up well laid out plots of varying sizes to suit different
industries, with requisite infrastructure facilities. These basic facilities include roads,
drainage, water & power supply. Amenities such as Banks, post offices, telephone
exchange, fire stations, Police out posts, canteens, ESI dispensaries, bus depots,
petrol Banks etc., are provided.
The KIADB has so far developed 68 industrial areas in almost all taluks of
the state.
For Start ups: With its expertise, Tecsok can work with an entrepreneur to identify a
variable project or product. Tecsok sharpens the project ideas through feasible
studies, project reports, market surveys, sourcing of financace, selection of
machinery, technology, costing and also turnkey assistance. To help industrialists
meet the challenges of today’s complex Liberalized business environment, Tecsok
facilitates global exposures, Mp dated technologies, Different market Strategies,
Financial restructuring and growth plan to improve profitability of an industry.
For existing Enterprise: Sometimes, an industry may need our impartial outside
consultant to provide insight on its work. Tecsok can identify incipient sickness in
industry and facilitate its turn around. Tecksok has expertise in rehabilitation of sick
industries by availing rehabilitation packages offered by the Government and
financial institutions. Tecsok also offers expert professional services in technical
and market appraisal of projects, corporate planning, Industrial potential surveys and
many more.
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2. Energy Management and audit: A lot of thrust is being given to use non
conventional Energy sources & Tecsok has been recognized as a body to
undertake energy audit and suggest energy conservation measures. Tecsok
undertakes studies and project proposals to avail assistance from Indian
Renewable Energy development Authority (IREDA).
3. Environment & Ecology: Over the years, Tecsok has developed expertise in
environment in environment related studies. If undertakes assignments
relating to environment education, environment impact assessment,
environmental management plans and pollution control measures.
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- Providing necessary financial assistance and other related services to
realize these opportunities.
A. From the beginning, SSI sector was over protected in India. This was done to
see that SSI would grow and complete with Medium and Large scale Industries. But
it was unfortunate that it did not happen. Some of the policies also discouraged the
growth of SSIs. But now with globalisation, the SSIs are now exposed to intense
competition both from Large scale sector and MNCs.
The Poor growth rate in the SSI sector during post liberalization period can
be attributed to various factors such as new policies of government towards
liberalization and globalisation without ensuring the interests or priority of sector.
Left to the mercy of Lending institutions and promotional agencies whose main
agenda is to serve big units and multinationals, the SSI sector has deteriorated in the
Quality of output, industrial sickness and retrograde growth.
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Competition in the domestic market has further intensified with the arrival of
multi national companies(MNCs) as the restriction on foreign direct
investments(FDI) have been removed. The 1990s witnessed the entry of many
multinational companies in the areas such as automobiles and Electronics.
In the changed environment, the SSI sector needs to integrate itself with the
overall domestic economy and global markets by gearing itself to greater
interdependence by networking and sub contracting. To meet the present and further
requirements of the sector and the national economy satisfactorily, the policies and
projects for the SSI sector will have to be effective and growth oriented, so as to
achieve competitiveness, collective approach and capacity to upgrade.
While most of the institutional support services and some incentives are provided
by Central Government, others are offered in varying degrees by the State
Government, for attracting investments and promoting small industries with a
view to enhancing industrial production and generating employment in their
respective states.
A. The emerging challenges to the small-scale sector are due to the impact of the
agreements under the WTO to which India is a signatory along with 134 member
countries. The setting of WTO in 1995 has altered the framework of
international trade towards non-distortive, market oriented policies. This is in
keeping with the policy shift that occurred world wide since the early 1980s in
favour of free market forces and a tilt away from State regulation / intervention
in economic activity. This is expected to lead to an expansion in the volume of
international trade and changes in the pattern of commodity flows. The main
outcome of WTO stipulated requirements will be brought about through
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reduction in export subsidies, greater market access, removal of non-tariff
barriers and reduction in tariffs.
Increased market access under the WTO requirements will also mean that our
industries can complete for export markets in both developed and developing
countries. But the expected surge in our exports can come only if the SSI sector
is restructured to meet the demands of global competitiveness, which is the key
to the future of small industries.
SSIs contribute about 54% of non traditional and 10% of traditional products
exports. However SSIs have to face threats and also avail opportunities owing to
WTO and its agreements.
Firstly national treatment (MFN) for exportable items across the countries all
over the world, with better market access through the internet.
