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Questions & Answers

Unit – 1 Management

Q. Define Management; list its functions ; what is meant by management


process?

A : Precise definition of management is not so simple, because the term


‘management’ is used in variety of ways:

“Management is the art of getting things done through people”


– Mary parker Follet
The above definition has two weaknesses

 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

“Management is a process consisting of planning, organizing, actuating and


controlling, performed to determine and accomplish the objectives by the use
of people & resources”
- George R Terry
According to the above definition, management is a Process- a systematic way of
doing things . The activities are :
planning means that manager think of their action in advance. Their actions are
based on some method, plan or logic rather on hunch.
Organizing means that manager co-ordinate the human and material resources of the
organization.
Actuating means that managers motivate & direct subordinates.
Controlling means that managers attempt to ensure that there is no deviation from
the norm or plan.
This definition also indicates that managers use people and other resources, such as
finance, equipment etc., in attaining their goals. Finally this definition states that the
management involves the act of Organization’s objectives.

Management functions: Again there is no unanimity among writers regarding


management functions. However the following functions are necessarily performed
by management.

Planning: Planning is the function that determines in advance ‘what’ should be


done. It is looking ahead and preparing for the future. It is a process of deciding
business objectives and charting out the methods of attaining those objectives. In
other words, it is determination of what is to be done, how and where it is to be done,
who is to do it and how results are to be evaluated. This is done not only for the
organization as a whole, but for every division, department or sub unit of the
organization. Thus planning is a function which is performed by managers at all

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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.

Organizing: to organize a business is to provide it with everything useful to its


functioning : Personnel, Raw materials, Tools & Capital. All this may be divided
into two main sections- Human organization and the Material organization. Once the
managers have established objectives and developed plans to achieve them, they
must design and develop a human organisation that will be able to carry out those
plans successfully. This organization refers to the structure which results from
identifying and grouping work, defining and delegating responsibility and authority
and establishing relationship.
Staffing is also an important function in building human organization. In
staffing, the manager attempts to find the right person for each job. Staffing involves
the selection and training of manpower and a suitable system of compensation.

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:

1. Establishing standards of performance


2. Measuring current performance and comparing it against established
standards
3. Taking action to correct any performance that does not meet those
standards.

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.

Representation: A manager is required to represent his organization before various


outside groups which has some stake in the organization. These stake holders can be
government officials, labour unions, financial institutions, suppliers, customers etc,
they wield influence over the organization. A manager must win their support by
effectively managing the social impact of his organisation.

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Q. What are the roles of a manager ? What skills must he posses?

A : A manager who occupies different positions in different situations plays


different roles, because people in each situation have different expectations of him
concerning his functions. The following ten roles are must for manager:

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

Middle Mgt Conceptual skill Human relations


skill

Supervisory Technical
level skill

The figure above gives an idea of the skill-mix requirement of a manager. At


top level, technical skill becomes least important. This is the reason why people at
the top shift with great ease from one industry to other without apparent fall in their
efficiency.

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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.

According to second view (EFL Brech & others), Management is a


comprehensive generic term which includes administration. Administration is a
branch of management which encompasses planning and control. The other two
functions of management viz organising & directing can be called operative
management.

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.

Q. Is Management a science or an art? Discuss.

A: A discipline becomes scientific if its:


1. Method of inquiry are systematic and empirical
2. Information can be ordered and analysed
3. Results are cumulative and communicable

On the basis of above, management can be grouped as scientific. But science is


used to denote two types of systematic knowledge- exact & inexact (behavioral).
Management is not like exact science because in this discipline we study man and a
multiplicity of factors affecting him. It is not possible to predict the outcome and we
may not be able to replicate the results. Therefore management is more of a
behavioral science than exact science.

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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.

We may thus conclude that management involves both elements- those of


science and an art. While certain aspects of management make it a science, certain
others which involve application of skill make it an art.

Q . Mention different schools of management .Trace its evolution.

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:

(a) Early classical approaches, represented by scientific management,


administration management and bureaucracy.
(b) Non-classical approaches, represented by human relations movement &
behavioral approach.
(c) Modern approaches represented by quantitative approach, system approach
and contingency approach.

Early classical approaches

Scientific management as propagated by F W Taylor

Fredrick Winslow Taylor (1856-1915) is considered to be the father of


scientific management. His contributions are:

(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.

(iii) Drastic reorganization of supervision: Taylor suggested two new concepts:


(a) separation of planning & doing and
(b) functional foremanship.
In those days it was customary for each worker to plan his own work. The
worker himself used to select the tools and decide the order in which the
operations were to be performed. The Foreman simply told the worker what jobs
to perform, not how to do them. Taylor suggested that the work should be
planned by a Foreman and not by a worker. Further he said that there should be
as many Foremen as there are special functions of a job and each of this Foreman
should give order to the worker on his speciality.

(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.

Contributions and limitations of scientific management

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.

Thus scientific management not only developed a rational approach to solving


organizational problems, but also contributed a great deal to professionalisation of
management.

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.

Administrative management as propagated by Henry Fayol

While Taylor was considered as father of scientific management, Henry Fayol is


considered as father of Administrative management theory which focuses on the
development of broad administrative principles applicable to general and higher
management levels. In his book ‘General and Industrial Administration’ Fayol
provided a broad analytical frame work of the process of administration. It covers
both administrative and managerial functions and processes at the organizational
level.
Fayol wrote that all activities of business enterprises can be divided into six groups:
technical, commercial, financial, accounting, security, and administrative (or
managerial). Fayol’s primary focus was on this last managerial activity, because he
felt managerial skills had been the most neglected aspect of business operation. He
defined management in terms of five functions- planning, organizing, commanding,
coordinating, and controlling. Fayol also presented 14 principles of management as
general guide lines to the management process & practice. They are as under:

(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.

(3) Discipline: Discipline is absolutely essential to smooth running of business. By


discipline, we mean, obedience to authority, observance of the rules of service

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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.

(6) Subordination of individual interest to general interest: In a business concern,


the individual interests are more money, status, recognition etc., while the
organizational interest is more production. Hence the need to subordinate the
individual interest to general interest.

(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.

(12) Stability of tenure of personnel: in order to motivate workers to do more and


better work, it is necessary that they should be assured security of job by the
management.

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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.

Contributions and limitations:

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:

1) There should be clear line of authority


2) The authority and responsibility of each employee should be communicated
to him in writing
3) Each individual should perform one function only
4) The span of control of a manager should never cross six
5) Authority can be delegated but not the responsibility

Ideas of Fayol and his followers are criticised as under:

(1) Fayol’s principle of specialisation produces following consequences:


a. It leads to small work groups with norms & goals often at odds with
those of management.
b. Results in dissatisfaction of employees as their abilities are not fully
exploited.
c. Results in increase in overheadcost since specialisation needs greater
co-ordination.

(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:

Max Weber, a German sociologist is known as father of bureaucracy.


According to him, there are three types of administration in any business (including
government): leader oriented, tradition oriented and bureaucratic.

Leader oriented administration is one in which there is no delegation. All


employees serve as loyal subjects of the leader.

In traditional oriented administration, managerial positions are handed down


from generation to generation. Who you are, rather than what you can do becomes
the primary concern for work assignment.

In Bureaucratic administration, delegation of management responsibilities is


based on the person’s demonstrated ability to hold the position. No person can claim
a particular position either because of his loyalty to the leader or because the position
has been traditionally held by members of his family. People earn positions because
they are presumed to be best capable of filling them.

Important features of bureaucratic administration:

1. There is insistence on following standard rule: Weber believed that the


authority in an organisation should not be governed by personal preferences,
but should be governed by standard rules.
2. There is a systematic division of work: This increases production by
improving efficiency and saving time in changing over from one job to
another.
3. Principle of hierarchy is followed: each lower officer is under the control and
supervision of higher one.
4. It is necessary for the individual to have the knowledge of and training in the
application of rules, because these form the basis on which legitimacy is
granted to his authority.
5. Administrative acts, decisions and rules are recorded in writing. This makes
the organisation independent of people besides making people’s
understanding more accurate.
6. There is rational personal administration: people are selected on the basis of
their credentials and merits, and are paid according to their position in
hierarchy. Promotions are made systematically. There is emphasis on writing
people’s loyalty and commitment.

Contribution: Bureaucracy can be viewed as the logical extension of management,


when one person cannot fulfill all management functions. This concept has enabled
most large scale organisations which require functionally specialized staff to train
and control people with heterogeneous backgrounds and to delegate specific
responsibilities and functions to them.

Limitations: important dysfunctional consequences of Bureaucracy are as follows:

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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.

8. Inability to satisfy the needs of mature individuals: A mature individual


wants independence, initiative, self control, opportunity to use all his skills
and information to plan his future. But the hierarchy, and control features of a
bureaucratic organisation work against these needs.

NEO-CLASSICAL APPROACHES:

The human relations movement:

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:

1. Illumination experiments: in the first phase of study, tests were conducted to


correlate productivity versus illumination. Experiments were done on a group
of workers. Their productivity was measured at various levels of illumination.
But the results were erratic. Then two groups were made and were asked to

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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:

(a) Feeling of importance among girls as a result of their participation in


the research and the attention they got.

(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

(c) High group cohesion among girls.

3. Interviewing program: The knowledge about informal group processes which


was accidentally acquired in the second phase made researchers design the
third phase. In this phase, they wanted to know as to what were the factors
responsible for human behaviour at work. For this purpose, they interviewed
more than 20,000 workers. At first direct questions were asked relating to the
type of supervision, working conditions, living conditions and so on. Since the
replies were guarded, the technique was changed to non-directive type of
interviewing, in which workers were free to talk about their favourite topics
related to their work environment. This study revealed that the worker’s social
relations inside the organisation had an unmistakable influence on their
attitudes and behaviours. This study brought to light the all pervasive nature of
informal groups which had their own culture and production norms which the
members were forced to obey.

4. Bank Wiring Observation Room: This phase involved an in-depth


observation of 14 men making terminal Banks of telephone wiring
assemblies, to determine the effect of informal group norms and formal
economic incentives on productivity. It was found that group evolved its
own production norms for each individual worker, which were much lower

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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.

The experience of the Hawthorne studies produced a profound impact on


management gurus of human relations movement. They realized the
importance and part played by the informal groups.

Contributions of Human relations Movement:

1) A business organization is not merely a techno-economic system but is


also a social system. Hence, it is as important to provide social
satisfaction as to production.
2) There is no correlation between improved working conditions and high
production.
3) A worker’s production norm is set and enforced by his group not by time
and motion study. Those who deviate from group norm are penalized by
their co-workers.
4) A worker does not work for money only. Non financial rewards such as
affection and respect of his co-workers also significantly affect his
behaviour and largely limit the effect of economic incentive plan.
5) Employee-centered, democratic and participative style of supervisory
leadership is more effective than task oriented leadership.
6) The informal group and not the individual is the dominant unit of analysis
in the organization.

Limitations:

1. The movement concentrates only on human aspects and ignores other


aspects of business such as productivity etc.
2. Due to the diverse nature of social groups with incompatible values, it is
difficult to bring them on to common platform.
3. This approach over emphasizes the importance of symbolic rewards and
underplays the role of material rewards.
4. This approach provides an unrealistic picture about informal groups by
describing them as a major source of satisfaction for industrial workers.
Workers do not come to the factory to seek affection and affiliation. The
informal group they make can make their day more pleasant and not their
tasks.
5. This approach is more production oriented and not employee – oriented as
it claims to be. Many of its techniques trick the workers into a false sense of
happiness, but there is no improvement in their well being.
6. The Leisurely process of decision making of this approach cannot work
during an emergency.
7. This approach makes unrealistic demands on the superior. It wants him to
give up his desire for power.

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8. This approach is based on wrong assumption that safisfied workers are
more productive workers.

Behavioural Approach

This approach is an improved and more mature version of the human


relations approach to management. Douglas McGregor, Abraham Moslow , Mary
Parker Follet are some of the foremost behavioural scientists who have made
significant contributions to the development of behavioural approach to
management.

The behavioural approach recognizes the practical and situational constraints


on human rationality for making optimal decisions. The behavioural scientists attach
great weightage to participative and group decision making, because business
problems are so complex that it is neither fair nor feasible to make individuals
responsible for solving them.

They underline the desirability of humanizing the administration of the


Control process and encouraging the process of self direction and control, instead of
imposed control. They also favour participation in the establishment, measurement
and evaluation of standards of performance, prompt information feed back to those
whose performance is off the track and the need for positive and reformative
measures instead of punitive measures.

Behavioural Scientists consider organizations as group of individuals with


certain goals. They have, therefore made wide ranging studies on human groups –
big & small.

Behavioural Scientists have made extensive studies on Leadership. They


advocate participative democratic style of leadership, and agree that under certain
situations, autocratic task oriented style may be appropriate.

According to them, the realistic model of human motivation is complex man.


It suggests that different people react differently to the same situation or react the
same way to different situations. No two people are exactly alike and manager
should handle each according to their needs.

The behavioural approach to organizational conflict and change is quite


pragmatic. It recognizes that conflict is inevitable and sometimes is even desirable
and should be faced with understanding and determination, that every organizational
change involves technological and social aspects and generally it is the social aspect
which people resist.

Modern Approaches

1. Quantitiative Approach: This approach is called the Management Science


approach. It emerged during second world war. The outcome is operations
Research.

15
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.

2. Systems Approach: The very concepts of this approach are

1. A system is a set of interdependent parts – which together form a unitary


whole that performs a specific function. An organization is also a system
composed of four interdependent parts namely task, structure, people and
technology.
2. Central to the systems approach is the concept of ‘holism’ which means
that no part of the system can be accurately analysed and understood
apart from the whole system. Conversely, the whole system cannot be
accurately perceived without understanding all its parts. Each part bears
a relation of interdependence to every other part.
3. A system can be either open or closed. An open system is one which
interacts with its environment. A closed system is one which is
independent of the environment. The organizations are open system.
4. Every system has a boundary. Organisations, being social systems do not
have clearly observable boundaries.
3. Contingency Approach: Contingency approach attempts to integrate the
various schools of management thought. According to this approach,
management principles and concepts of various schools have no general and
universal applicability under all conditions. Methods & Techniques which
are highly effective in one situation may not work in other situations. Results
differ because situations differ. Accordingly, the contingency approach
suggests that the task of managers is to try to identify which technique will,
in a particular situation, best contribute to the attainment of management
goals. Managers therefore have to develop situational sensitivity & practical
selectivity.

