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Management is an art of getting things done with and through others. Management can be defined as, the process of getting things done to achieve organizational goals effectively and efficiently.
Efficiency and Effectiveness
Efficiency (completing the work at low cost) means doing the task correctly at minimum cost through optimum utilization of resources while effectiveness (Completing the work on time) is concerned with the end result means completing the task correctly within a stipulated time. Although efficiency and effectiveness are different yet they are interrelated. It is important for management to maintain a balance between the two.
1. Renisha prepared a well-documented and factual report on Co’s performance but she could not present it in the Board meeting as she could not complete it on time.
[Hint: Efficient but not effective]
2. Best roadways promised to deliver goods in time and charged extra money from Mr. Harsh Bharward but the goods were not delivered on time.
[Hint: Efficient but not effective]
Characteristics of Management
1. Goal-oriented Process It is a goal-oriented process, which is to achieve already specified and desired objectives by proper utilization of available resources.
2. Pervasive: Management is universal in nature. It is used in all types of organizations whether economic, social, or political irrespective of its size, nature, and location and at each and every level.
3. Multidimensional: It is multidimensional as it involves the management of work, people, and operations.
4. Continuous: It consists of a series of functions and its functions are being performed by all managers simultaneously. The process of management continues till an organization exists for attaining its objectives.
6. Dynamic function: It is a dynamic function since it has to adapt according to the need, time, and situation of the changing business environment. For example, Mcdonald's made major changes in its ‘Menu’ to survive in the Indian market.
7. Intangible Force: It is an intangible force as it can’t be seen but its effects can be felt in the form of results like whether the objectives are met and whether people are motivated or not and there is orderliness and coordination in the work environment.
Objectives of Management
(1) Organizational objectives:
Organizational Objectives can be divided into Survival (Earning enough revenues to cover the cost); Profit (To cover cost and risk); and Growth (To improve its future prospects).
(A) Survival - Management by taking positive decisions concerning different business activities ensures the survival of the business in the long term.
(B) Profit - It plays an important role in facing business risks and successful running of business activities.
(C) Growth - Management must ensure growth which can be measured by the increase in sales, number of employees, number of products, additional investment, etc.
(2) Social Objectives:
Social objectives are to provide some benefits to society like applying environmental friendly practices in the production process and giving employment to disadvantaged sections of society, etc. Example: TISCO, ITC, and Asian Paints.
(3) Personal Objectives:
The personal Objective is to focus on diverse personal objectives of people working in the organization which need to be reconciled with organizational objectives.
Importance of Management
(1) Achieving Group Goals: Management creates teamwork and coordination in the group. Managers give common direction to individual efforts in achieving the overall goals of the organization.
(2) Increases Efficiency: Management increases efficiency by using resources in the best possible manner to reduce cost and increase productivity.
(3) Creates Dynamic organization: Management helps the employees overcome their resistance to change and adapt as per changing situations to ensure its survival and growth.
(4) Achieving personal objectives: Management helps individuals achieve their personal goals while working towards organizational objectives.
(5) Development of Society: Management helps in the development of society by producing good quality products, creating employment opportunities, and adopting new technologies.
Management as an Art
Art refers to the skillful and personal application of existing knowledge to achieve desired results. It can be acquired through study, observation, and experience. The features of art are as follows:
(1) Existence of theoretical knowledge: In every art, Systematic and organized study material should be available compulsorily to acquire theoretical knowledge.
(2) Personalized application: The use of basic knowledge differs from person to person and thus, art is a very personalized concept.
(3) Based on practice and creativity: Art involves in the consistent and creative practice of existing theoretical knowledge.
In management also a huge volume of literature and books are available on different aspects of management. Every manager has his own unique style of managing things and people. He uses his creativity in applying management techniques and his skills improve with regular application. Since all the features of art are present in management. so it can be called an art.
Management as a Science
Science is a systematized body of knowledge that is based on general truths which can be tested anywhere, anytime. The features of Science are as follows:
(1) Systematized body of knowledge: Science has a systematized body of knowledge based on principles and experiments.
(2) Principles based on experiments and observation: Scientific principles are developed through experiments and observation.
(3) Universal validity: Scientific principles have universal validity and application.
Management has a systematic body of knowledge and its principles are developed over a while based on repeated experiments & observations which are universally applicable but they have to be modified according to the given situation.
As the principles of management are not as exact as the principles of pure science, it may be a called-an inexact science. The prominence of the human factor in management makes it a Social Science.
Management as Profession
Profession means an occupation for which specialized knowledge and skills are required and entry is restricted. The main features of the profession are as follows:
(1) Well-defined body of Knowledge: All the professions are based on a well-defined body of knowledge.
(2) Restricted Entry: Entry in every profession is restricted through examination or through some minimum educational qualification.
(3) Professional Associations: All professions are affiliated with a professional association which regulates the entry and frames the code of conduct relating to the profession.
It (4) Ethical Code of Conduct: All professions are bound by a code of conduct which guides the behavior of its members.
(5) Service Motive: The main aim of a profession is to serve its clients.
Management does not fulfill all the features of a profession and thus it is not a full-fledged profession like doctor, lawyer, etc., but very soon it will be recognized as a full-fledged profession.
Levels of Management: Top, Middle, and Operational Levels
“Levels of management” means different categories of managers, the lowest to the highest on the basis of their relative responsibilities, authority, and status.
Top Level
Consists of Chairperson, Chief Executive Officer, Chief Operating Officer or equivalent and their team.
The chief task is to integrate and to coordinate the various activities of the business, framing policies, formulating organizational goals & strategies.
Middle Level
Consists of Divisional or Departmental heads, Plant Superintendents, Operation Managers, etc.
The main tasks are to interpret the policies of the top management to ensure the availability of resources to implement policies, coordinate all activities, ensure the availability of necessary personnel & assign duties and responsibilities to them.
Lower Level/Supervisory Level
Consists of Foremen and supervisor etc. The main task is to ensure the actual implementation of the policies as per directions, bring workers’ grievances before the management & maintain discipline among the workers.
Functions of Management
1. Planning: Thinking in advance about what to do, when to do, and who is going to do it. It bridges the gap between where we are and where we want to reach.
2. Organising: organization means deciding the framework of working on how many units and sub-units are needed, how many posts are needed, and how to distribute the authority and responsibilities.
3. Staffing: It refers to recruitment, selection, training, development, and appointment of the employees.
4. Directing: It refers to guiding, instructing, inspiring, and motivating the employees.
5. Controlling is the main function of management. Controlling is monitoring the organizational performance towards the attainment of the organizational goals.
Coordination (The Essence of Management):
Coordination is the force that synchronizes all the functions of management and activities of different departments. Lack of coordination results in overlapping, duplication, delays, and chaos. It is concerned with all the three levels of management as if all the levels of management are looked at together, they become a group and as in the case of every group, they also require coordination among themselves. So, it is not a separate function of management, rather it is the essence of management.
l. Coordination integrates group efforts: It integrates diverse business activities into purposeful group activity ensuring that all people work in one direction to achieve organizational goals.
2. Coordination ensures unity of action: It directs the activities of different departments and employees towards the achievement of common goals and brings unity in individual efforts.
3. Coordination is a continuous process: It is not a specific activity matter it is required at all levels, in all departments till the organization continues its operations.
4. Coordination is an all-pervasive function: It is universal in nature. It synchronizes the activities of all levels and departments as they are interdependent to maintain organizational balance.
5. Coordination is the responsibility of all managers: It is equally important at all the three top, middle, and lower levels of management. Thus it is the responsibility of all managers they make efforts to establish coordination.
6. Coordination is a deliberate function: Coordination is never established by itself rather it is a conscious effort on the part of every manager. Cooperation is the voluntary effort of employees to help one another. Effective coordination cannot be achieved without the cooperation of group members.
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Unit -2 Principles of management
Principle
A principle is a fundamental statement of truth that provides guidance to thought and action.