Second, enlightened entrepreneurs have greater opportunities to benefit from
their comparative advantages due to lowering of tariff and dismantling of other
restrictions.
Lastly, Industries that are in constant touch with the Government which in
turn negotiates in their best interests in the on going dialogue with the WTO are
going to benefit.
India has a real chance of becoming a super power in the services sector,
particularly IT. It has already captured 25% of world exports. In Contrast, SSIs
have to face competition by way of cheap imports from different countries due to
the removal of Quantitative restrictions on import and lowering of tariffs. As a
result, every single individual enterprise, small or big, whether exporting or
serving the domestic market, has to face competition. In addition OGL opens up
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the possibility of direct competition in the domestic market with the import of
high quality goods from developed countries, and cheap products from
developing or less developed countries. Further entry of MNCs has intensified
competition in the domestic market. However Indian SSIs are not in a position to
compete with others due to inherent weaknesses like poor quality goods, costly
credit, weak infrastructure traditional technology, inflexible Labour laws, lack of
information & international exposure and ineffective Association. Further export
market will become tougher because of competition among developing countries
with similar comparative advantages.
To over come the above uncertainty, the WTO agreement suggests ways by
which some of the adverse consequences could be neutralized. These are the use
of Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS),
Agreement on Trade Related investment measures (TRIMS) and stringent
hygienic, environmental and labour standards. In addition, these agreements
themselves provide certain in built safety mechanism like anti-dumping,
countervailing and safeguard measures. Further, strict vigilance at parts of entry
is required to ensure that imported goods are as per quality standards invoiced,
and carry the name of manufacturer and the maximum retail price. The WTO
prevents subsides, which directly affect competition of the product. It helps
activities of common interest, which act indirectly as subsidy to the enterprise.
2. Management & control: A small scale unit is normally a one man show and
even in case of partnership, the activities are mainly carried out by the active
partner and the rest are generally sleeping partners. These units are managed
in a personalized fashion. The owner is actively involved in all the decisions
concerning business.
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3. Gestation period: Gestation period of small scale unit is small as compared
to large scale unit.
6. Resources: SSUs use local and indigenous resources and as such can be
located anywhere, subject to availability of resources of labor & raw material.
7. Dispersal of units: SSUs use local resources and can be dispersed over a
wide territory. The development of SSUs in rural and backward areas
promotes more balanced regional development and can prevent exodus from
rural to urban of the work force.
8. Flexibility: SSUs are more change susceptible and highly reactive and
responsive to socio-economic conditions. They are more flexible to adopt
changes like new method of production, introduction of new products etc.,
Objectives of SSI
The small scale sector can stimulate economic activity and is entrusted with
the responsibility of realizing the following activities.
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5. To improve standard of living of people.
6. To ensure equitable distribution of income & Wealth.
7. To solve unemployment problem.
8. To attain self reliance
9. To adopt latest technology aimed at producing better quality products at
lower costs.
1. Small scale enterprises can be started with lesser investment which can be
contributed by the promoter, or arranged from friends and relatives.
2. SSUs carry on business on a small scale and as such the element of risk too is
less.
3. SSUs are generally based on local resources and as such there is no problem
regarding their availability.
5. SSUs can be located anywhere and thus help in the development of backward
areas of the country.
6. SSUs generally cater to the local demand and necessary modifications can be
made in the products keeping in mind the changing demand of people.
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The socio-economic development of India depends upon the development of
SSIs. This sector is contributing a lot towards generation of employment, increasing
overall production and exports. The importance of SSI can be judged from the
following points.
3. Optimum use of capital: Small scale enterprises require relatively less capital
as compared to Medium & Large Scale Industries. In our country, capital is
scarce, hence small scale sector acts as stabilizing force by providing high
output to capital ratio, as well as high employment to capital ratio. Moreover
due to shorter gestation period, SSIs provide early returns to the
entrepreneurs.
5. Use of Local resources: Small scale enterprises employ local resources like
raw materials, savings, entrepreneurial skill more effectively. In the absence
of these enterprises, these resources are likely to remain unutilised.
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8. Equitable spread of income and wealth: SSIs help in development of
socialistic pattern of society by ensuring equitable distribution of income and
wealth. They promote objective of social justice.
10. Contribution towards national economy: SSIs have made rapid strides over
years and can produce variety of products having mass consumption. Nearly
50% of the industrial output of manufacturing sector is produced by SSIs.
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