(b) What are the characteristics of Management?


The salient characteristics of management are:
(i) Management is a purposeful activity.
(ii) It is getting things done in a desired manner.
(iii) It concerns with the efforts of people working in the enterprise.
(iv) It relates to decision making.
(v) It is a process consisting of various functions such as planning,
organizing, leading and controlling.
(vi) Management is both science and art.
(vii) It is a fast developing profession.
(viii) It deals with direction and control of business of activities.
(ix) Management is a dynamic concept which adapts itself to changing
business conditions.

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Unit -2 PLANNING

Q: Discuss the nature of Planning:


A:
• Planning is the beginning of the process of management. A manager must
plan before he can possibly organize, staff, direct and control.
• Planning may be defined simply as “Deciding in advance what to do, how to
do it, when to do it and who is to do it’. Planning provides a method of
identifying objectives and designing a sequence of programs and actions to
achieve these objectives.
• Planning is an intellectual process which requires a manager to think before
acting.
• Planning is a continuous process. A manager must continuously watch the
progress of his plans. He must constantly monitor the conditions, both within
and outside the organization to determine whether changes are required in his
plans.
• A plan must be flexible. That is, ability to change directions to adopt to
changing situations without undue cost. The five major areas where
flexibility is needed are: technology, market, finance, personnel and
organization.
• Planning is an all pervasive function. It is important to all managers
regardless of their level in the organization. Top level managers are
concerned with long term periods. Lower level manager are concerned with
short term periods.

Q. Discuss the Importance of Planning

A: Planning has assumed great importatnce in all types of organizations – business


or non business, private or public sector, small or big. The importance of
planning is highlighted under the following headings.
Minimises risk and uncertainty.
- In todays increasingly complex organizations, intution alone can no longer
be relied upon as a means of making decisions. This is one reason why
planning has become so important. By providing a more rational, fact based
procedure for making decisions, planning allows managers and organizations
to minimise risk and uncertainty.

• 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.

• Focusses attention on the organization goals

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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.

• Focuses attention on the Organisation goals:


- Planning helps manager to focus attention on the organization’s goals &
activities. This makes it easier to apply and 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.

Q What do you understand by ‘Objectives’? What are its characteristics?

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.

Some important Characteristics of the objectives are as under:

• Objectives are multiple in number: Objectives can be set out in various


key areas. Major areas are; Market standing, innovation, productivity,
physical and financial resources, profitability, Manager performance and
development, worker performance and attitude, and public responsibility.
• Objectives are either tangible or intangible: For some of the objectives
like Market standing, productivity and physical and financial resources,
quantifiable values are available. Other areas of objectives like
manager’s performance, workers morale, public responsibility etc., may
not have tangible values.
• Objectives have a priority: This implies that at a given point of time, the
accomplishment of one objective is relatively more important than others.
Priority of goals also says something about the relative importance of
certain goals regardless of time.
• Objectives are generally arranged in a hierarchy:

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.

Q What are the requirements of sound objectives? Mention the advantages.

• 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.

The advantages of objectives are:

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.

Q What is meant by Decision? What are the steps in Rational Decision


Making?

A : A decision is a choice between two or more alternatives. A decision is rational if


appropriate means are chosen to reach desired ends. The six steps involved in the
process of decision making are:

1. Recognising the problem

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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.

Recognising the problem: A problem exists

(i) When there is a deviation from past experience


(ii) When there is a deviation from plan
(iii) When other people bring problems to the manager.
(iv) When competitors out perform the manager’s organization.

Deciding priorities among problems:

A manager should not allow himself to be bogged down by all sorts of


problems. Some problems which can be solved by subordinates should be passed on.
Some problems need to be solved by higher ups. Then only a few problems need to
be solved by the manager.

Diagnosing the problem:

Every problem should be correctly diagnosed. A manager should remember


that symptoms of a problem may sometimes mislead him.

Developing alternative solutions or courses of action

After having diagnosed the problem, the next step is to develop alternative
solutions. The creative process of developing alternates consists of five stages.

Saturation: Thoroughly familiar with problem


Deliberation: Thinking of the problem from several view points
Incubation: In case he is unable to get a fruitful result of deliberation
Illumination: A flash of insight of good ideas’
Accommodation: The Manager refines his ideas into a useful proposal.

Another way of finding course of action is through brain storming

Measuring & comparing the consequencies of Alternative Solutions:

Once appropriate alternative solutions are developed, the next step is to


measure and compare their consequences. This involves a comparison of the quality
and acceptability of various solutions. The quality of a solution must be determined
after taking into account its tangible and intangible consequences. Acceptability of a
solution is also very important. Difficulties arise when a solution though good in
quality, is poor in acceptability & vice-versa.

Converting the Decision into effective action & follow-up:

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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.

Q: Discuss the environment of decision making.

A: There are three types of environments: Certainty, risk and uncertainty.

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.

Risk: In decision making under conditions of risk, the consequences of a particular


decision can not be specified with certainty, but can be specified with known
probability values. The value of probability associated with the event is a measure of
the likelihood of the occurrence of that event.
Evaluation of alternatives is done by calculating the expected value of pay off
associated with each alternative.

Uncertainty: More prevalent than either conditions of certainty or risk are


conditions of uncertainty. Uncertainty exists when the decision maker does not
know the probabilities associated with the possible outcomes, though he has been
able to identify the possible outcomes and their related pay offs. Since pay offs are
identified, but probabilities are unknown under conditions of uncertainty, the
criterion of maximizing the expected pay off cannot be used in evaluating the
decision alternatives. The three bases that can be used are ‘Maximin, Maximax and
Mini Max regret’ criteria.

Q What are the difficulties faced in decision making?

A: Incomplete Information: This is a major problem with every manager. Lack of


information plunges the manager in uncertainty.

Unsupporting Environment: The environment, physical and organizational, that


prevails in an enterprise affects both the nature of decisions and their
implementation. If there is all-round good will and trust, and if the employees are
properly motivated, the manager can take decisions with confidence. If not, he
avoids decision making.

Non acceptance by Subordinates: If subordinates have a stake in the decision or are


likely to be strongly affected by it, acceptance will be required for effective
implementation. On the other hand, subordinates may not really care what decision
is reached. In such situations, acceptance is not an issue. Democratic Leadership
style which encourages subordinates to suggest, criticize, make recommendations or

21
decide upon policies or projects is an effective device for gaining their acceptance
and commitment.

Ineffective Communication: Another problem in decision making is the ineffective


communication of a decision. This makes implementation difficult. The manager
should therefore take care to communicate all decisions to the employees in clear,
precise and simple language.

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.

Q What are the steps in planning?

A: The steps generally involved in planning are as follows:

• Establishing verifiable goals to be achieved: The first step in planning is


to determine the enterprise objectives. These are most often set by higher
level or top managers. The type of goals selected will depend upon the
basic mission of the organization, the value its managers hold, and the
actual and potential abilities of the organization.
• Establishing Planning Premises: The second step in planning is to
establish planning premises, i.e., assumptions about the future on the
basis of which the plan will be ultimately formulated. Planning premises
are vital to the success of planning, as they supply pertinent facts and
information relating to the future. Planning premises can be classified as
under:

(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

22
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.

Q What are the guidelines to make Planning effective?

1. Co-Ordination: The planning process is complex, consisting of many major


and derivative plans. It is important that all these derivative plans fit
together, not only in terms of content and action, but also in terms of timing.
Similarly short and long-range planning should fit together.

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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.

3. Participation: Participation of subordinates with superiors is also a key


element in making planning effective. It improves understanding of
objective, and loyalty in the subordinates and makes execution of plans easy.
MBO, Bottom up planning, committees and management clubs are methods
of increasing subordinates participation.

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

Q: Discuss the nature and purpose of organization.

A; “An organization is a social unit or human grouping deliberately structured for


the purpose of attaining specific goals”.

“Organising is the process of identifying and grouping of the work to be


performed, defining and delegating responsibility and authority and
establishing relationships for the purpose of enabling people to work most
effectively together in accomplishing their objectives”.

Based on the above definitions, every organization has:

1. A purpose, goal (task of planning).


2. A clear concept of major duties or activities required to achieve the purpose.
3. Clarification of activities into jobs and
4. Establishment of relationships between these jobs.

Q. Enumerate the process of organizing

A : In performing the organizing function, the manager differentiates and integrates


the activities of his organization. By differentiation is meant the process of
departmentalization or segmentation of activities. Integration is the process of
achieving unity of effort among various departments. The above can be
described in six steps.

1. Consideration of Objectives: The first step is to know the objectives of the


enterprise. Objectives determine the various activities which need to be
performed and the type of organization which needs to be built for this
purpose. Consideration of objective is the first step in the process of
organizing.
2. Grouping activities into Departments: After consideration of objectives, the
next step is to identify the activities necessary to achieve them and to group
the closely related and similar activities into departments and sections.
3. Deciding which departments will be key departments: Key departments are
those whose activities are essential for fulfillment of goals. Such key
departments need special attention. Unless key departments are identified,

25
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.

Q: What are the Principles of Organising?

In order to develop a sound and efficient organization structure, there is a


need to follow certain principles. These principles are as follows:

Objectives: The objectives of the enterprise influence the organization


structure and hence the objectives of the enterprise should be clearly defined.
Then every part of the organization should be geared to the achievement of
these objectives.

Specialisation: Effective organization must promote specialization. The


activities of the enterprise should be divided according to functions and
assigned to persons according to their specialization.

Span of control: As there is a limit to the number of persons that can be


supervised effectively by one boss, the span of control, as far as possible, be
minimum. six to eight would be ideal.

Exception: As the executives at higher levels have limited time, only


exceptionally complex problems should be referred to them and routine
matters should be dealt by subordinate at lower levels.

Scalar Principle: This principle sometimes known as ‘chain of Command’


clearly defines the line of authority from chief executive at the top to the first
line supervisor at the bottom.

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.

26
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.

Authority: The authority is the tool by which a manager is able to accomplish


the desired objective. Hence, authority of each manager must be clearly
defined. Further authority should be equal to responsibility.

Efficiency: The organization structure should enable the enterprise to


function efficiently and accomplish its objectives with lowest possible cost.

Simplicity: The organization structure should be as simple as possible and


the organizational levels should, as far as possible, be minimum. A large
number of levels of organization mean difficulty of effective communication
and co-ordination.

Flexibility: The organization should be flexible, should be adaptable to


changing circumstances and permit expansion and replacement without
dislocation and disruption of the basic design.

Balance: There should be reasonable balance in the size of various


departments, between centralization and de-centralisation, between principles
of span of control and the short chain of command and all factors such as
human, technical and financial.

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.

Personnel ability: As people constitute an organization, there is a need for


proper selection, placement and training of staff. Further, the organization
structure must ensure optimum use of human resources and encourage
management development programs.

Q: What do you understand by Departmentalisation? What are the bases on


which departmentalization is done? Discuss their merits and demerits.

A: The horizontal differentiation of tasks or activities into discrete segments is


called departmentalization. It is one of the important steps of building an
organization. The aim is to take advantage of division of labour and
specialization up to a certain limit.

There are several bases for departmentalization. They are described below.

27
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:

1. Suitable for organizations manufacturing only a limited number of


products or render limited number of service. Every one understands
One’s own task, feels secure both in work and in relationship.
2. Promotes excellence in performance because of development of
expertise through specialization.
3. Leads to improved planning and control.
4. Ensures economy. Man power & resources are effectively utilized.

Drawbacks:

1. It fosters subgroup loyalties. It is difficult to understand the task of


the whole and relate his own work to it. Decisions taken by one
department are poorly implemented by others.
2. Not a good training ground for overall development of a manager.
3. Unsuitable for large organizations.
4. Customer needs are not understood properly.
5. Complicated procedures, wasteful and time consuming. The structure
is rigid and resists adaptations.
6. Difficult to judge the performance of every department.

2. Based on Products

This form is eminently suited for Large manufacturing organizations,


producing variety of products. Under this method, for each major product, a
separate semi-autonomous department is created and is put under the charge
of a manager who is also responsible for profitability. Within each
department, all needed manufacturing, engineering, marketing, man power
and other facilities are assembled. Eg. Hindustan Levers

Advantages:

1. This form relieves top management of operating task responsibility.


They can now concentrate on Finance, R&D and control.
2. This form enables top management to compare the performances of
different products and invest more on profitable products and
withdraw resources from unprofitable ones.
3. Since the responsibility of product’s performance is entrusted to the
department head, he is better stimulated.

28
4. Employees working within a department derive greater satisfaction
from identification.

Draw backs:

1. Results in duplication of staff and facilities.


2. Extra expenditure in maintaining separate sales force for each
product.
3. Large number of managers is required.
4. Full utilization of machinery may not be possible.

3. Based on Customers:

An Enterprise may be divided into a number of departments on the basis of


the customers that it services (eg. BEL has separate depts. For military,
industrial and consumer electronics customers). Advantage is that it ensures
full attention to major customer groups so that goodwill is earned. The
disadvantage is that full utilization of facilities and duplication of facilities
are encountered.

4. Based on Regions (on territory):

When several production and marketing units of an organization are


geographically dispersed in various locations, it is logical to departmentalize
those units on geographical basis eg. Indian Railways.

Advantages:

1. Motivates each regional heads to achieve high performance.


2. Provides each regional head to adopt to Local situations and satisfy
customer needs with speed and accuracy.
3. It affords valuable top management training and experience to mid
level executives.
4. Enables organization to take advantage of local factors such as
availability of raw materials, labour etc.
5. Enables the organization to compare the performance.

Drawbacks:

1. Gives rise to duplication of various activities. Many routine and


service functions performed by all regional units can be performed
economically centrally.
2. Unhealthy competition among region may ruin overall interest of total
organization.