Principles of Management
Principles of management are broad and general guidelines for managerial decision making and behavior (i.e. they guide the practice of management).
Nature of Principles of Management
The nature of principles of management can be described in the following points:
1. Universal applicability i.e. they can be applied in all types of organizations, business as well as non-business, small as well as large enterprises.
2. General Guidelines: They are general guidelines to action and decision making however they do not provide readymade solutions as the business environment is ever changing or dynamic.
3. Formed by practice and experimentation: They are developed after thorough research work on the basis of the experiences of managers.
4. Flexible: Which can be adapted and modified by the practicing managers as per the demands of the situations as they are man-made principles.
5. Mainly Behavioural: Since the principles aim at influencing complex human behaviour they are behavioural in nature.
6. Cause and Effect relationship: They intend to establish relationship between cause & effect so that they can be used in similar situations.
7. Contingent: Their applicability depends upon the prevailing situation at a particular point of time. According to Terry, “Management principles are ‘capsules’ of selected management wisdom to be used carefully and discretely”.
Significance of the Principles of Management
The significance of principles of management can be derived from their utility which can be understood from the following points:
1. Providing managers with useful insights into reality: Management principles guide managers to take right decision at right time by improving their knowledge, ability and understanding of various managerial situations and circumstances.
2. Optimum utilization of resources and effective administration: Management principles facilitate optimum use of resources by coordinating
the physical, financial and human resources. They also help in better administration by discouraging personal prejudices and adopting an objective approach.
3. Scientific decisions: Decisions based on management principles tend to be more realistic, balanced and free from personal bias.
4. Meeting the changing environmental requirements: Management principles provide an effective and dynamic leadership and help the organization to implement the changes.
5. Fulfilling social responsibility: Principles of management not only help in achieving organizational goals but also guide managers in performing social responsibilities. Example : “Equity” and “Fair” remuneration.
6. Management training, education and research: Management principles are helpful in identifying the areas in which existing and future managers should be trained. They also provide the basis for future research.
Fayol’s Principles of Management
About Henry Fayol: Henry Fayol (1841-1925) got degree in Mining Engineering and joined the French Mining Company in 1860 as an Engineer. He rose to the position of Managing Director in 1988. When the company was on the verge of bankruptcy. He accepted the challenge and by using rich and broad administrative experience, he turned the fortune of the company. For his contributions, he is well known as the “Father of General Management”.
Principles of Management developed by Fayol
1. Division of work: Work is divided in small tasks/job and each work is done by a trained specialist which leads to greater efficiency, specialization, increased productivity and reduction of unnecessary wastage and movements.
2. Authority and Responsibility: Authority means power to take decisions and responsibility means obligation to complete the job assigned on time. Authority and I responsibility should go hand in hand. Mere responsibility without authority, makes an executive less interested in discharging his duties. Similarly giving authority without assigning responsibility makes him arrogant and there is fear of misuse of power.
3. Discipline: t is the obedience to organizational rules by the subordinates. Discipline requires good supervisors at all levels, clear and fair agreements and judicious application of penalties.
4. Unity of Command: t implies that every worker should receive orders and instructions from one superior only, otherwise it will create confusion, conflict, disturbance and overlapping of activities.
5. Unity of Direction: Each group of activities having the same objective must have one head and one plan. This ensures unity of action and coordination.
Difference between Unity of Command and Unity of Direction
| Basis | Unity of Command | Unity of Direction |
| 1. Meaning | It means that a subordinate should receive orders and instructions from one boss only. | It advocates ‘one head and one plan‘ for a group of activities having the same objectives. The activities should be directed towards the common goals. |
| 2. Scope. | This principle is related to the functioning of personnel | This principle is related to the functioning of a department or the organization as a whole |
| 3. Purpose. | The main purpose of unity of command is to avoid confusion and fix up the responsibility of the employee. | The purpose of unity of direction is to direct the efforts of employees of one department in achieving the main objective of that department. |
| 4. Results in | Systematic working and improved efficiency by removing confusion and chaotic conditions | Coordination within a particular department and overall; by preventing overlapping of various activities. |
7. Remuneration of Employees: The overall pay and compensation should be, fair to both employees and the organization. The wages should encourage the workers to work more and better.
6. Subordination of Individual Interest to General Interest: The interest of an organization should take priority over the interest of any one individual employee.
8. Centralization and Decentralization: Centralization means concentration of decisions making authority in few hands at top level. Decentralization means evenly distribution of power at every level of management. Both should be balanced as no organization can be completely centralized or completely decentralized.
9. Scalar Chain: The formal lines of authority between superiors and subordinates from the highest to the lowest ranks is known as scalar chain. This chain should not be violated but in emergency employees at same level can contact through Gang Plank by informing their immediate superiors.
11. Equity: The working environment of any organization should be free from all forms of discrimination (religion, language, caste, sex, belief or Basis Unity of Command Unity of Direction nationality) and principles of justice and fair play should be followed. No worker should be unduly favoured or punished.
12. Stability of Personnel: After being selected and appointed by rigorous procedure, the selected person should be kept at the post for a minimum period decided to show results.
13. Initiative: Workers should be encouraged to develop and carry out their plan for improvements. Initiative means taking the first step with self-motivation. It is thinking out and executing the plan.
14. Espirit De Corps: Management should promote team spirit, unity and harmony among employees. Management should promote a team work.
Taylor’s Scientific Management
Fredrick Winslow Taylor (1856-1915) was a person who within a very short duration (1878-1884) rose from ranks of an ordinary apprentice to chief engineer in Midvale Steel Company, U.S.A. Taylor conducted a number of experiments and came to conclusion that workers were producing much less than the targeted standard task. Also, both the parties - Management and workers are hostile towards each other. He gave a number of suggestions to solve this problem and correctly propounded the theory of scientific management to emphasize the use of scientific approach in managing an enterprise instead of hit and trial method. For his contributions, he is well known as the “Father of the Scientific Management”. Scientific Management attempts to eliminate wastes to ensure maximum production at minimum cost.
Principles of Scientific Management
(1) Science, not rule of Thumb: There should be scientific study and analysis of each element of a job in order to replace the old rule of thumb approach or hit and miss method. We should be constantly experimenting to develop new techniques which make the work much simpler, easier and quicker.
(2) Harmony, Not discord: It implies that there should be mental revolution on part of managers and workers in order to respect each other’s role and eliminate any class conflict to realize organizational objectives.
(3) Cooperation not individualism: It is an extension of the Principle of Harmony not discord whereby constructive suggestions of workers should be adopted and they should not go on strike as both management and workers share responsibility and perform together.
(4) Development of each and every person to his or her greatest Efficiency and Prosperity: It implies development of competencies of all persons of an organization after their scientific selection and assigning work suited to their temperament and abilities. This will increase the productivity by utilizing the skills of the workers to the fullest possible extent.
1. Functional Foreman-ship: Functional foreman-ship is a technique in which planning and execution are separated. There are eight types of specialized, professionals, four each under planning and execution who keep a watch on all workers to extract optimum performance.
Planning Incharges:
1. Route Clerk to specify the exact sequence and route of production.
2. Instruction card clerk is responsible for drafting instructions for the workers.
3. Time and cost clerk to prepare time and cost sheet for the job.
4. Shop Disciplinarian to ensure discipline and enforcement of rules and regulations among the workers.
Production Incharges:
1. Gang boss is responsible for keeping tools and machines ready for operation.
2. Speed boss is responsible for timely and accurate completion of job.
3. Repair boss to ensure proper working conditions of tools and machines.
4. Inspector to check quality of work.
2. Standardization and Simplification of work: Standardization refers to developing standards for every business activity whereas Simplification refers to eliminating superfluous varieties of product or service. It results in savings of cost of labour, machines and tools. It leads to fuller utilization of equipment and increase in turnover.
3. Method Study: The objective of method study is to find out one best way of doing the job to maximize efficiency in the use of materials, machinery, manpower and capital.
(1) Which technique of scientific management is being violated here?