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:

Departmentalisation is done on the basis of discrete stages of process or


technologies in the manufacture of a product. Eg. Paper – Bamboo
crushing, Pulp making etc.

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

Tractor Dept Appliances Dept Generator Dept Based on


product

Eastern plant Southern plant Western plant Based on


geographical
dispersion

production sales finance Based on


functions

Another form is Matrix organization

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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

Here two types of departmentalization – Functional & Product exist


simulatensously. Functional departments are a permanent fixture of the
matrix organization. They retain authority for the overall operation of their
respective units. Product departments are created as the need arises.
Members of a project team are assembled from functional departments and
are placed under the direction of a project manager. The manager for each
project is responsible and accountable for its success. He has the authority
over team members for the duration of Project.

Benefits:

1. The combination of all necessary inputs of man power, facilities and


information at one place reduces the problems of communication and co-
ordination. There is economy in cost.
2. Stress on optimization of the total project eliminates, chances of
suboptimisation of goals.
3. Assignment of specific jobs to employees make them accountable.
4. Change of projects promotes intellectual growth & development of
employees.

Drawbacks:

1. Members tend to show greater loyalty to their parent departments


than to the project organization in which they are working.
2. Members feel frustrated due to lack of formal procedures and rules. They
suffer more anxiety near the completion of the project.

Q: What are the factors to be considered when choosing a base for


Departmentatlisation?

1. Specialisation: The base should ensure maximum specialization of skill and


effort. The questions which should be answered for this purpose are:
- Which approach permits the maximum use of special technical
knowledge?
- How will the choice affect differentiation among specialists?
- Will it allow the necessary differences in view point to develop so
that specialized tasks can be performed effectively?

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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.

3. Economy: The expenditure involved in introducing departmentalization is an


important consideration. Whatever the type of departmentalization used, its
benefits should always be more than its costs. The questions to be asked here
are:
- Which base provides the most efficient utilization of machinery and
equipment.
- What is the financial burden involved in following a particular base.

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.

Q : What do you understand by ‘Committee’ Discuss its advantages &


weakness? How do you make committees effective.

A: A committee is a group of people who have been formally assigned some


task (or problem) for their decision and/or implementation. Committees can
be broadly classified into advisory committees and executive committees.
Advisory committees have only a recommendatory role and cannot enforce
implementation of their advise or recommendations (eg: works committee,
sales committees etc.,). The executive committee is vested with line
authority. The executive committees not only take decisions but also enforce
decisions and thus perform a double role of taking a decision and ordering its
execution.

Advantages of Committees:

1. Where committees consist of all departmental heads as members,


people get an opportunity to better understand each other’s
problems and to move co-operatively towards organizational
goals.
2. Committees provide a forum for the pooling of knowledge and
experience of many persons of different skills, ages & backgrounds. This
helps in improving the quality of decisions.

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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:

1. It takes longer time to arrive at a decision than from an individual


manager.
2. In case of wrong decision, no member can be individually held
responsible. This encourages irresponsibility.
3. Committees are an expensive form of administration. Huge money is
spent.
4. Members tend to protect interest of their departments than to find an
appropriate solution to the problem.
5. Committees have a tendency to perpetuate.
6. Decisions are arrived at on the basis of compromise and hence they are
not the best decisions.
7. Due to large number of members, it is difficult to maintain secrecy.
8. Since chairman of committee keeps changing, influence accumulates in
the hands of permanent secretary who dominates the meeting. This
brings resistance from others.

How to make Committees effective

1. The number of members on a committee should not be very large (<10).


2. A committee’s authority should be carefully spelt out, and its activity
correctly chosen and closely defined.
3. Members of the committee should be of equal status so that they can
interact freely.
4. The members should give precedence to organizational interests over
departmental interests. They should attend meetings fully prepared.
5. The chairman of the committee should plan and conduct meetings with
firmness and fairness.
6. The work of the committee should be viewed periodically to ensure its
effectiveness.

Q: Define Authority and Responsibility:

A: Authority: “The right to give orders and power to exact obedience”.

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Responsibility: ‘Responsibility is the obligation of a subordinate to obey the
orders’. Responsibility has two dimensions.
- Responsibility for & Responsibility to.

‘Responsibility for’ is the obligation of a person to perform certain duties


accepted by him.

‘Responsibility to’ is his accountability to his superiors.

Authority can be delegated, but responsibility can not be delegated.

Q: What do you understand by centralization and decentralization of


Authority and responsibility. Discuss their advantages and disadvantages.

In a Centralised set-up, the decision making authority is concentrated in a few


hands at the top. Absolute centralization is not possible except in a one-man
enterprise.

In a decentralized set-up, the decision making authority is delegated to the levels


where the work is to be performed.

Every organization has to decide as to how much decision – making authority


should be centralized in the hands of chief executive and how much should be
distributed among the managers at lower levels. In words of Fayol, ‘Every thing
that goes to increase the importance of the subordinates role is decentralization
and everything that goes to reduce it is centralization.

Advantages of Centralisation:

1. Co-ordination of activities of subordinates is better achieved.


2. There is no duplication of efforts or resources.
3. Decisions take into account the interest of entire organization.
4. Strong control leadership develops which may be required in crisis.

Advantages of Decentralisation:

1. Decentralisation reduces problems of communication and Red tape.


2. Decentralisation permits quicker and better decision making.
3. It recognizes & capitalizes on importance of human element. Employees can
exercise more autonomy.
4. It leads to a competitive climate within organization.
5. Ensures employee development.
6. Facilities diversification of products, activities and markets.

Q : Explain ‘Span of Control’. What factors are important in deciding span of


control.

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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.

The factors governing the span of management are:

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

Q: Discuss the nature & importance of Staffing.

A: It is important to have a good organization structure and even more important to


fill the jobs with the right people. Filling and keeping the positions provided for,
by the organization structure filled with the right people is the staffing phase of
management function. It includes several sub functions:

1. Recruitment or getting applicants for the jobs as they open up.


2. Selection of the best qualified.
3. Transfers & promotions.
4. Training those who need further instructions to perform their work effectively or
to qualify for promotions.

It is estimated that Labour cost constitute from 25 percent of production costs to


40% of selling costs in manufacturing enterprise. Therefore a business cannot be
successful for any length of time unless it is capable of bringing in and developing
the right kind of people. The advantages of proper and efficient staffing are:

1. It helps in discovering talented and competent workers and developing them to


move up corporate ladder.
2. It ensures greater production by putting the right man in the right job.
3. It helps to avoid sudden disruption of an enterprise’s production run by indicating
shortages of personnel, if any, in advance.
4. If helps to prevent under utilization of personal through over manning and the
resultant high labour cost and low profit margins.
5. It provides information to management for the internal succession of managerial
personal in the event of an unanticipated turnover.

Q: Describe the Recruitment process:

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.

For the external source, the following are the methods:

1. Re-employing former employees: Former employees who have been laid


off or have left for personal reasons may be re-employed. These people require
less initial training than that needed by total strangers to the enterprise.
2. Friends and relatives of present employees
3. Applicants at the gate
4. College & technical institutions
5. Employment exchanges
6. Advertising the vacancy
7. Labour Unions

Q: What are the steps in selection process?

In order to determine the qualifications needed to meet the requirements of jobs,


the company has to analyse the jobs, write job descriptions and prepare job
specifications.

Job analysis is the process by means of which a description is developed of the


present methods, and procedures of doing a job, physical conditions in which a job
is done, relation of the job to other jobs and other conditions of employment. Job
analysis is intended to reveal what is actually done as opposed to what should be
done.

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.

A job specification is a statement of the minimum acceptable human qualities


necessary to perform a job satisfactorily.

The selection procedure steps are as under:

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.

4. Checking references: If the candidate has been found satisfactory at the


interview and if his performance is good in any of the above tests, the employer
would like to get some important personal details about the candidate such as
his character, past history, background etc. The employer may also contact his
friends residing in the locality where the candidate is residing or he may contact
the present and former employers.

5. Physical & Medical Examination: The objective of this examination are:

(i) To check the physical fitness of the applicant.


(ii) To protect the company against unwarranted claims of compensation.
(iii) To prevent communicable diseases if any entering the business concern.

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

Q: What do you understand by Direction. What are the requirements of


effective Direction.

A. For effective implementation of any administrative decision, planning,


organizing and staffing are not enough. The manager must stimulate action by
giving direction to his subordinates through orders and also supervise their work to
ensure that the plans and policies achieve the desired action & results. It is the
direction which stimulates the organization and its staff to execute the plans. Hence
it is also called management-in-action.

Direction means issuance of orders and leading and motivating subordinates


as they go about executing orders. Some important requirements of effective
direction may be outlined as under:-

Harmony of objectives: An organization functions best when the goals of its


members are in complete harmony with and complementary to the goals of the
organization. The manager therefore directs the subordinates in such a way that they
perceive their personal goals to be in harmony with enterprise objectives.

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.

Efficient Communication: Communication is an instrument of direction. It is


through communication that superior gives orders, allocates jobs, explains duties and
ensures performance. Efficient communication is a two way process. In
communication comprehension is more important than the content.

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.

39
Q. What is motivation. Discuss its nature

A. Motivation is the process of channeling a persons inner drives so that he


wants to accomplish the goals of the organization. The motivational process is as
under:
Interpretation of Goal directed Accomplishment
Needs goals/incentives behaviour of goals and
(Motives) according to one’s need-reduction
Perception
The following points reveal the complexities involved in understanding motivation
and thus its nature.

1. Individuals differ in their motivation.


2. Sometimes the individual himself in unaware of his motivation.
3. Motivations change from time to time.
4. Motivations are expressed differently.
5. Motivation is complex

Q. What are the motivation theories in vogue – Explain.

A. The importation motivational theories are

1. Maslow’s Need Hierarchy Theory


2. Herzberg’s two factory theory
3. McClelland’s Need for achievement theory
4. Victor Vroom’s Expectancy theory
5. Adam’s Equity theory
6. Skinner’s Behaviour Modification theory.

1. Maslow’s Need – Hierarchy Theory: All people have variety of needs. At


any given time, some of these needs are satisfied, and others are unsatisfied.
An unsatisfied need is the starting point in the motivation process.

According to Abraham Maslow, needs are arranged in a hierarchy with


physiological needs at the lowest level and self realization at the highest
levels.

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.

According to Maslow, people attempt to satisfy their physical needs first. As


long as these needs are unsatisfied, they dominate the behaviour. As they became
reasonably satisfied, however, they lose their motivational power and the next level
of needs, security needs becomes dominant motivational force. This process
continues up the need-hierarchy.

Merits of the theory

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.

Demerits of the theory

(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.

2. Herzberg’s two factory theory: According to Herzberg, the absence of


certain job factors tends to make workers, dissatisfied. However, the
presence of the same factors in themselves does not produce high levels of
motivation. They merely help avoid dissatisfaction and the problem it
creates, such as absenteeism, turnover or Grievances. Herzberg called these
factors maintenance or Hygiene factors, since they are necessary to maintain
a reasonable level of satisfaction. According to him, there are 10 hygine
factors namely.

1. Fair company policies and administrator


2. A supervisor who knows the work
3. A good relationship with one’s supervisor.
4. A good relationship with one’s subordinates
5. A good relationship with one’s peers
6. A fair salary
7. Job security
8. Personal life
9. Good working conditions
10. Status

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:

1. Opportunity to accomplish something significant.


2. Recognition for significant accomplishments
3. Chance for advancement
4. Opportunity to grow and develop on the job
5. Chance for increased responsibility
6. The job itself.

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

a) eliminating a layer of supervision


b) increasing worker’s autonomy and authority
c) giving worker a complete natural unit of work
d) giving direct feed back to the worker
e) Introducing new and more difficult tasks not previously
handled.

42
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.

2. The theory suffers from following weakness.


(i) Persons, when satisfied, attribute the causes of their feelings to
themselves. When dissatisfied they attribute their own
failures to the causes outside themselves. Therefore, the ego
defenses are at work when people say they are satisfied or
dissatisfied.

(ii) The categorization of factors into motivators and hygiene


requires not only respondent’s accuracy and veracity of self
reports, but also the interpretation of rater which vitiates the
results.

(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.

3. Motivational and Hygiene factors are not wholly unidirectional in their


influence. They operate primarily in one direction, but also partly in other
direction.

3. Mc Clelland’s need for Achievement theory

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

(i) Preference for setting moderately difficult, but potently


achievable goals.

(ii) Doing most things himself rather than getting then done by
others. He wants to take personal responsibility for his
success or failure.

(iii) Seeking situations where concrete feedback is possible.

43
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.

4. Victor Vroom’s Expectancy theory: According to Vroom, under conditions


of free choice, an individual is motivated towards that activity, which he is
most capable of rendering and which he believes has the highest probability
of leading him to his most preferred goal. Following are some basic concepts
of this theory:

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.

2. Instrumentality: All first level outcomes do not have equal probability of


leading the individual to the second level outcome. The individual has his
own subjective estimates of this probability ranging from 1 to + 1. These are
called instrumentalities. – 1 indicates that the second level outcome is certain
without first level outcome. 0 indicates a belief that the second level
outcome is impossible with the first level outcome & + 1 indicates a belief
that the second level outcome is certain with the first level outcome.

These instrumentalities help in determining the valence of each first level


outcome. The valence of each first level outcome is the summation of all
products arrived at by multiplying its instrumentalities with the related
valences of the second level outcomes.

3. Expectancy: Expectancy, like instrumentality is also a probability estimate


which joins the individual’s efforts to first level outcome. The individual
asks himself ‘Can I do it?’ and makes an estimate of probability of making a
given first-level effort. Being an effort-outcome association, expectancy
values are always positive, ranging from 0 - 1.

4. Motivation: Motivation is multiplicative function of the valance of or each


first level outcome (V1) and the believed expectancy (E) that a given effort
will be followed by a particular first level out come i.e. M=f (V1 x E).

Although Vroom’s theory does not directly contribute to techniques of


motivating personnel in an organization, it is of value in analyzing the process of
motivation. The theory tells us that what an individual does, depend on a three-step
thought process.

44
First, he determines the relative importance of his various personal goals such
as money, security, recognition etc., these are second level outcomes for him.