(Hint: Functional Foreman ship.)
(2) Write one consequence of this violation.
4. Motion Study: It is the science of eliminating wastefulness resulting from using unnecessary, ill-directed and inefficient motions by workers and machines to identify best method of work.
5 Time study: It determines the standard time taken to perform a well-defined job. The objective of time study is to determine the number of workers to be employed, frame suitable incentive schemes & determine labour costs.
6. Fatigue study: Fatigue study seeks to determine time and frequency of rest intervals in completing a task. The rest interval will enable workers to regain their lost stamina thereby avoiding accidents, rejections and industrial sickness.
7. Differential piece wage system: This system links wages and productivity. The standard output per day is established and two piece rates are used: higher for those who achieve upto and more than standard output i.e. efficient workers and lower for inefficient and slow workers. Thus, efficient workers will be rewarded & inefficient will be motivated to improve their performance.
For example: Standard task is 10 units. Rates are: Rs 50 per unit for producing 10 units or more and Rs 40 per unit for producing less than 10 units
Worker A produces 11 Units; he gets Rs 550 (11 units x 50 per unit)
Worker B produces 09 units; he gets Rs 360 (9 units x 40 per unit)
This difference of Rs 190 will motivate B to perform better.
8. Mental Revolution: It involves a complete change in mental outlook and attitude of workers and management towards one another from competition to cooperation. The management should create pleasant working conditions & workers should work with devotion and loyalty. Instead of fighting over distribution of profits, they must focus attention on increasing it.
Basis | Fayol | Taylor |
1. Nature of Research | He developed the theory of Functional management or Management process. | He developed the concept of Scientific management. |
2. Concern | His principles are concerned with management efficiency. | His principle and techniques are concerned with workers efficiency. |
3. Level | He designed principles for top level of management. | He designed principles for lower level of management. |
4. Focus | Improving overall administration by observing certain principles was his main focus. | For him increasing productivity through work simplification was main focus. |
5. Personality | He developed the personality of a researcher and practioner and was called as ‘father of general management. | He developed the personality of scientist and was called as ‘father of scientific management |
6. Major contribution | Hid main contribution was to produce a systematic theory of management with the help of fourteen principles of general management. | He provided a basis on accomplishment on production line with the help of scientific techniques and management. |
7. Human element | He gave due emphasis to human elements by suggesting principles like equality, initiative, fair renumeration etc. | He ignored the human element and emphasized more on increasing productivity. |
8. Rigidity and flexibility | His principles were flexible. | He was rigid in his approach and he felt that there should be no deviation from fixed standards. |
9. Applicability | His principles are applicable to business as well as non-business organizations i.e. are applicable universally. | His principles are applicable to production and manufacturing i.e. are applicable to specific situations. |
10. Unity of command | He strictly follow this principles i.e. one boss for one employee. | He did not follow this principle instead he insisted on minimum eight bosses. |
CHAPTER – 3 BUSINESS ENVIRONMENT
I. Concept & Importance:-
Meaning :
Universe - Organization = Environment
The business environment refers to forces and institutions outside the firm with which its members must deal to achieve the organizational purposes. Here
• Forces = economical, social, political, technological, etc.
• Institutions = suppliers, customers, competitors, etc.
It includes all those constraints and forces external to a business within which it operates. therefore,
• The firm must be aware of these external forces and institutions and
• The firm must be nagged keeping in mind these forces and institutions so that the organizational objectives are achieved.
2. Features/ Characteristics/ Nature of Business Environment.
1. All the external forces: The business environment is the sum total of all the forces/factors that affect a business firm.
2. Specific and general forces: Business environment includes both specific and general forces. Specific forces include investors, competitors, customers, etc. who influence business firms directly while general forces include social, political, economic, legal, and technological conditions which affect a business firm indirectly.
3. Inter-relation: All the forces/factors of a business environment are closely interrelated. For example, increased awareness of health care has raised the demand for organic food and roasted snacks.
4. Dynamic: Business environment is dynamic in nature and keeps on changing with the change in technology, consumer’s fashion and tastes, etc.
5. Uncertainty: Business environment is uncertain as it is difficult to predict future environmental changes and their impact with full accuracy.
6. Complexity: The business environment is complex and easy to understand in parts separately but difficult to understand in totality.
7. Relativity: Business environment is a relative concept whose impact differs from country to country, region to region, and firm to firm. For example, a shift of preference from soft drinks to juices will be welcomed as an opportunity by juice-making companies while a threat to soft drink manufacturers.
3. IMPORTANCE OF BUSINESS ENVIRONMENT
1. Identification of opportunities to get first-mover advantage: Understanding of business environment helps an organization in identifying advantageous opportunities and getting their benefits prior to competitors, thus reaping the benefits of being a pioneer.
2. Identification of threats: Correct knowledge of business environment helps an organization to identify those threats which may adversely affect its operations. For example, Bajaj Auto made considerable improvements in its two-wheelers when Honda & other companies entered the auto industry.
3. Tapping useful resources: Business environment makes available various resources such as capital, labour, machines, raw material,s etc. to a business firm. In order to know the availability of resources and make them available on time at an economical price, knowledge of the business environment is necessary.
4. Coping with Rapid changes: Continuous study/scanning of business environment helps in knowing the changes which are taking place and thus they can be faced effectively.
5. Assistance in planning and policy formulation: Understanding and analysis of business environment helps an organization in planning &policy formulation. For example, ITC Hotels planned new hotels in India after observing boom in tourism sector.
Helps in Improving performance: Correct analysis and continuous monitoring of business environment helps an organization in improving its performance.
Economic Environment in India
As a part of economic reforms, the Government of India announced New Economic Policy in July 1991 for taking out the country out of economic difficulty and speeding up the development of the country.
Main features of NEP, 1991 are as follows:
1. Only six industries were kept under licensing scheme.
2. The role of public sector was limited only to four industries.
3. Disinvestment was carried out in many public sector enterprises.
4. Foreign capital/investment policy was liberalized and in many sectors100% direct foreign investment was allowed.
5. Automatic permission was given for signing technology agreements with foreign companies.
6. Foreign investment promotion board (FIPB) was setup to promote & bring foreign investment in India.
7. Various benefits were offered to small scale industries.
The three main strategies adopted for the above may be defined as follows:
1. Globalisation:
• Integrating the economy of a country with the economies of other countries to facilitate freer flow of trade, capital, persons and technology across borders. It leads to the emergence of a cohesive global economy.
• Till 1991, the Government of India had followed a policy of strictly regulating imports in value and volume terms. These regulations were with respect to (a) licensing of imports, (b) tariff restrictions and (c) quantitative restrictions.
• NEP ‘91 advocated rapid advancement in technology and directed trade liberalization towards:
a. Import Liberalisation
b. Export promotion towards rationalization of the tariff structure and
c. Reforms w.r.t foreign exchange
2. Liberalisation:
Liberalising the Indian business and industry from all unnecessary controls and restrictions. That is relaxing rules and regulations which restrict the growth of the private sector and allowing the private sector to take part in economic activities that were earlier reserved for the government sector. The steps taken for this were:
a. Abolishing licensing b. Freedom in deciding the scale of operations c. Removal of restrictions on movement of goods and services. d. Freedom in fixing prices.
e. Reduction in tax rates and unnecessary controls f. Simplifying procedures for import and exports g. Making it easy to attract foreign capital.
3. Privatization:
• Refers to the reduction of the role of the public sector in the economy of a country.
• Transfer of ownership and control from the private to the public sector (disinvestment) can be done by : a. Sale of all/some asses of the public sector enterprises. b. Leasing of public enterprises to the private sector. c. Transfer of management of the public enterprise to the private sector.
• To achieve privatization in India, the government redefined the role of the public sector and -
a. Adopted a policy of planned disinvestment of the public sector
b. Refer the loss making and sick units to the Board of Industrial and Financial Reconstruction (BIFR)
II DIMENSIONS/COMPONENTS OF BUSINESS ENVIRONMENT
1. Economic Environment: It has an immediate and direct economic impact on a business. Rate of interest, inflation rate, change in the income of people, monetary policy, price level etc. are some economic factors that could affect business firms. The economic environment may offer opportunities to a firm or it may put constraints.