He then determines the probability of the organizational goals i.e. the


prescribed standards of output and behaviour (which are first level outcomes)
Leading him to second level outcomes. This is the instrumentality of the first level
outcomes.

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.

Most discussion and research on equity theory centers around money, as it is


the reward considered most significant in the work place. People compare what they
are being paid for their efforts with what others in similar situations receive for this.
Whey they feel that in-equity exists, a state of tension sets in them which alters their
behaviour. Some people will resolve the inequity by rationalizing, or they may quit.

6. Skinners Behaviour Modification Theory:

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.

The consequences of increased frequency of a behaviour are positive


reinforcement (praise or monetary reward) or negative reinforcement (escape from
aversive situation).

The consequences of decreased frequency of a behaviour are extinction


(ignoring the behaviour) and punishment (reprimand, fine, frown).

45
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.

Second, it is argued that the theory is unethical, because no manager has a


right to manipulate and control his employee’s behaviour.

Japanese model of Motivation – Theory Z

1. Life time employment


2. Collective decision making
3. Collective responsibility
4. Non-specialized career paths.
5. Slow evaluation & promotion
6. Implicit control Mechanisms
7. Holistic concern & Commitment.
8. Concern for young workers
9. Care of worker’s family
10. Participative leadership
11. Equality (Wage ratio is 5:1)
12. Company-wide unions with Harmonious relations.

Q. What do you understand from the word ‘Communication’ and what are
its purposes?

A. Communication is an exchange of facts, ideas, opinions or emotions by two


or more persons. Simply stated, communication means the process of passing
information and understanding from one person to another. A proper understanding
of information is a very important aspect of communication.

Some important purposes which communication serves are as under:

1. Communication is needed in the recruitment process

2. Communication is needed in the area of orientation to make people


acquainted with peers & superiors and with company’s rules & regulations.

3. Communication is needed to enable employees to perform their functions


effectively.

4. Communication is needed to acquaint the subordinates in the evaluation of


their contribution to enterprise activity.

5. Communication is needed to teach employees about personal safety on the


job.

6. Communication is of vital importance in projecting the image of an enterprise


in society.

46
7. Communication helps manager in his decision process.

8. Communication helps in achieving co-ordination.

9. Communication promotes co-operation and industrial peace.

10. Communication increases managerial efficiency.

Q. What is leadership. Describe the functions of a leader.

“Leadership is the lifting of man’s vision to greater sights, the raising of


man’s performance to a higher standard, the building of man’s personality
beyond its normal limitations”.

“Leadership is the ability to secure desirable actions from a group of


followers voluntarily, without the use of coercion”.

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:

Setting & achieving organizational goals.

1. Goal setter: A leader may either establish organizational goals and


objectives himself or he may participate with his superiors or subordinates in
establishing them.

2. Planner: This function is intermediate between determination of goals and


their execution.

3. Execution: In his role as executive, a leader is responsible for seeing that


appropriate activities of the organization are carried out.

Planning operations of the organization

4. Expert: The leader is an expert in the principal activities of the organization.

5. External Group representative: The leader acts as a single representative of


the organization to deal with outside individuals or groups.

6. Surrogate for individual responsibility. The leader relieves other members of


the group of certain responsibilities and they in turn place their trust in his
decision.

7. Controller of Internal relationship within the organization: It is the task of a


manager to see that various departments co-ordinate their activities.

47
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.

12. Ideologist: The leader functions as an ideologist.

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

A : The three approaches to leadership are :

i) Traits approach
ii) Behavioural approach
iii) Contingency approach

Behavioural Approach

Under behavioural approach, researchers have studied leadership behaviour from


three points of view : motivation, authority and supervision

Motivation : From the point of view of motivation, leadership behaviour can be


either positive or negative. In positive behaviour, the leader emphasis is on rewards
to motivate the subordinates. In negative behaviour, the leaders emphasis is on
penalties and punishments. The leader tries to frighten the subordinates into higher
productivity.

Authority : From the point of view of authority, leadership style can be autocratic,
democratic or free rein.

Autocratic Leadership : In this type of leadership, the leader alone determines


policies and makes plan. He tells others what to do and how to do it. He demands
strict obedience and relies on power. There are two types of autocratic leadership –
authoritarian and benevolent.

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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.

Democratic leadership : In this type of leadership ( also known as participative or


person oriented leadership ) the entire group is involved in and accepts responsibility
for goal setting and achievement. Subordinates have considerable freedom of action.
The leader shows great concern for people than concern for high production. A part
of leader’s task is to encourage and reinforce constructive inter relationships among
members and to reduce intra-group conflict and tensions.

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.

The spectrum is shown below

Autocratic

use of authority

Area of freedom permitted


to subordinates

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3 Supervision : From the point of view of supervision, leadership style can be
either employee oriented or production oriented.

Robert Blake’s managerial grid describes five types of managerial styles :

Hi
(,1,9 ) (9,9)
gh

(5,5)

(1,1) (9,1)

( 1,1 ) Impoverished management - No concern for task, no concern for people

(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.

Criticism of Trait’s approach

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)

Stamina to work long hours


Physical qualities

Mental toughness to take on work

Moral courage

Traits Moral Qualities Sense of fair play & justice

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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 :

According to this model, the relationship between a manager and subordinates


moves through four phases, as subordinates develop and mature. The managers need
to vary their leadership styles with each phase.

Phase I : Subordinates enter the organization; they need to be instructed in their


jobs and told about the organisations’s rules and procedures. This requires high task
orientation and low in relationship on the part of the leader.

PhaseII : Subordinates mature in the organization. Manager’s trust increases, but


still task orientation remains high. This requires High task orientation and High
relationship.

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.

Robert J House’s Model : There are four types of leadership behaviour :

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

A: Manpower planning is an essential requirement of all successful staffing.


Manpower planning – including forecasting, developing and controlling – is the
process by which a firm ensures that it has right number of people and the right kind
of people at the right places at the right time, doing work for which they are
economically most useful. Hence it is a vital tool in the hands of management to
control labour costs by avoiding both shortages and surpluses of personnel in an
organization. Manpower planning can be either short term or long term.

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.

2 In case of weak incumbents, the following actions are taken


(i) Assigning difficult part of their job to others
(ii) Improving them through short term training or counseling
(iii) Replacing them by other individuals
In case of strong incumbents, the anomaly may be set right by giving them more
skilled and difficult jobs.

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

54
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.

Q What points favour Internal and External sources of recruitment ? Discuss


advantages and disadvantages of each :

A : Internal source of recruitment :


(i) From the point of view of its impact on motivation, recruitment from
external sources is not desirable, particularly when an adequate number of
qualified persons are already available inside the organization

(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

1 A sense of security develops Limits the choice of selection because of a


few
among employees candidates available inside the organization

2 Employees remain loyal to the May encourage favoritism and nepotism


organization.

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

5 Labour turnover is reduced

6 People are motivated to become efficient

7 Valuable contacts with major suppliers


and clients remain intact

8 Better employer-employee relationship

External source of recruitment :

(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.

Greater turnover of labour

Deterioration of employer-employee
relationship

Q. What do you understand by ‘Co-ordination’?. What is the need for it?

The management of a modern enterprise is based on the principle of


specialization or division of labour with jobs specialized and divided among units,
co-ordination becomes necessary.
“Co-ordination is the management of interdependence in work situations”.

The Need for co-ordination arises because of the following factors;

Division of Labour: When managers divide work into specialized functions or


departments, they, at the sometime, create a need for co-ordination of these
activities. Greater the division of labour, greater the need for co-ordination.
Interdependence of units: The need for co-ordination in an organization also arises
because of interdependence of various units. The greater the interdependence, the

56
greater is the need for co-ordination. The units can be linked in any of the three
ways.

- Pooled interdependence: Units interlinked make contribution to the


organization, but are not directly related. All product based
departmentalization where there are separate self contained units for the
manufacturing and marketing of each product, are examples of pooled
interdependence.

- Sequential interdependence: In this kind of Linkage, one organizational unit


should act before the next can. Ex: Textile Industry having ginning,
spinning, weaving and printing units. Greater co-ordination is necessary than
in pooled-interdependence.

- Reciprocal interdependence: In this relationship, the input of one unit


becomes the output of the other and vice-versa.

Individual interests Vs organizational interests: The need for co-ordination is also


felt to integrate the activities and objectives of the separate units of an organization
in order to efficiently achieve organizational goals. Without co-ordination,
individuals and departments would begin to pursue their own specialized interests,
often at the expense of organizational goals. Co-ordination reconciles differences in
approach, effort or interests of various departments by avoiding inconsistencies in
their priorities, objective, and policies. It harmonises corporate and individual goals
by making individuals see how their jobs contribute to the dominate goals of the
enterprise.

Q. What are the various Techniques of Co-ordination?

A. The following are some important techniques of Co-ordination.

a Rules, procedures and policies: This is a very common method of co-


ordination. Standard policies, procedures and rules are laid down to cover all
possible situations.

b. Planning: Planning ensures co-coordinated effort under planning, targets of


each department dovetail with targets of all other departments.

c. Hierarchy: The oldest and simplest method of achieving co-ordination is


hierarchy or chain of command. By putting interdependent units under one
boss, some co-ordination among their activities is ensured.

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.

e. Task force: This is a temporary group made up of representatives from those


departments which are facing problems. It exists only as long as the problem
lasts.

57
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.

h. Indoctrination: This is a method adopted in religious and military


organizations. The leader develops in the minds of his followers the desire
and will to work together for a purpose. In essence, converting a neutral
body of men into a committed body is indoctrination.

i. Incentives: Providing interdependent units with an incentive to collaborate,


such as profit sharing plan is another mechanism. It promotes team spirit and
better co-operation between employees and workers, between superiors and
subordinates, between workers & workers.

j. Liaison departments: In some cases where there is a large volume of contact


between two departments, a liaison department evolves to handle the
transactions. This typically occurs between sales and production
departments.

k. Work flow: A work flow is the sequence of steps by which organization


acquires input and transforms them into outputs and experts these to the
environment. It is largely shaped by technological, economic and social
considerations and helps in its co-ordination.

Q. What is meant by controlling?. What are the steps in a control process?.

A. Control is one of the important functions of management. The main object of


control is to bring to light the variations between the standards set and
performance and then take necessary steps to prevent the occurrence of such
variations in future. Thus “Controlling is determining what is being
accomplished , i.e. evaluating the performance, and if necessary, applying
corrective measures so that the performance takes place according to plans”.

There are three basic steps in a control process

(i) Establishing standards


(ii) Measuring and comparing actual results against standards
(iii) Taking corrective action.

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

1. Physical standards: Labour hrs/output, Productions / hr.


2. Cost standards: Direct or indirect Cost/unit produced, Material cost.
3. Revenue Standards : Average Sale / customer, Sales / Capita.
4. Capital standards: Return on capital invested, current Assets / Current
Liabilities.
5. Intangible standards: Competence of managers and employees etc.,

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.

Q. What are the essentials of effective control system?

A. The essentials of effective control system are as follows:

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.

Economical: Economy is another requirement of every control system. The benefit


derived from a control System should be more than the cost involved in
implementing it.

Prescriptive & operational: An effective and adequate control system must not only
detect deviations from standards, but should also provide solutions to the problem

59
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.

Acceptable to organization members. The system should be acceptable to


organization members. When standards are set unilaterally by upper level managers,
there is a danger that employees will regard those standards as unreasonable and
unrealistic. They may refuse to meet them.

Reveal exceptions at strategic points: A control system should be such as to reveal


exceptions at strategic points. Small exceptions in certain areas have greater
significance than large deviations in other areas.

Motivate people to high performance: A control system is most effective when it


motivates people to high performance. Since most people respond to a challenge,
successfully meeting a standard may provide a greater sense of accomplishment than
meeting an easy standard. But if the target is so tough that it seems impossible to
achieve, it is more likely to discourage than to motivate.

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.

Q What are the methods of control?

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.

Responsibility Accounting: is a system of accounting under which each departmental


head is made responsibilities for the performance of his department.

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.

Total debt/ Total Assets

(iii) Profitability ratios: These ratios express profits as a percentage of sales or


total assets to depict the company’s efficiency of operation.

(iv) Operating ratios- These ratios measure how efficiently the manufacturing and
sales are being carried out
(inventory turn over ratio & total Assets ratio)

Return on Investment: One important financial control is the ROI – It is expressed


as:

ROI Sales Profit


Investment(Fixed & Working capital Sales

= Capital turnover x earnings as proportion of Sales

Break-even Analysis: It is another control technique used in business firms. It


involves the use of a chart. It uses the following information (i) Fixed cost, (ii)
Variable cost (iii) selling price of the item.

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Break even analysis help in deciding.

(i) The minimum sales volume to prevent a loss


(ii) The profit earnings.

Internal & External Audit: Internal Audit is conducted by an employee of the


organization. He makes an appraisal of financial and other operations. External
audit is an independent appraisal of the organization’s financial accounts &
statements.

Reports: A major part of control consists of preparing reports to provide information


to the management for the purpose of control and planning. Different types of
reports are prepared for different levels of management.

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.

New Control Techniques

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.

62
ENTREPRENEURSHIP

Q. What do you understand by the term Entrepreneurship? Explain the concept.

A. Entrepreneurship refers to a process of action an entrepreneur undertakes to


establish his enterprise. An entrepreneur is one of the important segments of
economic growth. Basically an entrepreneur is a person who is responsible for
setting up a business or an enterprise. He is the one who has the initiative, skill for
innovation and who looks for high achievements. He is a catalytic agent of change
and works for the good of people. He puts up new greenfield projects that actually
creates wealth, opens up employment opportunities and fosters other sectors.

The concept of Entrepreneurship is a complex phenomenon. It is creative


and innovative response to the environment. One of the qualities of entrepreneurship
is the ability to discover an investment opportunity and to organize an enterprise,
thereby contributing to real economic growth. It involves taking of risks and making
the necessary investments under conditions of uncertainty and innovating, planning
and taking decisions so as to increase production in agriculture, business and
industry. Entrepreneurship is a composite skill, the resultant of a mix of many
qualities and traits. These include imagination, readiness to take risks, ability to
bring together and put to use other factors of production, capital, labour, land and
also intangible factors such as scientific & technological advances.

Entrepreneur Entrepreneurship Enterprises

Person Process of action Object

Mc Clelland has identified two characteristics of Entrepreneurship

(i) Innovation
(ii) Decision making under uncertainty

According to peter Drucker, ‘Entrepreneurship is neither a science, nor an art. It is a


practice. It has a knowledge base. Knowledge in entrepreneurship is a means to an
end…”

63
Q: What are the functions of an entrepreneur?

A. A successful entrepreneur recognizes the commercial potential of a product


or service, designs operating policies in marketing, production, product development
and the organizational structure. He carries out the whole set of activities of the
business. He has a high capacity for taking calculated risks and has faith in his own
capabilities. An entrepreneur is expected to perform the following functions:

1. Assumption of Risk: The entrepreneur assumes all possible risks of business. A


business risk also involves the risk due to the possibility of changes in the tastes of
consumers, techniques of production and new inventions. Such risks are not
miserable. If they fail to realize, the entrepreneur has to bear the loss himself. Thus
risk bearing or uncertainty bearing still remains the most important function of an
entrepreneur. He tries to reduce the uncertainties by his initiative, skill and good
judgment.

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.

3. Managerial Functions: The entrepreneur performs the managerial functions,


which are different from entrepreneurial functions. He formulates production plans,
arranges finance, purchases raw materials, provides production facilities, organizes
sales and assumes the task of personal management.

4. Functions of innovation: An important function of an entrepreneur is innovation.


He conceives the idea for the improvement in the quality of production line. He
considers the economic viability and technological feasibility in bringing about
improved quality. Innovation is an ongoing function.

Q. What are the types of Entrepreneurs

A. According to the types of business;

• Business entrepreneur
• Trading entrepreneur
• Industrial entrepreneur
- Large
- Medium
- Small
- Tiny

• Corporate entrepreneur

64
• 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.

Industrial entrepreneur: Is essentially a manufacturer who identifies the potential


needs of customers and tailors product and services to meet the marketing needs. He
is product oriented man who has the ability to convert economic resources and
technology into a considerably profitable venture.

Corporate entrepreneur: Is a person who demonstrates his innovative skill in


organizing and managing a corporate undertaking. A corporate undertaking is a
form of business organization which is registered under some statute or act which
gives it a separate legal entity. A corporate entrepreneur is thus an individual who
plans, develops and manages a corporate body.

Agricultural entrepreneurs: Are those, who undertake such agricultural activities as


raising and marketing of crops, fertilizers and other inputs of agriculture. They are
motivated to raise the productivity of agriculture through mechanization, irrigation
and application of technology for dry land agriculture.

2. According to the use of Technology.

- 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.

Professional entrepreneur: Is a person who is interested in establishing a business


but does not have interest in managing or operating once it is established. A
professional entrepreneur sells out the running business and states and then venture
with the sales proceeds. Such an entrepreneur in dynamic and conceives new ideas
to develop alternative projects.

3. According to Motivation

- Pure entrepreneur
- Induced entrepreneur
- Motivated entrepreneur
- Spontaneous entrepreneur

Pure entrepreneur: A pure entrepreneur is an individual who is motivated by


psychological and economic rewards. He undertakes entrepreneurial activity for his
personal satisfaction in work, ego or status.

Induced entrepreneur: Is one who is induced to take up an entrepreneurial task due


to the policy measures of the government that provides assistance, incentives,
concessions and necessary over head facilities to start a venture.

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.

Spontaneous Entrepreneur: These entrepreneurs start their business out of their


natural talents. They are persons with initiative, boldness, and confidence in their
ability which motivate then to undertake entrepreneurial activity. Such entrepreneurs
have a strong conviction and confidence in their ability.

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.

5 According to stages of development

- First generation entrepreneur

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- Modern entrepreneur
- Classical entrepreneur

First Generation Entrepreneur: Is one who starts an industrial unit by means of an


innovative skill. He is essentially an innovator, combining different technologies to
produce a marketable product or service.

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

7 According to Gender & Age

- Men entrepreneur
- Women entrepreneur

(i) Young entrepreneurs


(ii) Old entrepreneurs
(iii) Middle aged entrepreneurs

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

Q. How do you indentify a project? Enumerate the criteria for selecting a


particular project.

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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.

Human mind has an infinite capacity to observe, to deduct and to innovate.


Observation is one of the most important sources for project ideas. The process of
deduction is used to supplement and rationalize the project ideas based on pure
observation.

Trade and professional magazines provide a very fertile source of project


ideas. It is very necessary for the entrepreneur to keep in touch with the Latest
developments in his own field as well as in other fields which may be horizontally or
even vertically linked with his own line of specialization.

Bulletins of Research Institutions are a fertile source of information for the


development of new project ideas. These bulletins generally give the broad outlines
of the new processes or products developed by research institutions and are useful in
identification of new opportunities.

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.

Departmental publications of various departments of governments also


provide useful information which can help in the development of new project ideas.
These publications are either periodical in character or are issued on special
occasions.

The Criteria for selecting a particular project are as under:

Investment Size: Professional managers who have worked in multinational


companies or large Indian companies should think of starting medium sized or large
sized units only. The investment size (project cost) should be atleast 3 to 5 crores.

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.

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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.

Q. What are factors to be considered for the selection of a product?

An entrepreneur is concerned with identifying a particular product that he


hopes to market successfully at a reasonable profit. Therefore, the selection of a
right product is very essential for being successful in the business venture. Various
factors influence the entrepreneurs in selecting the right product. These are

(i) Whether import restrictions or the items selected are banned items.

(ii) If the entrepreneurs or his partners have experience in the manufacture or


marketing of certain products.

(iii) The degree of profitability

(iv) Concessions given by the Government on certain products.

(v) Whether product belongs to priority industry or small scale sector.

(vi) The market for the product – whether export or local.

(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.

(ix) Whether a product belongs to an ancillary limit end serves as major


component for the parent industry.

Q: What do you understand by ‘Project’. How do you identify and select a


project.

A. The very foundation of an enterprise is the project. The success or failure of


the enterprise largely depends upon the project. ‘A project is an organized unit
dedicated to the attainment of goal – the successful completion of a development

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project on time within budget, in conformance with predetermined programme
specifications’.

The Three basic attributes of a project are

(i) A course of Action


(ii) Specific objectives
(iii) Definite time perspective

Every project has starting point and end point with specific objectives.

Project selection is a well outlined game plan. There is a definite procedure of


selecting a project. Basically, Project selection consists of two main steps.

1. Project identification &


2. Project selection

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.

They may include

i) Knowledge of potential customer needs


ii) Watching emerging trends in demands for certain products
iii) Scope for producing substitute product
iv) Through professional magazines
v) Success stories of known entrepreneurs or friends or relatives
vi) Visits to trade fairs & Industrial exhibitions.
vii) Meeting with Government agencies
viii) Ideas given by knowledgeable persons
ix) Govt. Policy, Concessions & incentives, List of items exclusively of SSI
x) A new product introduced by a competitor.

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.

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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

Project identification & Selection

Q What is a project report? How do you prepare one

A. Formulation of a project report / business plan is a very important step in


setting up an enterprise. A project report / business plan is a written statement of
what an entrepreneur proposes to take up. It is a kind of guide or course of action
what the entrepreneur hopes to achieve in his business, and how is he going to
achieve it. A project report is an operating document which defines a well evolved
course of action to achieve the specified objective within a specified period time.

An objective without a plan is a dream. The preparation of a project report is


of great significance for an entrepreneur. The Project report serves the two essential
functions.

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.

Q. What are the contents of a project report? What minimum information


should it contain to satisfy the authorities ?

A. A project report needs to be prepared with great care and consideration. A


good project report should contain the following:

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1. General information : Information on product profile & Product details.

2. Promoter : Educational Qualifications, work experience,


project related experience.

3. Location : Exact Location of the project, lease or freehold,


locational advantages.

4. Land & building : Land area, construction area, type of construction,


cost of construction, detailed plan & estimate
along with plant layout.

5. Plant & machinery : Details of machinery required, capacity, suppliers,


cost, alternatives available, production program.

6. Production process : Description of production process, process hart,


technical know how, alternate technology
available production program

7. Utilities : Water, power, steam, compressed air requirement,


cost estimates, sources of utilities etc.,

8. Transport and : Mode, approachability thro’ rail, road costs


Communication

9. Raw Material : List of raw materials required by quality,


Quantity, sources of procurement, cost, tie-up
arrangements etc.,

10. Man Power : Requirement of skilled, unskilled & semi skilled


Labour, requirement of Training, costs.

11. Products : Product mix, estimated sales, distribution


channels, competitions and their capacities,
product standard input-out put ratio, product
substitute.

12. Market : End users of product, distribution of market as


local, national, international, trade practices, sales
promotion devices, Market research.

13. Requirement of : Working capital required, sources, need for


working capital collateral security, nature and extent of credit
facilities offered and available.

14. Requirement of funds : Breakup of project cost in terms of cost of Land,


building and machinery, other assets, preliminary
expenses, contingencies, and margin money for

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working capital, arrangements for meeting the
cost of setting up the project.

15. Cost of production and profitability of first ten years.

16. Break even Analysis

17. Schedule of implementation

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.

Project formulation divides the process of project development into eight


distinct & sequential stages. These are

(i) General Information

- Name, address, qualification, experience, partners if any. Industry profile,


constitution & organization, product details.

(ii) Project Description

- Covering site, physical infrastructure such as raw materials, skilled labour,


motilities such as power, water, pollution control, communication system,
Transport facilities, other common facilities, production process, machinery
and equipment, capacity of the plant, Technology selected, R & D.

(iii) Market Potential: While preparing a project report, the following aspects
relating to market potential of product should be stated.

a. Demand and supply position


b. Expected price

Marketing strategy, After Sales service and Transportation should be


mentioned.

(iv)Capital costs & Sources of finance: An estimate of various


components of capital items like land and building, plant and
machinery, installation costs, Preliminary expenses, margin for
working capital should be given in the project report. The present
probable sources of finance indicating owner’s fund together with
funds raised from financial institutions and banks.

(v) Assessment of working capital requirements: The requirement for working


capital and its sources of supply should be clearly mentioned in the project
report.

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(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.

In addition to above, the Break-even analysis should be presented in the


project report.

(vii) Economic and social variables: In view of the social responsibility of


business, the cost for controlling the environmental damage should be stated
in the project. Arrangements for treating effluents and emissions should be
mentioned in the report. Besides, the Socio-economic benefits expected to
accrue from project should also be stated in the report itself under the
following headings.

(a) Employment Generation


(b) Import Substitution
(c) Ancillary
(d) Export
(e) Local Resource utilization
(f) Development of Area

(viii) Project implementation: Every entrepreneur should draw an implementation


scheme as a time table for his project to ensure the timely completion of all
activities involved in setting up an enterprise. Timely implementation is
important, because if there is a delay, it causes, among other things, a project
cost over run. Delay in project implementation jeopardizes the financial
viability of the project. The following is a simplified implementation
schedule for a small project.

Months 1 2 3 4 5 …… 15

Tasks

1. Formulation of project report


2. Application for term loan
3. Term loan sanction
4. Possession of land
5. Construction of building
6. Getting Power & water
7. Order for machinery
8. Receipt & installation of machinery
9. Man power recruitment
10. Trial production

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11. Commercial production

Q. What are the planning Commission’s Guidelines for a project report?

A. In order to process investment proposals and arrive at investment decisions,


the planning commission of India has issued some guidelines for preparing /
formulating Industrial projects. The following are the guidelines.

1. General Information: The feasibility report should include an analysis of the


industry to which the project belongs. It should deal with part performance
of the industry. The description of the type of industry, i.e., the priority of
the industry, increase in production, role of the public sector, allocation of
investment of funds, choice of techniques etc., This should also contain
information about the enterprise submitting the feasibility report.

2. Preliminary Analysis of Alternatives: This should contain present


data on the gap between demand and supply for the outputs which are
to be produced, data on the capacity that would be available from
projects that are in production or under implementation at the time the
report is prepared,a complete list of all existing plants in the industry
giving their capacity and level of production attained, a list of all
projects for which letter of intents / licences have been issued and list
of proposed projects. All options that are technically feasible should
be considered at this preliminary stage. The location of the project,
account of foreign exchange requirement and the profitability must be
given. The rate of return on investment should be calculated and
presented in the report.

3. Project Description: The feasibility report should provide a brief description


of the technology / process chosen for the project. To assist in the assessment
of environmental effects of a project, every feasibility report must present the
information on specific points i.e. population, water, Air, Land, Flora and
fauna, effects arising out of projects pollution etc., The report should contain
a list of operational requirements of the plant, requirements of water and
power, requirement of personnel, organizational structure envisaged,
transport costs, activity-wise phasing of construction and factors affecting it.

4. Marketing Plan: It should contain the following items:


Data on the marketing plan, Demand and prospective supply in each of the
areas to be served, the method and data used for main estimate, estimate of
price sensitivity should be presented.

5. Capital requirements & costs: The estimates should be reasonably complete


and properly estimated. Information on all items of costs should be carefully
collected and presented.

6. Operating requirements & costs: Operating costs are those costs


which are incurred after the commencement of commercial
production. Operating costs relate to the cost of raw materials and

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intermdiates, fuel, utilities, labour, repair and maintenance, selling
and other expenses.

7. Financial Analysis: The purpose of this analysis is to present some measures


to assess the financial viability of the project. A proforma Balance Sheet for
the project data should be presented. Depreciation should be allowed, Foreign
exchange requirements cleared by Department of economic affairs – The
feasibility report should take into account Income tax rebates for priority
industries, incentives for backward areas, accelerated deprecation etc., The
sensitivity analysis should also be presented. The report must analysis the
sensitivity of rate of return of change in the level and pattern of product
prices.

8. Economic Analysis: Social profitability analysis needs some adjustment in


the data relating to the costs and returns to the enterprise. One important type
of investment involves a correction in inputs & costs, to reflect the true value
of foreign exchange, labour and capital. The enterprise should try to assess
the impact of its operations on foreign trade. Indirect costs and benefits
should also be included in the report. If they cannot be quantified, they
should be analyzed and their importance emphasized.