2. Social Environment: It includes various social forces such as customs, beliefs, literacy rate, educational levels, lifestyle, values, etc. Changes in the social environment affect an organization in the long run. Example: Nowadays people are paying more attention towards their health, as a result of which demand for mineral water, diet coke, etc. has increased while the demand for tobacco, and fatty food products has decreased.
3. Technological Environment: It provides new and advance ways/techniques of production. A businessman must closely monitor the technological changes taking place in the industry as it helps in facing competition and improving the quality of the product. For Example, Digital watches in place of traditional watches, artificial fabrics in place of traditional cotton and silk fabrics, booking of railway tickets on the internet, etc.
4. Political Environment: Changes in a political situations also affect business organizations. Political stability builds confidence among business community while political instability and bad law & order situation may bring uncertainty in business activities. The ideology of the political party, attitude of the government towards business, type of government-single party or coalition government affects the business For Example: Bangalore and Hyderabad have become the most popular locations for IT due to supportive political climate.
5. Legal Environment: It constitutes the laws and legislations passed by the Government, administrative orders, court judgments, and decisions of various commissions and agencies. Businessmen have to act according to various legislations and their knowledge is very necessary. Example: Advertisement of Alcoholic products is prohibited and it is compulsory to give statutory warning on advertisement of cigarettes.
MAJOR STEPS IN ECONOMIC FORMS
1. New Industrial Policy - Under this, the industries have been freed to a large extent from licenses and other controls. Efforts have been made to encourage foreign investment.
2. New Trade Policy - Foreign trade has been freed from unnecessary control. The age-old restrictions have been eliminated.
3. Fiscal Reforms. The greatest problem confronting the Indian Govt. is excessive fiscal deficit.
(a) Fiscal Deficit - It means country is spending more than its income
(b) Gross Domestic Product (GDP) - It is the sum total of the financial value of all goods & services produced in a year in a country.
4. Monetary Reform - It is a sort of control policy through which the central bank controls the supply of money with a view to achieving objectives of general economic policy.
5. Capital Market Reforms- The Govt. has taken the following steps for the development of this market:
(1) SEBI has been established.
(2) The restriction in respect of interest on debentures has been lifted.
(3) Private Sector has been permitted to establish Mutual Fund.
6. Dismantling Price control - The govt. has taken steps to remove price control in many products especially in fertilizers, iron and steel, petro products. Restrictions on the import of these things have also been removed.
III Demonetization
The Government of India made an announcement on November 8,
2016, with profound implications for the Indian economy. The two largest
denomination notes, `500 `1,000, were ‘demonetized’ with immediate effect,
ceasing to be legal tender except for a few specified purposes such as paying
utility bills. This led to eighty-six percent of the money in circulation being invalid. The people of India had to deposit invalid currency in the banks
which came along with the restrictions placed on cash withdrawals. In other
words, restrictions were placed on the convertibility of domestic money and
bank deposits. The aim of demonetization was to curb corruption, counterfeiting
the use of high denomination notes for illegal activities; and especially the
accumulation of ‘black money’ generated by income that has not been declared to
the tax authorities.
Features / characteristic of demonetization:
1. Demonetisation is viewed as a tax administration measure. Cash holdings arising from declared income was readily deposited in banks and exchanged for new notes. But those with black money had to declare their unaccounted wealth and pay taxes at a penalty rate.
2. Demonetisation is also interpreted as a shift on the part of the government indicating that tax evasion will no longer be tolerated or accepted.
3. Demonetisation also led to tax administration channelizing savings into the formal financial system. Though, much of the cash that has been deposited in the banking system is bound to be withdrawn but some of the new deposits schemes offered by the banks will continue to provide a base loans, at lower interest rates.
4. Another feature
of demonetisation is to create a less-cash or cash-lite economy, i.e., channeling
more savings through the formal financial system and improving tax compliance.
Though there are arguments against this as digital transactions require use of
cell phones for customers and Point-of-Sale (PoS) machines for merchants, which
will only work if there is internet connectivity. On the contrary, these
disadvantages are counterbalanced by an understanding that it helps people into
the formal economy,
> Impact of Demonetisation
1. Money/Interest rates
i. A decline in cash transactions
ii. Bank deposits increased
iii. Increase in financial savings
2. Private wealth:
Declined since some high demonetised notes were not and real
estate prices fell
3. Public sector: wealth (No effect)
4. Digitization: Digital transactions amongst new
users (RuPay/AEPS) increased
5. Real estate: Prices declined
6. Tax collection: Rise in income tax collection because of increased disclosure
CHAPTER – 4 PLANNING
Meaning:
• Deciding in advance what to do& how to do it. It is one of the basic managerial functions.
• It involves 2 aspects:
Setting of aims and objectives of the organization + Selecting and developing an appropriate course of action to achieve these objectives.
• Koontz and O‘Donnell - ―Planning is deciding in advance what to do, how to do, when to do, and who to do it. Planning bridges the gap from where we are to where we want to go. It makes it possible for things to occur which would not otherwise happen.
• Involves setting of objectives & developing an appropriate course of action to achieve these objectives
Importance of Planning
1. Planning provides directions: By stating in advance how the work is to be done planning provides direction for action. If there was no planning, employees would be working in different directions and the organization would not be able to achieve its goals efficiently.
2. Planning reduces the risk of uncertainity: Planning is an activity which enables a manager to look ahead, anticipate change, consider the impact of change and develop appropriate responses.
3. Planning reduces wasteful activities: Planning serves as the basis of coordinating the activities and efforts of different departments and individuals whereby useless and redundant activities are mentioned.
4. Planning promotes innovative ideas: Planning is the first function of management. Managers get the opportunity to develop new ideas and new ideas can take the shape of concrete plans.
5. Planning facilities decision making: Under planning targets are laid down. The manager has to evaluate each alternative and select the most viable option.
6. Planning establishes standards for controlling: Planning provides the standards against which the actual performance can be measured and evaluated. Control is blind without planning. Thus planning provides the basis for control.
Limitations of Planning
(A) Internal Limitations
1. Planning leads to rigidity: Planning discourages individual’s initiative &creativity. The managers do not make changes according to changing business environment. They stop taking or giving suggestions and new ideas. Thus detailed planning may create a rigid framework in the organization.
2. Planning may not work in dynamic environment: Planning is based on anticipation of future happenings and since future is uncertain and dynamic therefore, the future anticipations are not always true.
3. Planning involves huge costs: When plans are drawn up, huge cost is involved in their formulation.
4. Planning is time consuming: Sometimes plans to be drawn up take so much of time that there is not much time left for their implementation.
5. Planning does not guarantee success: The success of an enterprise is possible only when plans are properly drawn and implement. Sometimes managers depend on previously tried successful plans, but it is not always true that a plan which has worked before will work effectively again.
6. Planning reduces creativity: In planning, work is to be done as per pre-determined plans. It is decided in advance what is to be done, how it is to be done and who is going to do it. Moreover, planning is done by top management which leads to reduction of creativity of other levels of management.
(B) External Limitations
They are those limitations of planning which arises due to external factors over which an organization has no control.
1. Changes in Government policies way leads to failure of planning.
2. Natural calamities such as flood, earthquake etc. also adversely affect the success of planning.
3. Changes in the strategies of competitors also leads to failure of planning many times.
4. Regular technological changes may affect planning.
5. Changes in the Economic and Social Conditions also reduces the effectiveness of planning.
Planning Process
1. Setting Objectives:
- Objectives specify what the organization wants to achieve.
- Objectives can be set for the entire org. & stated to each dept. within the org. very clearly, to determine how all depts. would contribute towards overall objectives.
-Then these have to percolate down to all employees at all levels so that they understand how their actions contribute to achieving objectives.