Q. What is project Appraisal? How do your approve a project?

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.

Economic Analysis: Under economic analysis, the aspects highlighted include


requirements for raw material, level of capacity utilization, anticipated sales,
anticipated expenses, and the probable profits. In addition to the above, the location
of the enterprise decided after considering many points also needs to be mentioned in
the project. The government policies in this regard should be taken into
consideration.

Financial Analysis: Finance is one of the most important pre-requisites to establish


an enterprise. In order to adjudge the financial viability of the project, the following
aspects need to be carefully analysed.

1. Assessment of financial requirements both-fixed capital and working capital


need to be properly made. The requirement varies from enterprises to
enterprise depending upon the type of operation, scale of operation and time
when the investment is made.

In accounting working capital means excess of current assets over current


liabilities. Current assets refer to those assets which can be converted into

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.

2. The capacity utilization of the enterprise needs to be well spelled out.


However the enterprises sometimes fails to achieve the targeted level of
capacity due to unforeseen circumstances such as shortage of raw material,
disruption of power supply, inability to penetrate the market mechanism etc.,
The enterprise should continue its production to meet all its obligations /
liabilities using the ‘Breakeven analysis’.

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

Sample survey: Out of 1000 customers, 50 are chosen at random and if D i is


demand, the total demand for entire group is Σ ni Di

Sales experience method: Under this method, a sample market is surveyed


before the product is offered for sale. The results of the market surveyed are
then projected to the universe in order to anticipate the total demand for the
product.

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.

(i) Availability of land and site


(ii) Availability of water power, Transport & communication
facilities.
(iii) Availability of service facilities like machine shops, electric
repair shop
(iv) Coping with anti-pollution laws
(v) Availability of skilled labour, Training facilities
(vi) Availability of required raw material.

Management competence: Management ability or competence plays an important


role in making an enterprise a success or otherwise strictly speaking, in the absence
of managerial competence, the projects which are otherwise feasible may fail. ON
the contrary, even a poor project may become a successful with good managerial
ability. Hence while doing project appraisal, the managerial competence should be
taken into consideration.

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SMALL SCALE INDUSTRY

Q. Define a small scale Industry

A. The term Small scale Industry has been defined in three ways.

The conventional definition (which includes cottage and handicrafts)

‘Industry which employs traditional Labour intensive methods to produce traditional


products, largely in village house holds’.

The operational definition

All undertakings having an investment in fixed assets in plant and machinery,


whether held on ownership terms or by lease or by hire purchase, not exceeding
Rupees ten million’. Ancillary units and Tiny units also come under the umbrella of
small scale industries.

The third definition

‘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’

Ancillary Unit: An industrial undertaking which is engaged in the manufacture or


production of parts, components, sub-assembles, tooling or intermediates, or the
rendering of service and the undertaking of supplies or renders not less than 50
percent of its production and services to one or more other industrial undertakings,
and whose investment in fixed assets in plant & machinery does not exceed Rs.10
million.

Tiny enterprises: Investment limit in plant and machinery is Rs.2.5 million


irrespective of location of the unit.

Women entrepreneurs: An SSI or industry related service of business enterprise


managed by one or more women entrepreneurs in proprietary concerns in which
she/they individually or jointly have a share capital of not less than 51% as partners,
share holders or directors of Pvt. Ltd., Company or members of co-operative society.

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Q. What are the characteristics of small industries ?

A: 1) Capital investment is small


2) Most have fewer than 10 workers
3) Generally engaged in the production of light consumer goods,
processing etc.,
4) Located in rural and semi-urban areas
5) Most of SSI are privately owned & sole proprietorship.
6) Labour force are basically family members.
7) Hired workers are unorganized
8) The average person does not work full time in one activity
over the entire year.
9) Fixed assets form the largest component.
10) Most of the funds come from entrepreneurs savings.
11) The incidents of infant mortality is highest
12) Most SSIs, especially chemical units pollute environment.
13) Exploits both Human resources & natural resources.
14) SSIs are quality conscious.
15) Most SSIs desire to make big profit in a short time.
16) Management & organization and poor
17) Financial discipline is very weak
18) Urban units are over crowded & poor layout
19) SSIs grow faster than large scale units
20) Bogged by corruption & cheating.

Q. What is the need for SSI?

A. Small scale Industries contribute significantly to social and Economic


development objectives such as employment generation, income distribution, rural
development, poverty eradication, regional balance and promotion of
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 paves 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

80
entrepreneurs and motivates them to become innovative to improve economy. As
such development of SSI should be given special attention.

Q. Discuss the role of SSI in planned development

A. In a developing economy, it is the SSI that constitutes the backbone of its


economic structure. Its development creates vast employment opportunities for the
people, effects decentralization of industries by the creation of industrial estates and
makes possible a redistribution of economic power and income. These objectives
mainly follow the principles of the ideal goals of a welfare state. The objectives aim
at developing the country on the basis of principles of social justice and social
welfare.

The Arguments in favour of SSI units are

1. Employment Argument: The argument is based on the assumption that SSIs


are Labour intensive comparatively and thus create more job opportunities
per unit of capital employed. This is important for a labour surplus economy
like India, suffering from acute problems of unemployment, under
employment and seasonal unemployment. Besides it is argued that most of
the small enterprises are either proprietary concerns or partnership
undertakings where the employer-employee relationship are personal and
hence harmonious.

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.

4. The Decentralization argument. This argument impresses the necessity of


dispersal of Industries. Location of large enterprises is conditioned by
inflexible environment factors. If the industrialization is to progress in an
atmosphere of decentralization, setting of small scale industrial units must be
encouraged as their locational requirements are often flexible.
Decentralization also helps in tapping local resources and helps
industrialization of backward areas.

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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.

Q. What are the policies governing small scale Industries?

A. The promotion of Industries has been regarded as an important element of


development strategy underlying five year plans, because they provide substantial
scope for increasing employment, as they are labour intensive and they require
comparatively less capital. They have less gestation period and can easily be set up
in rural and backward areas. They need relatively smaller markets to be economical
and hence they have an advantage in being set up as ancillary units. They stimulate
growth of entrepreneurship, promote a more decentralized pattern of ownership,
diversification of economic activities, introduce new products to enrich the living
standard of people and equitable dispersal of Industries throughout rural and
designated backward areas.

Policies constitute the framework or guidelines for appropriate decisions at


varied levels. They generally consist of statements that affect the working of a sector
of economy. The working of SSI is moulded by a number of policies, which are the
base for effective plan development.

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.

(ii) To make an attempt to meet a substantial part of domestic demand for


consumer goods and even part of capital goods.

(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.

(iv) To provide assistance to a large number of entrepreneurs, artisans and


craftsman in getting employment income and reasonable standard of living.

(v) To make available foreign markets for the products of SSI by taking
measures to make then export-oriented.

(vi) To remove disparities in regional industrial development in areas where such


services do not exist or are thoroughly inadequate so that SSI may develop
there, providing employment and income to people in that area.

The industrial policy has also entrusted the following to SSI

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…..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.

The other objectives are


(i) To decentralize and delicense the sector
(ii) To de-regulate and de-bureaucratize the sector
(iii) To review all statutes, regulations, and procedures and effect
suitable modifications where necessary.
(iv) To promote small enterprises, especially industries in tiny sector.

Q. What are the initiatives taken by Govt. of India towards implementation of


SSI policy?.

A. In pursuance of the objectives of the policy statement, the Government of


India has taken a series of initiatives in respect of policies related to the following
areas.

For SSI

(i) Financial support


(ii) Infrastructural facilities
(iii) Marketing and Exports
(iv) Modernization
(v) Promotion of Entrepreneurship
(vi) Simplification of rules and procedures
(vii) Tapping resources.

Tiny Sectors

(i) Investment
(ii) Broadening the concept of service sector
(iii) Locational
(iv) Simplification of rules

Handloom Sector

(i) Project package scheme


(ii) Welfare package scheme
(iii) Organisation & development scheme
(iv) NHDC as a nodal agency

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Handicraft sector

(i) Extending services like supply of raw material


(ii) Market development support
(iii) Expansion of Training facilities

Other village Industries

(i) Improving Quality


(ii) Ensuring better flow of credit from financial Institutions
(iii) Thrust on traditional village industries
(iv) Setting of functional industrial estates
(v) Upgrading training programs
(vi) Co-ordinating with development programs

Q. Discuss Government Policy for small scale enterprises

A. Since independence, India has several Industrial policies to her credit. Some
of them are described here:

Industrial Policy resolution (IPR-1948) – Protection

For the first time, the importance of SSIs in overall industrial development of the
country was accepted.

IPR-1956 – Protection & Development

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.

IPR-1977: Protection, development & promotion.

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:

(i) Cottage and household industries which provide self employment


on a large scale.

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(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.

(iii) Small scale Industries comprising of industrial units with an


investment of upto Rs.10 lakhs and in case of ancillary units with
an investment of upto Rs.15 lakhs.

The measures suggested for the promotion of small scale and cottage
industries included.

(i) Reservation of 504 items for exclusive production in small scale.


(ii) Proposal to set up in each district an agency called “District
Industry Centre’ (DIC) to serve as a focal point of development of
SSI & cottage Industries. The main objectives of setting up DICs
was to promote under a single roof all the services and support
required by small and village entrepreneurs.

IPR 1980

The main objective was defined as facilitating an increase in industrial


production through optimum utilization of installed capacity and expansion of
Industries. For the SSIs the resolution envisaged:

(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.

(ii) Introduction of the concept of nucleus plants to replace the earlier


scheme of DICs in each industrially backward district to promote
maximum SSIs there.

(iii) Promotion of village and rural Industries to generate economic


viability in the village well compatible with the environment.

IPR 1990

To the SSIs, the resolution continued to give increasing importance to small


scale enterprises to serve the object of employment generation. The important
elements included in the resolution to boost the development of small scale sector
were as follows;

(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)

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(iii) 836 items reserved exclusively for small scale sector

(iv) Subsidy exclusively for small scale sector in rural and backward
areas .

(v) Technology upgradation under SIDO

(vi) Establishment of SIDBI for timely flow of credit facilities

(vii) Greater emphasis on training women and youth under


entrepreneurial Development program.

(viii) Delicencing of all new units with investment of Rs.25 crore in


fixed assets in backward areas and Rs.75 crore in centrally
notified backward areas. Also delicencing in case of 100% EOU
setup in Export processing zones (EPZ) up to an investment
ceiling of Rs.75 Lakh.

New small Enterprise policy 1991

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;

1. Increase in the investment limit in plant & machinery of tiny


enterprises from Rs.2 lakh to Rs.5 lakh irrespective of the location of
the enterprise.

2. Inclusion of industry-related services and business enterprises


irrespective of their location, as small scale industries.

3. To introduce a limited partnership Act. This would limit the financial


liability of the new entrepreneurs to the capital invested.

4. Introduction of a scheme of Integrated Infrastructural Development


(including technological backup ) for SSI.

5. To set up a Technology Development cell in SIDO.

6. Market promotion of SSI products through co-operatives, Public


sector institutions, other specialized professional / marketing agencies
and the consortium approach.

7. Introduction of factoring services to help solve the problems of


delayed payments to small sector.

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8. To accord priority to small and tiny sector in the allocation of
indigenous raw material.

9. Setting up of Export Development Centre in SIDO.

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.

Q. Discuss Government support to small-scale enterprises during five year


plans.

A. The government has been giving a lot of importance to the development of


small scale sector in successive five year plans (from Rs.48 crores to Rs.6334
crores in eight five year plan).
Rs. in Crores
First (1951-56) 48.00
Second (1956-61) 187.00
Third (1961-66) 248.00
Fourth (1969-73) 242.00
Fifth (1974-78) 592.00
Sixth (1980-85) 1945.00
Seventh (1985-90) 3249.00
Eight (1992-97) 6334.00

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 second five year plan focused on dispersal of industries. Accordingly as


many as 60 Industrial estates were established for providing basic facilities like
power, water, transport etc., at one place certain items were reserved for exclusive
production in SSIs.

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.

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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.

The main thrust in seventh plan was upgradation of technology to increase


competitiveness of small sector. It changed the perspective from ‘reservation’ to
competition. The number of SSIs rose to 18.27 lakhs & production was Rs.91681
crores; the employment was for 119.6 lakhs.
The main advocation of Eight Plan has been employment generation as the
motive force for economic growth.

In order to fulfill this objective, small and village industries have been
assigned an extremely important role. The important plan proposals include.

i) Establishment of SIDBI to provide timely and adequate availability of


credit.

ii) Establishment of tool rooms & training institutes

iii) Growth centre approach for industries dispersal. Establishment of


Industrial estates for agricultural vegetables and horticultural
products.

iv) Establishment of integrated infrastructure Development centres for


Tiny units.

The new policy initiative in 1999-2000 in small scale sector are as follows;

• New Credit Insurance scheme for providing adequate security to


Banks and improving flow of investment credit to SSI units
particularly to export oriented and Tiny units.

• Enhancement of working capital limit to 20% of their annual


turnover, limit not exceeding turnover of 5 crores.

• To increase the reach of banks to tiny sector, lending by banks to


non Banking financial companies or other intermediaries for
purpose of on lending to tiny sector has been included.

• Exemption of excise duty to be extended to branded goods


manufactured in rural areas.

• To boost rural industrialization, setting up of 100 rural clusters


every year.

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• To disseminate information regarding WTO policies from time to
time.

• Exemption of Excise duty for cotton yours, Glazed tiles.

• Investment limit Rs. 1 crore.

Q: What are the steps to start a small scale Industry.

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

1. National small Industries Corporation Ltd., (NSIC)

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.

• To provide machinery on hire purchase scheme to SSIs.

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• 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.

2. Small Industries service Institutes (SISIs)

The SISIs are set up to provide consultancy and training to small


entrepreneurs – both existing and prospective. The main functions include;

• To serve as interface between Central Government & State


Governments.
• To render technical support
• To conduct entrepreneurial Development programs.
• To initiate promotional programs.

The SISIs also renders assistance in the following areas.

- Economic consultancy/information/EDP consultancy


- Trade and Market informations
- State Industrial Potential survey
- Modernization and implant studies
- Workshop facilities
- Training in various trades/ activities

3. District Industries Centres (DICs)

The DIC program was started with a view to provide integrated


administrative frame work at the district level for promotion of SSIs in rural areas.
The DICs are envisaged as a single window interacting agency with the entrepreneur
at the district level services and support to small are provided under a single roof
through DICs . They are the implementing arm of central & State government of
various schemes & programs (Prime Minister Rozgar yojana).
The DICs role is mainly promotional and developmental. To attain this, they
have to perform the following functions.

• To conduct industrial potential surveys keeping in view the


availability of resources in terms of materials and human skills,
infrastructure, demand for product etc., To prepare techno-

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economic surveys and identify product lines and they to provide
investment advise to entrepreneurs.

• To prepare an action plan to effectively implement the schemes


identified.

• To guide entrepreneurs in matters relating to selecting the most


appropriate machinery and equipment, source of supply &
procedure for procuring imported machinery, if needed assessing
requirements for raw materials etc.,

• To appraise the worthiness of various proposals of entrepreneurs

• To assist in marketing their products and assess the possibilities of


ancillarisation and export promotion of products.

• To undertake product development work appropriate to SSIs.

• To conduct artisan training program

• To function as Technical arm

Karnataka Industrial Areas Development Board (KIADB)

The KIADB is a statutory board constituted under an Act of 1996.

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.

Land will be allotted based on an application accompanied by the following.

• A brief project report


• Details of the constitution of the company
• Provisional registration certificate
• EMD along with a small percentage of land cost.

Technical consultancy services organization of Karnataka (TECSOK)

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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.

Focussed Consultancy Areas are as under:

1. Promotion of Agro-based industries – Tecksok has been recognized as the


nodal agency by the Min of Food procession Industries, Govt of India for
project appraisal to avail grant and loan assistance under the special schemes
of Ministry Tecksok assists food processing industries.

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.

4. Human Resource Development: Tecsok designs, develops and organizes


business development programs, MDP, skill improvement programs. It also
undertakes programs related to empowerment of women and organization of
self-help groups (SGSs).

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Karnataka State Financial Corporation (KSFC)

Established in 1959 for extending financial assistance to set up tiny, small


and medium scale Industrial units in the State. KSFC has a decentralized system of
working. Each district has a branch office; some have more than one. KSFC
extends lease financial assistance and hire purchase assistance for acquisition of
machinery/espt/Transport vehicles. KSFC has a merchant Bank Department which
takes up the management of public issues. Under writing of shares, project report
preparation, deferred payment guarantee, syndication of loans, bill discounting etc.,
etc., KSFC given preference to projects which are

• Promoted by Technical entrepreneurs


• In small scale sector
• Located in growth centres and developing areas of the State
• SC/ST entrepreneurs
• Characterized by high employment potential
• Capable of utilizing local resources and
• In tune with declared national priorities.

Karnataka State Industrial Investment and Development Corporation (KSIIDC)

It is State level Industrial development Corporation established under


companies act in 1964. The objectives are;

• To act as a catalyst for promoting industrial growth in the state,


especially in the medium and large sector by

- Identifying industrial opportunities


- Providing guidance and advise to prospective entrepreneurs
- Providing necessary financial assistance and other related services to
realize these opportunities.

* To act as the designated agency of the government to

- Plan and formulate proposals for industrial infrastructure development


projects after assessing the need.

- Monitor the specified mega projects during implementation as nodal


agency.

Q. Discuss the impact of Globalisation on SSI

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.

The problem of SSIs in the liberalised environment are multi dimensional –


delay in implementation of projects, inadequate availability of finance and credit,
expensive mode of communication, marketing problems, cheap and low quality
products, delay in payments technological obsolescence, imperfect knowledge of
market conditions, lack of infrastructural facilities and deficient managerial and
technical skills.

Now the world over, business environment is changing fast. Globalisation


has resulted in the opening up of markets, leading to intense competition. For
example, the world Trade Organisation (WTO) regulates multilateral trade requiring
its member countries to remove import quotas, restrictions and reduce import tariffs.
India was asked to remove quantitative restrictions on import by 2001 and all export
subsides by 2003. As a result every single enterprise in India, big or small, whether
exporting or serving the domestic market, had to face the competition. The process
was initiated for small scale units by placing 586 of the 812 reserved items on the
Open General Licence (OGL) list of imports. This opened up the possibility of
direct competition in the domestic market with the import of high quality goods from
developed countries.

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.

In order to protect, support and promote small enterprises, as also to help


them become self supporting, a number of protective and promotional measures have
been taken by the Government.

The promotional measures cover the following:

• Industrial extension services


• Institutional support in respect of credit facilities

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• 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.

Q. Discuss the impact of WTO on SSIs.

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.

There will also be tighter patent laws through regulation of intellectual


property rights under trade related aspects of Intellectual property rights (TRIPS)
– Agreement which lays down what is to be patented (both products &
processes), for what duration (20 years instead of 7 years at present), and on what
terms.

The responses by trading countries and the reframing of domestic economic


policies, which will result from the impact of the WTO and the repercussions on
the global economy of all these changes, are highly uncertain as they involve
several unforeseeable factors. However, there are certain indications of the shape
of future trade patterns.

Increased market access to imports ( of around 3% of domestic production to


be raised to 5%) will mean opening up the domestic market to large flows of
imports . The removal of Quantitative restrictions on imports has been speeded
up and imports of these items will soon be freed from all restrictions as
announced in the recent EXIM policy.

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.

The main opportunities of WTO are classified into three

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.

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Characteristics or features of SSI

1. Ownership: Ownership of small scale unit is with one individual in sole


proprietorship or it can be with a few individuals in partnership.

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.

3. Gestation period: Gestation period of small scale unit is small as compared


to large scale unit.

4. Area of operation: The area of operation of small scale unit is generally


localized, catering to the Local or regional demand. The overall resources at
the disposal of SSU are limited and as a result, it is forced to confine its
activities to the local level.

5. Technology: Small industries are fairly labor intensive will comparatively


small investment. Therefore they are more suited for economics where
capital is scarce and labor abundant.

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.

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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. To create more employment opportunities with less investment.


2. To remove economic backwardness of rural and less developed regions of the
economy.
3. To reduce regional imbalances.
4. To mobilize and ensure optimum utilization of unexploited resources of the
country.
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.

Small business as seedbed of Entrepreneurship

Small business is regarded as a seedbed for entrepreneurship, as it provides


conducive conditions for the emergence and growth of entrepreneurs. SSUs employ
available technology and can be started with less investment. They use local
resources and cater mainly to local market. The emergence, growth and success of
entrepreneurs is linked with the growth of small business. The government has
given SSI an importance place in economic planning.

Small enterprises are called seedbed of entrepreneurship due to the following


reasons.

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.

4. Small scale entrepreneur adopts labour intensive technology thus he


generates employment for himself as well as for others.

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.

7. SSUs provide ample opportunity for creativity and experimentation.


8. SSUs have short gestation period & hence waiting period for getting ROI is
less.

9. These units are relatively more environment friendly.

10. Builds motivation amongst entrepreneurs

11. Viewed favourably by government and society because these help in


equitable distribution of income and wealth.

Role of Small scale Industries

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.

1. Employment Generation: SSIs employ Labour intensive technology and


hence generate more employment opportunities. They generate opportunities
for self employment of technically qualified persons, artisans and
professionals.

2. Self Employment: Small scale sector provides numerous opportunities for


self employment and hence is more suited for the country which is faced with
major problem of unemployment. The entrepreneurs provides employment
to others.

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.

4. Facilitate entrepreneurial Development: The units provide self employment


to educated unemployed and reduce their over dependence on the
government. If generate a feeling of self reliance amongst the people.

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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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.

7. Conservation of Foreign exchange: SSIs help in saving precious foreign


exchange. Firstly SSUs utilize Local resources like raw material and
available machinery and they are not dependent on costly imports. They also
undertake indigenisation. Secondly there has been a considerable increase in
exports from small scale sector, thus earning precious foreign exchange for
the country.

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.

9. Supporting Large scale Industries: SSIs can facilitate growth and


development of Large Scale Industries by providing various parts,
components and accessories to them. SSUs serve as ancillaries to large units
by playing complementary role.

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

Q. Define small scale Industry

A. The term Small scale Industry has been defined in three ways.

The conventional definition (which includes cottage and handicrafts)


‘Industry which employs traditional Labour intensive methods to produce traditional
products, largely in village house holds’.

The operational definition

All undertakings having an investment in fixed assets in plant and machinery,


whether held on ownership terms or by lease or by hire purchase, not exceeding
Rupees ten million’. Ancillary units and Tiny units also come under the umbrella of
small scale industries.

The third definition

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‘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’

Ancillary Unit: An industrial undertaking which is engaged in the manufacture or


production of parts, components, sub-assembles, tooling or intermediates, or the
rendering of service and the undertaking of supplies or renders not less than 50
percent of its production and services to one or more other industrial undertakings,
and whose investment in fixed assets in plant & machinery does not exceed Rs.10
million.

Tiny enterprises: Investment limit in plant and machinery is Rs.2.5 million


irrespective of location of the unit.

Women entrepreneurs: An SSI or industry related service of business enterprise


managed by one or more women entrepreneurs in proprietary concerns in which
she/they individually or jointly have a share capital of not less than 51% as partners,
share holders or directors of Pvt. Ltd., Company or members of co-operative society.

Q. What are the characteristics of small industries ?

A: 1) Capital investment is small


21) Most have fewer than 10 workers
22) Generally engaged in the production of light consumer goods,
processing etc.,
23) Located in rural and semi-urban areas
24) Most of SSI are privately owned & sole proprietorship.
25) Labour force are basically family members.
26) Hired workers are unorganized
27) The average person does not work full time in one activity
over the entire year.
28) Fixed assets form the largest component.
29) Most of the funds come from entrepreneurs savings.
30) The incidents of infant mortality is highest
31) Most SSIs, especially chemical units pollute environment.
32) Exploits both Human resources & natural resources.
33) SSIs are quality conscious.
34) Most SSIs desire to make big profit in a short time.
35) Management & organization and poor
36) Financial discipline is very weak
37) Urban units are over crowded & poor layout
38) SSIs grow faster than large scale units
39) Bogged by corruption & cheating.

Q. What is the need for SSI?

A. Small scale Industries contribute significantly to social and Economic


development objectives such as employment generation, income distribution, rural
development, poverty eradication, regional balance and promotion of

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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.

Q. Discuss the role of SSI in planned development

A. In a developing economy, it is the SSI that constitutes the backbone of its


economic structure. Its development creates vast employment opportunities for the
people, effects decentralization of industries by the creation of industrial estates and
makes possible a redistribution of economic power and income. These objectives
mainly follow the principles of the ideal goals of a welfare state. The objectives aim
at developing the country on the basis of principles of social justice and social
welfare.

The Arguments in favour of SSI units are

1. Employment Argument: The argument is based on the assumption that SSIs


are Labour intensive comparatively and thus create more job opportunities
per unit of capital employed. This is important for a labour surplus economy
like India, suffering from acute problems of unemployment, under
employment and seasonal unemployment. Besides it is argued that most of
the small enterprises are either proprietary concerns or partnership
undertakings where the employer-employee relationship are personal and
hence harmonious.

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.

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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.

4. The Decentralization argument. This argument impresses the necessity of


dispersal of Industries. Location of large enterprises is conditioned by
inflexible environment factors. If the industrialization is to progress in an
atmosphere of decentralization, setting of small scale industrial units must be
encouraged as their locational requirements are often flexible.
Decentralization also helps in tapping local resources and helps
industrialization of backward areas.

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.

Q. What are the policies governing small scale Industries?

A. The promotion of Industries has been regarded as an important element of


development strategy underlying five year plans, because they provide substantial
scope for increasing employment, as they are labour intensive and they require
comparatively less capital. They have less gestation period and can easily be set up
in rural and backward areas. They need relatively smaller markets to be economical
and hence they have an advantage in being set up as ancillary units. They stimulate
growth of entrepreneurship, promote a more decentralized pattern of ownership,
diversification of economic activities, introduce new products to enrich the living
standard of people and equitable dispersal of Industries throughout rural and
designated backward areas.

Policies constitute the framework or guidelines for appropriate decisions at


varied levels. They generally consist of statements that affect the working of a sector
of economy. The working of SSI is moulded by a number of policies, which are the
base for effective plan development.

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.

(ii) To make an attempt to meet a substantial part of domestic demand for


consumer goods and even part of capital goods.

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(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.

(iv) To provide assistance to a large number of entrepreneurs, artisans and


craftsman in getting employment income and reasonable standard of living.

(v) To make available foreign markets for the products of SSI by taking
measures to make then export-oriented.

(vi) To remove disparities in regional industrial development in areas where such


services do not exist or are thoroughly inadequate so that SSI may develop
there, providing employment and income to people in that area.

The industrial policy has also entrusted the following to SSI

…..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.

The other objectives are


(v) To decentralize and delicense the sector
(vi) To de-regulate and de-bureaucratize the sector
(vii) To review all statutes, regulations, and procedures and effect
suitable modifications where necessary.
(viii) To promote small enterprises, especially industries in tiny sector.

Q. What are the initiatives taken by Govt. of India towards implementation of


SSI policy?.

A. In pursuance of the objectives of the policy statement, the Government of


India has taken a series of initiatives in respect of policies related to the following
areas.

For SSI

(viii) Financial support


(ix) Infrastructural facilities
(x) Marketing and Exports
(xi) Modernization
(xii) Promotion of Entrepreneurship

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(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

(v) Project package scheme


(vi) Welfare package scheme
(vii) Organisation & development scheme
(viii) NHDC as a nodal agency

Handicraft sector

(iv) Extending services like supply of raw material


(v) Market development support
(vi) Expansion of Training facilities

Other village Industries

(vii) Improving Quality


(viii) Ensuring better flow of credit from financial Institutions
(ix) Thrust on traditional village industries
(x) Setting of functional industrial estates
(xi) Upgrading training programs
(xii) Co-ordinating with development programs

Q. Discuss Govt Policy for small scale enterprises

A. Since independence, India has several Industrial policies to her credit. Some
of them are described here:

Industrial Policy resolution (IPR-1948) – Protection

For the first time, the importance of SSIs in overall industrial development of the
country was accepted.