- E.g. Objective could be to achieve sales, expansion of business etc.
2. Developing Premises:
- Plans are made on the basis of some assumptions.
- These assumptions, which provide the basis for planning, are called premises.
- All managers involved in planning should be familiar w/ them, cuz plans are expected to operate & reach their destination subject to these. They can be:
• Internal premises: Cost of products, capital, machinery, profitability etc.
• External premises: Changes in technology, population growth, competition, govt. policies etc
3. Identifying Alternative Courses Of Action:
- After setting the objectives, managers make a list of alternatives through which the org. can achieve its objectives as there can be many ways to achieve the objectives & managers must know all of them.
- E.g. Sales could be increased through any of the following ways:
• By enhancing advertising expenditure
• Appointing salesmen for door-to-door sales
• By offering discounts
• By adding more product lines.
4. Evaluating Alternative Courses Of Action
- Positive & negative aspects of each &every proposal need to be evaluated to determine their feasibility and consequences in the light of each objective to be achieved.
- E.g. In financial plans, risk-return trade-off are imp. Riskier the investment, higher the returns it is likely to give. To evaluate such proposals, detailed calc. of earnings, taxes, earnings per share etc. should be done.
5. Selecting The Best Alternative
- Real point of decision-making→ Best plan has to be adopted and implemented.
- The ideal plan = most feasible, profitable and with least negative consequences.
- Most plans may not be subjected to mathematical analysis. In such cases, subjectivity & manager‘s experience, judgment and intuition are important to select the most viable alternative.
- Sometimes a combination of plans may be selected instead of one best course.
6. Implementing The Plan
- Concerned with putting the plan into action.
- For implementing the plans, managers start organizing & assembling resources for it.
- E.g. If there is a plan to ↑ production, then more labour, more machinery will be reqd. This step would also involve organizing for more labour and purchase of machinery.
7. Follow Up Action
- This involves monitoring the plans and ensuring that activities are performed according to the schedule.
- Whenever there are deviations from plans, immediate action has to be taken to bring implementation according to the plan or make changes in the plan.
TYPES OF PLAN
Plan
A Plan is a specific action proposed to help the organization achieve its objectives. It is a document that outlines how goals are going to be met. The importance of developing plans is evident from the fact that there may be more than one means of reaching a particular goal. So with the help of logical plans, objectives of an organization could be achieved easily.
SINGLE USE PLAN
A Single use plan in a business refers to plan developed for a one-time project or event that has one specific objective. It applies to activities that do not reoccur or repeat. It is specifically designed to achieve a particular goal. Such plan is developed to meet the needs of a unique situation. The length of a single use plan differs greatly depending on the project in question, as a single event plan may only last one day while a single project may last one week or months. For example, an outline for an advertising campaign. After the campaign runs its course, the short term plan will lose its relevance except as a guide for creating future plans.
Types of Single Use Plan
1. Programme: A programme is a single use plan containing detailed statements about project outlining the objectives, policies, procedures, rules, tasks, physical and human resources required to implement any course of action.
2. Budget: A budget is a statement of expected result expressed in numerical terms for a definite period of time in the future.
STANDING PLANS
Standing plans are used over and over again because they focus on organizational situations that occur repeatedly. They are usually made once and retain their value over a period of years while undergoing revisions and updates. That is why they are also called repeated use plans. For example, Businessman plans to establish a new business Entrepreneur drafts business plan before opening the doors to their business, and they can use their plan to guide their efforts for years into the future.
Types of Standing Plans
1. Objectives: Objectives are defined as ends for the achievement of which an organization goes on working. They may be designed as the desired future position that the management would like to reach. The first and foremost step of the planning process is setting organizational objectives. Examples increasing sales by 10%, Getting 20% return on Investment etc. Objectives should be clear and achievable.
2. Strategy: Strategies refer to those plans which an organization prepares to face various situations, threats and opportunities. When the managers of an organization prepare a new strategy for the business it is called internal strategy and when some strategies are prepared to respond to the strategies of the competitors, then such strategies are called external strategies. Examples, selection of the medium of advertisement, selection of the channel of distribution etc.
3. Policy: Policies refers to the general guidelines which brings uniformity in decision-making for achievement of organizational objectives. They provide directions to the managers of an organization. They are flexible as they may be changed as per requirement. Example, selling goods on cash basis only, reserving some post for women in the organization.
4. Procedure: Procedures are those plans which determine the sequential steps to carry out some work/activity. They indicate which work is to be done in which sequence/way. They help in the performance of work. Procedures are guides to action. Example: Process adopted in the Selection of Employees.
5. Rule: Rules are specific statement that tell what is to be done and whatnot to be done in a specified situation. They help in indicating which points are to be kept in mind while performing task/work. Rules are rigid which ensure discipline in the organization. Example : ‘No smoking in the office premises’. Violation of rules may invite penalty.
6. Method: Methods are standardized ways or manners in which a particular task has to be performed. There may be many ways/method of completing a task but that method/way must be selected by which work can be done early at the minimum possible cost. Methods are flexible. Example, various methods of training are adopted by an organization to train its employees like apprenticeship training, vestibule training etc.
Basis of Difference | Single use plans | Standing Plans |
1. Meaning | A single use plans in a business refers to plans developed for a one time project or event that has same objective. | A standing plans in a business refers to plans developed for using over and over again because they focus on organizational situations that occur repeatedly. |
2. Objective | Single use plans is developed to carry out a course of action that is not likely to be repeated in future time. | Standing plans however is developed for activities that occur regularly over a period of time. |
3. Scope | Single use plans generally encompass a narrow scope targeting a specific project or event. | Standing plans generally encompass a wider scope involving more than one department or business function. |
4. Stability | Single use plans are discarded when the situation, project or event is occur. | Standing plans are relatively stable and used over and over again with necessary modifications or updations. |
5. Example | Budget for Annual General Meeting of Shareholders. | Recruitment and selection procedure for a particular post in a company. |
CHAPTER – 7
DIRECTING
Meaning:
Directing means giving instructions, guiding, counseling, motivating and leading the staff in an organization in doing work to achieve Organizational goals. Directing is a key managerial function to be performed by the manager along with planning, organizing, staffing and controlling. From top executive to supervisor performs the function of directing and it takes place accordingly wherever superior – subordinate relations exist.Directing is a continuous process initiated at top level and flows to the bottom through organizational hierarchy.
Direction has got following characteristics:
1. Pervasive Function- Directing is required at all levels of organization. Every manager provides guidance and inspiration to his subordinates.
2. Continuous Activity- Direction is a continuous activity as it continuous throughout the life of organization.
3. Human Factor- Directing function is related to subordinates and therefore it is related to human factor. Since human factor is complex and behaviour is unpredictable, direction function becomes important.
4. Creative Activity- Direction function helps in converting plans into performance. Without this function, people become inactive and physical resources are meaningless.
5. Executive Function- Direction function is carried out by all managers and executives at all levels throughout the working of an enterprise, a subordinate receives instructions from his superior only.
6. Delegate Function- Direction is supposed to be a function dealing with human beings. Human behaviour is unpredictable by nature and conditioning the people’s behaviour towards the goals of the enterprise is what the executive does in this function. Therefore, it is termed as having delicacy in it to tackle human behaviour.
Importance
1. Initiates Action: It helps to initiate action by the people in the organization towards attainment of desired objectives. The employees start working only when they get instructions and directions from their superiors. It is the directing function which starts actual work to convert plans into results.
2. Integrates Employee’s Efforts: All the activities of the organization are interrelated so it is necessary to coordinate all the activities. It integrates the activities of subordinates by supervision, guidance and counselling.
3. Means of motivation: It motivates the subordinates to work efficiently and to contribute their maximum efforts towards the achievement of organizational goals.
4. Facilitates change: Employees often resist changes due to fear of adverse effects on their employment and promotion. Directing facilitates adjustment in the organization to cope with changes in the environment.