IPR-1956 – Protection & Development

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.

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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.

IPR-1977: Protection, development & promotion.

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:

(iv) Cottage and household industries which provide self employment


on a large scale.

(v) 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.

(vi) Small scale Industries comprising of industrial units with an


investment of upto Rs.10 lakhs and in case of ancillary units with
an investment of upto Rs.15 lakhs.

The measures suggested for the promotion of small scale and cottage
industries included.

(iii) Reservation of 504 items for exclusive production in small scale.


(iv) Proposal to set up in each district an agency called “District
Industry Centre’ (DIC) to serve as a focal point of development of
SSI & cottage Industries. The main objectives of setting up DICs
was to promote under a single roof all the services and support
required by small and village entrepreneurs.

IPR 1980

The main objective was defined as facilitating an increase in industrial


production through optimum utilization of installed capacity and expansion of
Industries. For the SSIs the resolution envisaged:

(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.

(v) Introduction of the concept of nucleus plants to replace the earlier


scheme of DICs in each industrially backward district to promote
maximum SSIs there.

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(vi) Promotion of village and rural Industries to generate economic
viability in the village well compatible with the environment.

IPR 1990

To the SSIs, the resolution continued to give increasing importance to small


scale enterprises to serve the object of employment generation. The important
elements included in the resolution to boost the development of small scale sector
were as follows;

(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)

(xi) 836 items reserved exclusively for small scale sector

(xii) Subsidy exclusively for small scale sector in rural and backward
areas .

(xiii) Technology upgradation under SIDO

(xiv) Establishment of SIDBI for timely flow of credit facilities

(xv) Greater emphasis on training women and youth under


entrepreneurial Development program.

(xvi) Delicencing of all new units with investment of Rs.25 crore in


fixed assets in backward areas and Rs.75 crore in centrally
notified backward areas. Also delicencing in case of 100% EOU
setup in Export processing zones (EPZ) up to an investment
ceiling of Rs.75 Lakh.

New small Enterprise policy 1991

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;

1. Increase in the investment limit in plant & machinery of tiny


enterprises from Rs.2 lakh to Rs.5 lakh irrespective of the location of
the enterprise.

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2. Inclusion of industry-related services and business enterprises
irrespective of their location, as small scale industries.

3. To introduce a limited partnership Act. This would limit the financial


liability of the new entrepreneurs to the capital invested.

4. Introduction of a scheme of Integrated Infrastructural Development


(including technological backup ) for SSI.

5. To set up a Technology Development cell in SIDO.

6. Market promotion of SSI products through co-operatives, Public


sector institutions, other specialized professional / marketing agencies
and the consortium approach.

7. Introduction of factoring services to help solve the problems of


delayed payments to small sector.

8. To accord priority to small and tiny sector in the allocation of


indigenous raw material.

9. Setting up of Export Development Centre in SIDO.

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.

Q. Discuss Government support to small-scale enterprises during five year


plans.

A. The government has been giving a lot of importance to the development of


small scale sector in successive five year plans (from Rs.48 crores to Rs.6334
crores in eight five year plan).
Rs. in Crores
First (1951-56) 48.00
Second (1956-61) 187.00
Third (1961-66) 248.00
Fourth (1969-73) 242.00
Fifth (1974-78) 592.00
Sixth (1980-85) 1945.00
Seventh (1985-90) 3249.00
Eight (1992-97) 6334.00

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 second five year plan focused on dispersal of industries. Accordingly as


many as 60 Industrial estates were established for providing basic facilities like
power, water, transport etc., at one place certain items were reserved for exclusive
production in SSIs.

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.

The main thrust in seventh plan was upgradation of technology to increase


competitiveness of small sector. It changed the perspective from ‘reservation’ to
competition. The number of SSIs rose to 18.27 lakhs & production was Rs.91681
crores; the employment was for 119.6 lakhs.
The main advocation of Eight Plan has been employment generation as the
motive force for economic growth.

In order to fulfill this objective, small and village industries have been
assigned an extremely important role. The important plan proposals include.

i) Establishment of SIDBI to provide timely and adequate availability of


credit.

ii) Establishment of tool rooms & training institutes

iii) Growth centre approach for industries dispersal. Establishment of


Industrial estates for agricultural vegetables and horticultural
products.

iv) Establishment of integrated infrastructure Development centres for


Tiny units.

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The new policy initiative in 1999-2000 in small scale sector are as follows;

• New Credit Insurance scheme for providing adequate security to


Banks and improving flow of investment credit to SSI units
particularly to export oriented and Tiny units.

• Enhancement of working capital limit to 20% of their annual


turnover, limit not exceeding turnover of 5 crores.

• To increase the reach of banks to tiny sector, lending by banks to


non Banking financial companies or other intermediaries for
purpose of on lending to tiny sector has been included.

• Exemption of excise duty to be extended to branded goods


manufactured in rural areas.

• To boost rural industrialization, setting up of 100 rural clusters


every year.

• To disseminate information regarding WTO policies from time to


time.

• Exemption of Excise duty for cotton yours, Glazed tiles.

• Investment limit Rs. 1 crore.

Q: What are the steps to start a small scale Industry.

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

1. National small Industries Corporation Ltd., (NSIC)

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.

• To provide machinery on hire purchase scheme to SSIs.


• 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.

2. Small Industries service Institutes (SISIs)

The SISIs are set up to provide consultancy and training to small


entrepreneurs – both existing and prospective. The main functions include;

• To serve as interface between Central Government & State


Governments.
• To render technical support
• To conduct entrepreneurial Development programs.
• To initiate promotional programs.

The SISIs also renders assistance in the following areas.

- Economic consultancy/information/EDP consultancy


- Trade and Market informations

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- State Industrial Potential survey
- Modernization and implant studies
- Workshop facilities
- Training in various trades/ activities

3. District Industries Centres (DICs)

The DIC program was started with a view to provide integrated


administrative frame work at the district level for promotion of SSIs in rural areas.
The DICs are envisaged as a single window interacting agency with the entrepreneur
at the district level services and support to small are provided under a single roof
through DICs . They are the implementing arm of central & State government of
various schemes & programs (Prime Minister Rozgar yojana).
The DICs role is mainly promotional and developmental. To attain this, they
have to perform the following functions.

• To conduct industrial potential surveys keeping in view the


availability of resources in terms of materials and human skills,
infrastructure, demand for product etc., To prepare techno-
economic surveys and identify product lines and they to provide
investment advise to entrepreneurs.

• To prepare an action plan to effectively implement the schemes


identified.

• To guide entrepreneurs in matters relating to selecting the most


appropriate machinery and equipment, source of supply &
procedure for procuring imported machinery, if needed assessing
requirements for raw materials etc.,

• To appraise the worthiness of various proposals of entrepreneurs

• To assist in marketing their products and assess the possibilities of


ancillarisation and export promotion of products.

• To undertake product development work appropriate to SSIs.

• To conduct artisan training program

• To function as Technical arm

Karnataka Industrial Areas Development Board (KIADB)

The KIADB is a statutory board constituted under an Act of 1996.

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.

Land will be allotted based on an application accompanied by the following.

• A brief project report


• Details of the constitution of the company
• Provisional registration certificate
• EMD along with a small percentage of land cost.

Technical consultancy services organization of Karnataka (TECSOK)

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.

Focussed Consultancy Areas are as under:

1. Promotion of Agro-based industries – Tecksok has been recognized as the


nodal agency by the Min of Food procession Industries, Govt of India for
project appraisal to avail grant and loan assistance under the special schemes
of Ministry Tecksok assists food processing industries.

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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.

4. Human Resource Development: Tecsok designs, develops and organizes


business development programs, MDP, skill improvement programs. It also
undertakes programs related to empowerment of women and organization of
self-help groups (SGSs).

Karnataka State Financial Corporation (KSFC)

Established in 1959 for extending financial assistance to set up tiny, small


and medium scale Industrial units in the State. KSFC has a decentralized system of
working. Each district has a branch office; some have more than one. KSFC
extends lease financial assistance and hire purchase assistance for acquisition of
machinery/espt/Transport vehicles. KSFC has a merchant Bank Department which
takes up the management of public issues. Under writing of shares, project report
preparation, deferred payment guarantee, syndication of loans, bill discounting etc.,
etc., KSFC given preference to projects which are

• Promoted by Technical entrepreneurs


• In small scale sector
• Located in growth centres and developing areas of the State
• SC/ST entrepreneurs
• Characterized by high employment potential
• Capable of utilizing local resources and
• In tune with declared national priorities.

Karnataka State Industrial Investment and Development Corporation (KSIIDC)

It is State level Industrial development Corporation established under


companies act in 1964. The objectives are;

• To act as a catalyst for promoting industrial growth in the state,


especially in the medium and large sector by

- Identifying industrial opportunities


- Providing guidance and advise to prospective entrepreneurs

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- Providing necessary financial assistance and other related services to
realize these opportunities.

* To act as the designated agency of the government to

- Plan and formulate proposals for industrial infrastructure development


projects after assessing the need.

- Monitor the specified mega projects during implementation as nodal


agency.

Q. Discuss the impact of Globalisation on SSI

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.

The problem of SSIs in the Liberalised environment are multi dimensional –


delay in implementation of projects, inadequate availability of finance and credit,
expensive mode of communication, marketing problems, cheap and low quality
products, delay in payments technological obsolescence, imperfect knowledge of
market conditions, lack of infrastructural facilities and deficient managerial and
technical skills.

Now the world over, business environment is changing fast. Globalisation


has resulted in the opening up of markets, leading to intense competition. For
example, the world Trade Organisation (WTO) regulates multilateral trade requiring
its member countries to remove import quotas, restrictions and reduce import tariffs.
India was asked to remove quantitative restrictions on import by 2001 and all export
subsides by 2003. As a result every single enterprise in India, big or small, whether
exporting or serving the domestic market, has to face the competition. The process
was initiated for small scale units by placing 586 of the 812 reserved items on the
open General Licence (OGL) List of imports. This opens up the possibility of direct
competition in the domestic market with the import of high quality goods from
developed countries.

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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.

In order to protect, support and promote small enterprises, as also to help


them become self supporting, a number of protective and promotional measures have
been taken by the Government.

The promotional measures cover the following:

• Industrial extension services


• Institutional support in respect of credit facilities
• 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.

Q. Discuss the impact of WTO on SSIs.

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.

There will also be tighter patent laws through regulation of intellectual


property rights under trade related aspects of Intellectual property rights (TRIPS)
– Agreement which lays down what is to be patented (both products &
processes), for what duration (20 years instead of 7 years at present), and on what
terms.

The responses by trading countries and the reframing of domestic economic


policies, which will result from the impact of the WTO and the repercussions on
the global economy of all these changes, are highly uncertain as they involve
several unforeseeable factors. However, there are certain indications of the shape
of future trade patterns.

Increased market access to imports ( of around 3% of domestic production to


be raised to 5%) will mean opening up the domestic market to large flows of
imports . The removal of Quantitative restrictions on imports has been speeded
up and imports of these items will soon be freed from all restrictions as
announced in the recent EXIM policy.

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.

The main opportunities of WTO are classified into three

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.

Characteristics or features of SSI

1. Ownership: Ownership of small scale unit is with one individual in sole


proprietorship or it can be with a few individuals in partnership.

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.

4. Area of operation: The area of operation of small scale unit is generally


localized, catering to the Local or regional demand. The overall resources at
the disposal of SSU are limited and as a result, it is forced to confine its
activities to the local level.

5. Technology: Small industries are fairly labor intensive will comparatively


small investment. Therefore they are more suited for economics where
capital is scarce and labor abundant.

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.

1. To create more employment opportunities with less investment.


2. To remove economic backwardness of rural and less developed regions of the
economy.
3. To reduce regional imbalances.
4. To mobilize and ensure optimum utilization of unexploited resources of the
country.

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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.

Small business as seedbed of Entrepreneurship

Small business is regarded as a seedbed for entrepreneurship, as it provides


conducive conditions for the emergence and growth of entrepreneurs. SSUs employ
available technology and can be started with less investment. They use local
resources and cater mainly to local market. The emergence, growth and success of
entrepreneurs is linked with the growth of small business. The government has
given SSI an importance place in economic planning.

Small enterprises are called seedbed of entrepreneurship due to the following


reasons.

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.

4. Small scale entrepreneur adopts labour intensive technology thus he


generates employment for himself as well as for others.

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.

8. SSUs provide ample opportunity for creativity and experimentation.


8. SSUs have short gestation period & hence waiting period for getting ROI is
less.

9. These units are relatively more environment friendly.

10. Builds motivation amongst entrepreneurs

11. Viewed favourably by government and society because these help in


equitable distribution of income and wealth.

Role of Small scale Industries

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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.

1. Employment Generation: SSIs employ Labour intensive technology and


hence generate more employment opportunities. They generate opportunities
for self employment of technically qualified persons, artisans and
professionals.

2. Self Employment: Small scale sector provides numerous opportunities for


self employment and hence is more suited for the country which is faced with
major problem of unemployment. The entrepreneurs provides employment
to others.

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.

4. Facilitate entrepreneurial Development: The units provide self employment


to educated unemployed and reduce their over dependence on the
government. If generate a feeling of self reliance amongst the people.

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.

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.

7. Conservation of Foreign exchange: SSIs help in saving precious foreign


exchange. Firstly SSUs utilize Local resources like raw material and
available machinery and they are not dependent on costly imports. They also
undertake indigenisation. Secondly there has been a considerable increase in
exports from small scale sector, thus earning precious foreign exchange for
the country.

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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.

9. Supporting Large scale Industries: SSIs can facilitate growth and


development of Large Scale Industries by providing various parts,
components and accessories to them. SSUs serve as ancillaries to large units
by playing complementary role.

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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