5. Stability and balance in the organization: Managers while performing directing function instruct, guide, supervise and inspire their subordinates in a manner that they are able to strike a balance between individual and organizational interests.
Principles of Effective Direction:
Effective direction leads to greater contribution of subordinates to organization goals. The directing function of management can be effective only when certain well accepted principles are followed.
The following are the basic principles of effective direction:
1. Harmony of Objectives:
It is an essential function of management to make the people realize the objectives of the group and direct their efforts towards the achievement of their objectives. The interest of the group must always prevail over individual interest. The principle implies harmony of personal interest and common interest..
2. Unity of Command:
This principle states that one person should receive orders from only one superior, in other words, one person should be accountable to only one boss. If one person is under more than one boss then there can be contradictory orders and the subordinate fails to understand whose order to be followed. In the absence of unity of command, the authority is undermined, discipline weakened, loyalty divided and confusion and delays are caused.
3. Unity of Direction:
To have effective direction, there should be one head and one plan for a group of activities having the same objectives. In other words, each group of activities having the same objectives must have one plan of action and must be under the control of one supervisor.
4. Direct Supervision:
The directing function of management becomes more effective if the superior maintains direct personal contact with his subordinates. Direct supervision infuses a sense of participation among subordinates that encourages them to put in their best to achieve the organizational goals and develop an effective system of feed-back of information.
5. Participative or Democratic Management:
The function of directing becomes more effective if participative or democratic style of management is followed. According to this principle, the superior must act according to the mutual consent and the decisions reached after consulting the subordinates. It provides necessary motivation to the workers by ensuring their participation and acceptance of work methods.
6. Effective Communication:
To have effective direction, it is very essential to have an effective communication system which provides for free flow of ideas, information, suggestions, complaints and grievances.
7. Follow-up:
In order to make direction effective, a manager has to continuously direct, guide, motivate and lead his subordinates. A manager has not only to issue orders and instructions but also to follow-up the performance so as to ensure that work is being performed as desired. He should intelligently oversee his subordinates at work and correct them whenever they go wrong.
(i) Supervision- implies overseeing the work of subordinates by their superiors. It is the act of watching & directing work & workers.
(ii) Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work. Positive, negative, monetary, non-monetary incentives may be used for this purpose.
(iii) Leadership- may be defined as a process by which manager guides and influences the work of subordinates in desired direction.
(iv) Communications- is the process of passing information, experience, opinion etc from one person to another. It is a bridge of understanding.
1. Supervision, as an element of directing:
process of guiding the efforts of employees and other resources to accomplish desired objectives.
Overseeing people at work
Involves instructing, observing, monitoring and guiding employees.
Carried out at all levels but more important at the lower levels therefore the term 'Supervisor'is used at the operativeslevel of management
I. Importance of Supervision/Role of a Supervisor/Functions
1. Link between workers and management because the supervisor explains management policies to workers and brings workers problems to the notice of the management.
2. Ensures issuing Instructions: To make sure that the instructions are communicated to each and every employee.
3. Facilities Control: Control means match between actual and planned output. It ensures checking on the methods in use and progress of work according to planned schedule.
4. Maintenance of discipline: The strict supervision and guidance of supervisor encourages the employees and workers to be more disciplined in the activities.
Under the guidance of superior the workers follow a fixed or strict timetable and execute the plans in right directions.
5. Feedback: The supervisors are directly dealing with the subordinates. As a result, feedback in the form of suggestions, grievances keep coming to the management. It improves quality management decisions and revision of plans & policies.
6. Improved Motivation: A supervisor with good leadership qualities can build up high morale among workers. The relationship with the supervisor is a very good incentive to improve the motivation level of the employees while guiding the employees, the supervisors encourage the subordinates to perform to their best capacities.
7. Optimum utilization of resources: All the activities are under the observation of supervisor so less wastage and optimum utilization of resources is possible.
II. Motivation
Meaning:
i. Incitement or inducement to act/move.
ii. Process of stimulating people to action to accomplish desired goals.
• Three key terms = motive, motivation, motivators
Motive :inner state that energizes, activates and directs behaviour towards goals.
Arises out of unsatisfied needs = causes restlessness.
Motivation : Process of stimulating people to action + Depend on satisfying needs of people.
Motivators: Technique used to motivate people.Egs. = pay, bonus, promotion, recognition etc.
Features
1. Psychological Phenomenon: Motivation is an internal feeling which means it cannot be forced on employees. The internal feeling such as need, desire, aspiration etc. influence human behaviour to behave in a particular manner.
2. Goal Directed Behaviour: It induces people to behave in such a manner so that they can achieve their goals. A motivated person works towards the achievement of desired goals.
3. Motivation can be either positive or Negative: Positive motivation means inspiring people to work better and appreciating a work that is well done e.g., pay increase promotion recognition. Negative motivation means forcing people to work by threatening or punishing them. e.g., issue of memo, demotion, stopping increments etc.
4.Complex Process: It is a complex and difficult process. Individuals differ in their needs and wants and moreover human needs change from time to time.
5. Continuous Process: Human needs are unlimited and so they keep on changing continuously, satisfaction of one need gives rise to another. As soon as one need is satisfied another need arises. So managers have to continuously perform the function of motivation.
Maslow‟s Hierarchy Of Needs:
Maslow‘s need hierarchy is considered to be fundamental to the understanding of motivation and plays an important role in motivation.
• People have a wide range of needs like physiological needs, social needs, safety needs, esteem needs and self actualisation needs which motivate them to work.
• The manager must understand the needs and wants of people in order to motivate them and improve their performance levels.
• For the satisfaction of these needs, managers must offer different incentives (monetary and non-monetary).
NEED | Examples Of Need (Individual Example) | Management Can Satisfy This Need By (Organizational Example) |
1. Basic Physiological Needs | Most basic in the hierarchy and corresponds to primary needs. Hunger, thirst, shelter, sleep. | Offer monetary incentives e.g. Good salary/wages and comfortable working conditions |
2. Safety/Security Needs | Security and protection from physical and emotional harm, stability of Income etc. | Offer job security, pension, insurance etc |
3. Affiliation/Belonging Needs | Refer to affection, sense of belongingness, acceptance and friendship | The firm can encourage team building and permit the workers to opportunity to interact socially and so develop cordial relations with colleagues |
4. Esteem Needs | Include factors such as self-respect, autonomy status, recognition and attention | Recognize good performance, provide opportunity for employees to feel a sense of accomplishment, provide important job titles etc |
5. Self Actualisation Needs | The drive to become what one is capable of becoming. These needs include growth, self-fulfillment and achievement of goals. | Offer the freedom to take decisions, providing them with opportunity to learn things, encouraging creativity, leading to achievement of goals etc. |
Financial and Non-Financial Incentives: Incentive means all measures which are used to motivate people to improve performance.
Financial incentives = directly in money form or measurable in monetary terms. 1. Pay and allowance 2. Productivity linked incentive schemes 3. Bonus 4. Profit sharing 5. Co-partnership/Stock options 6. Retirement benefits 7. Perquisites | Non-financial incentives= main emphasis is to provide psychological and emotional satisfaction. Not measurable in monetary terms. 1. Status 2. Organizational climate 3. Career advancement opportunities 4. Job enrichment 5. Employee recognition programmes 6. Job security 7. Employee participation 8. Employee empowerment |
III. Leadership
Leadership is the activity of influencing people to strive willingly for mutual objectives. Managers at all levels are expected to be the leaders of their subordinates. Leadership indicates the ability of an individual to maintain good interpersonal relations with followers and motivate them to contribute for achieving organizational objectives. It is a process of interaction between the leader and his followers. It helps in persuading employees to work cooperatively and enthusiastically towards common goals.
Importance of Leadership:
1. Makes people contribute positively:
• Influences behaviour and makes people contribute positively and produce good results.
2. Creates congenial work environment:
• Maintains personal relations, helps followers fulfil their needs+ provides confidence, support and encouragement.
3. Introduces change:
• Persuades, clarifies and inspires people to accept changes.
• So overcomes resistance to change with minimum discontent..
4. Handles conflict
• Does not allow adverse effects .
• Allows followers to express their feelings and disagreements and gives suitable clarifications.
5. Trains subordinates:
• Builds up successors and helps in smooth succession process.
Qualities Of A Good Leader:
1. Physical features – appearance, personality, heath and endurance inspires followers to work with the same tempo.
2. Knowledge – knowledge and competence to instruct and influence subordinates.
3. Integrity – the leader should be a role model regarding ethics, values, integrity and honesty.
4. Initiative – grab opportunities instead of waiting for them.
5. Communication – capacity to explain his ideas and also be a good listener, teacher, counselor and persuader.
6. Motivation skills – understand followers needs and devise suitable means to satisfy them. 7. Self-confidence – so that he can provide confidence to followers
8. Decisiveness – should be firm and not change opinions frequently
9. Social skills – sociable, friendly and maintain good relations with followers.
Styles of Leadership
Leadership styles refer to a leader’s behaviour. Behavioural pattern which the leader reflects in his role as a leader is often described as the style of leadership.
A Leadership style is the result of the leader’s philosophy, personality, experience and value system. It also depends upon the type of followers and the atmosphere revealing in the organization.
Different types of leadership style are:
1. Autocratic leadership
2. Participative leadership/Democratic
3. Free rein leadership/Laissez Faire
A leader may use all styles over a period of time but one style tends to predominate as his normal way of using power.
l. Autocratic or Authoritarian Leader
An autocratic leader gives orders and insists that they are obeyed. He determines the policies for the group without consulting them. He does not give information about future plans but simply tells the group what immediate steps they must take. Under this style, all decision making power is centralized in the leader. He does not give the subordinates any freedom to influence his decisions.
It is like “bossing people around.” This style should normally be used on rare occasion.
It is best applied to situations where there is little time for group decision making or where the leader is the most knowledgeable member of the group.
2. Democratic or Participative Leader
A democratic leader gives order only after consulting the group and works out the policies with the acceptance of the group.
He never asks people to do things without working out the long term plans on which they are working. He favours decision making by the group as shown in the diagram.
This improves the attitude of the employees towards their jobs and the organization thereby increasing their morale. Using this style is of mutual benefit - it allows them (subordinates) to become part of the team and helps leaders (seniors) to make better decisions.
When should Participative/democratic leadership be applied?
It works best in situations where group members are skilled and eager to share their knowledge.
It is also important to have plenty of time to allow people to contribute, develop a plan and then vote on the best course of action.
This style should NOT he used when:
In situations where roles are unclear or time is of the essence, democratic leadership can lead to communication failures and incomplete projects.
3. Laissez Faire or Free Rein Leader
A free rein leader gives complete freedom to the subordinates. Such a leader avoids use of power. He depends largely upon the group to establish its own goals and work out its own problems. Group members work themselves as per their own choice and competence. The leader exists as a contact man with the outsiders to bring information and the resources which the group requires for accomplishing the job. Note: This is also known as laissez faire which means no interference in the affairs of others. [French laissez means to let/allow fair means to do].
Communication
It is transfer of information from the sender to the receiver with the information being understood by the receiver. Communication plays key role in the success of a manager. Directing abilities of manager mainly depend upon his communication skills. That is why organization always emphasizes on improving communication skills of managers as well as employees. Communication is important for the directing function because all other elements of directing become possible only when there is adequate communication.
Elements of Communication Process
1. Sender: Who conveys his thoughts or ideas.
2. Message: Ideas, feelings, suggestions, order etc.
3. Encoding: Converting the message into communication symbols such as words/pictures etc.
4. Media: Path/Channel through which encoded message is transmitted to receiver e.g., face to face, phone call, internet etc.
5. Decoding: Converting encoded symbols of the sender.
6. Receiver: Who receives communication of the sender.
7. Feedback: All those actions of receiver indicating that he has received and understood the message of the sender.
8. Noise: Some obstruction or hindrance to communication like poor telephone connection, inattentive receiver.
Importance of Communication
1. Facilitates Coordination: between interrelated departments and sections thus creating a unity of purpose and action.
2. Provides data necessary for decision makings: When information is effectively and efficiently communicated to management.
3. Increases managerial efficiency: Every individual in the organization is assigned a job or task. The employee must know clearly who has to report to whom, what part of total job they are expected to perform and what are their decisions. The clarity comes only with smooth flow of communication which keeps the organization at work with efficiency.
4. Promotes cooperation and Industrial Peace: The two-way communication promotes cooperation and mutual understanding between the management and workers and brings peace in the organization.
5. Establishes effective leadership: Effective communication helps to influence subordinates. while influencing, a leader should possess good communication skills.
If there is two-way information flow betw Ioeen the superior and subordinates then there will be positive reaction of employees.
Communication taking place within an organization may be broadly classified into two categories.
Formal communication 1.Official communication following the chain of command 2.Is concerned with official matters 3. May be written/oral but generally recorded and filed. 4.Directions =
5.Popular communication networks are:
| Informal Communication: 1.Takes place outside the official channels – 2. May be work related or other matters – 3.Arises out of social interactions – 4.Grapevine:
5.Types =
|
Difference between Formal and Informal Communication
Basis | Formal Communication | Informal communication |
1. Meaning | Follows the official chain of command. | Between individuals and groups are not officially recognized. |
2. Channel | Through a definite path. | No definite path. |
3. Speed | Slow: because all information has to pass through an established scalar chain. | Very fast-Cuts across all the official channels. |
4. Nature | More rigid and cannot be modified. | Flexible and varies from individual to individual. |
5. Expression | It is mostly expressed in the written form. | It mostly tends to be oral. |
Barriers to Effective Communication
Semantic Barriers: Concerned with problems and obstructions in the process of encoding or decoding of message into words or impressions. Semantic barriers are as follows:
1. Badly expressed message: Sometimes intended meaning may not be conveyed.
2. Words with different meanings confuses the receiver.
3. Faulty translations may transfer wrong messages.
4. Unclarified assumption: Different interpretations may result in confusion.
5. Technical Jargon: Technical words may not be understood by the workers.
Psychological/Emotional barriers
1. Premature evaluation- judgement before listening leads to misunderstanding.
2. Lack of attention/poor listening may disappoint the employees.
3. Loss by transmission and poor retention: When oral communication passes through various levels it destroys the structure of the message or leads to transmission of inaccurate message.
4. Distrust: If the parties do not believe each other. They cannot understand each other’s message in its original sense.
Organizational Barriers
Factors related to organization structure:
1. If organizational policy does not support free flow of information it creates problem.
2. Rules and regulations: Rigid rules and regulations may lead to red tapism and delay of action.
3. Status conscious managers may not allow subordinates to express their feelings freely.
4. Complexity in organization structure results in delay and distortion.
Personal Barriers: of superiors and subordinates.
1. Fear of challenge to authority may withhold or suppress a particular communication.
2. Lack of confidence of superior in his subordinates.
3. Unwillingness to communicate. e.g., fear of punishment/demotion.
4. Lack of proper incentives stops the subordinates to offer useful suggestions.
Improving Communication Effectiveness
1. Clarify the ideas before communication.
2. Communicate according to the needs of receiver.
3. Consult others before communicating.
4. Be aware of language, tone and content of message.
5. Ensure proper feedback. Feedback provides opportunity for suggestions and criticism.
6. Follow up communication helps to remove hurdles, misunderstanding of information given by managers to subordination.
7. Be a good listener.
CHAPTER – 10 FINANCIAL MARKETS
Introduction
Financial Intermediation = process of allocating funds from saving surplus units (E.g. households) to saving deficit units (e.g. industries, government etc).
• Alternatives = Banks or Financial markets
Financial Markets are the institutional arrangements by which savings generated in the economy are channelised into avenues of investment by industry, business and the government. It is a market for the creation and exchange of financial assets.
Functions of Financial Market
1.Mobilization of savings and channelising them into the most productive uses:
• Facilitates transfer of savings from the savers to the investors.
• Financial markets help people to invest their savings in various financial instruments and earn income and capital appreciation.
• Facilitate mobilization of savings of people and their channelisation into the most productive uses.
2. Facilitate Price Discovery:
• Price of anything depends upon the demand and supply factors.
• Demand and supply of financial assets and securities in financial markets help in deciding the prices of various financial securities; where business firms represent the demand and the households represent the supply.
3. Provide liquidity to financial assets:
• Financial markets provide liquidity to financial instruments by providing a ready market for the sale and purchase of financial assets.
• Whenever the investors want, they can invest their savings into long term investments and whenever they want, they can sell the investments/ instruments and convert them into cash.
4. Reduce the cost of transactions:
• By providing valuable information to buyers and sellers of financial assets, it helps to saves time, effort and money that would have been spent by them to find each other.
• Also investors can buy/sell securities through brokers who charge a nominal commission for their services. This way financial markets facilitate transactions at a very low cost.
Types of Financial Markets
Money Market
Market for financial securities with maturity period of less than one year.
• Mkt for low risk, unsecured and short term debt instruments that are highly liquid are traded everyday.
• No plysical location bye conducted over the telephone and the internet.
• Helps to:
o raise short term funds
o Temporary deployment of funds .
The main instruments of money market are as follows:
l. Treasure Bills: They are issued by the RBI on behalf of the Central Government to meet its short-term requirement of funds. They are issued at a price which is lower than their face value and arc repaid at par. They are available for a minimum amount of Rs.25000 and in multiples thereof. They are also known as Zero Coupon Bonds. They are negotiable instruments i.e. they are freely transferable.
2. Commercial Paper: It is a short term unsecured promissory note issued by large credit worthy companies to raise short term funds at lower rates of interest than market rates. They are negotiable instruments transferable by endorsement and delivery with a fixed maturity period of 15 days to one year.
3. Call Money: It is short term finance repayable on demand, with a maturity period of one day to 15 days, used for interbank transactions. Call Money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio as per RBI. The interest rate paid on call money loans is known as the call rate.
4. Certificate of Deposit: It is an unsecured instrument issued in bearer form by Commercial Banks & Financial Institutions. They can be issued to individuals. Corporations and companies for raising money for a short period ranging from 91 days to one year.
5. Commercial Bill: It is a bill of exchange used to finance the working capital requirements of business firms. A seller of the goods draws the bill on the buyer when goods are sold on credit. When the bill is accepted by the buyer it becomes marketable instrument and is called a trade bill. These bills can be discounted with a bank if the seller needs funds before the bill maturity.
Capital Market
Facilities and institutional arrangements through which long term securities are raised and invested- both debt and equity.
• Nature of Capital Markets:
a. Important component of Financial markets b. Two segments(primary and secondary) c. 2 forms(organized and unorganized) d. long term securities e. Satisfies long term requirements of funds f. Performs trade-off functions g. Creates dispersion in business ownership h. Helps in capital formation i. Creates liquidity
• Features Of Capital Market Instruments:
a. Provide long term funds
b. Lesser outlay required as unit value of instruments is low
c. Duration more than 1 year
d. Liquidity
e. Lower safety
f. Higher expected returns as compared to short term securities
The capital market can be divided into two parts:
1. Primary Market
2. Secondary Market
Primary Market
• New issues markets
• Transfers investible funds from savers to entrepreneurs.
• Funds used for setting up new projects, expansion, diversification, modernization of existing projects, mergers and take overs etc.
Methods of Floatation of New Issues in Primary Market
1. Offer through Prospectus: It involves inviting subscription from the public through issue of prospectus. A prospectus makes a direct appeal to investors to raise capital through an advertisement in newspapers and magazines.
2. Offer for Sale: Under this method, securities are offered for sale through intermediaries like issuing houses or stock brokers. The company sells securities to intermediary/broker at an agreed price and the broker resells them to investors at a higher price.
3. Private Placements: It refers to the process in which securities are allotted to institutional investor and some selected individuals.
4. Rights Issue: It refers to the issue in which new shares are offered to the existing shareholders in proportion to the number of shares they already possess.
5. e-IPOs: It is a method of issuing securities through an on-line system of stock exchange. A company proposing to issue capital to the public through the on-line system of the stock exchange has to enter into an agreement with the stock exchange. This is called an e-initial public offer. SEBI’s registered brokers have to be appointed for the purpose of accepting applications and placing orders with the company.
Secondary Market
1.Refers to a market where existing securities are bought and sold.
2.The company is not involved in the transaction at all. It is between two investors. Features of Secondary market are: 1) Creates liquidity 2) Fixed location 3) Comes after primary market 4) Encourages new investment
Difference between Primary Market and Secondary Market
Basis | Primary Market | Secondary Market |
Securities | Only new securities are traded | Existing securities are traded |
Price of Securities | Prices of securities are determined by the management of the company. | Prices are determined by the forces by the demand and supply of the securities. |
Purchase and Sale | Securities are sold to investors directly by the company or through intermediary. | Investors exchange ownership of securities. |
Place of Market | There is no fixed geographical location. | Located at specified places. |
Medium | Only buying of securities takes place. | Both buying and selling of securities can take place. |
Stock Exchange/Share Market
A Stock Exchange is an institution which provides a platform for buying and selling of existing securities. It facilitates the exchange of a security i.e. share, debenture etc. into money and vice versa. Following are some of the important functions of a Stock Exchange:
a. Gives liquidity and marketability to existing securities
b. Pricing of securities(dd and ss)
c. Safety of transactions(membership = regulated + dealings well defined)
d. Contributes to economic growth (ensures that savings are channelized to most productive investment avenues)
e. Spreading of equity cult(ensures wider share ownership)
f. Provides scope for speculation (in a restricted and controlled environment)
Trading Procedure on a Stock Exchange
1. Selection of Broker: in order to trade on a Stock Exchange first a broker is selected who should be a member of stock exchange as they can only trade on the stock exchange.
2. Placing the order: After selecting a broker, the investors specify the type and number of securities they want to buy or sell.
3. Executing the order: The broker will buy or sell the securities as per the instructions of the investor.
4. Settlement: Transactions on a stock exchange may be carried out on either cash basis or carry over basis (i.e. badla). The time period for which the transactions are carried forward is referred to as accounts which vary from a fortnight to a month. All transactions made during one account are to be settled by payment for purchases and by delivery of share certificates, which is a proof of ownership of securities by an individual. Earlier trading on a stock exchange took place through a public outcry or auction system which is now replaced by an online screen based electronic trading system. Moreover, to eliminate, the problems of theft, forgery, transfer, delays etc. an electronic book entry from a holding and transferring securities has been introduced, which is called process of de materialisation of securities.
Difference between Capital and Money Market
Basis | Capital Market | Money Market |
Participants | Financial Institutions, Banks, Corporate Entities, foreign investors and individuals. | RBI, Banks Institutions and finance companies. |
Instruments traded | Equity shares, bonds preferences and debentures, call money etc. | Treasury Bills, Trade Bills commercial paper |
Investment Outlay | Does not necessarily require a huge financial outlay. | Entails huge sum of money as the instruments are quite expensive. |
Duration | Deals in medium and long term securities having a maturity period of one year. | Deals in short term funds having a maturity period upto one year. |
Liquidity | Securities are less liquid as money market securities. | Money markets instruments are highly liquid |
Expected | High return | Low return |
Safety | Capital Market Instruments are riskier both with respect to return and repayment. | Money market instruments are generally much safer with a minimum risk of default. |
Depository Services and DEMAT Accounts: Keeping in the mind the difficulties to transfer of shares in physical form, SEBI has developed a new system in which trading in shares is made compulsory in electronic form Depository services system and D-Mat Account are very basis of this system.
Depository Services: Just like a bank keeps money in safe custody for customers, a depository also is like a bank and keeps securities(e.g. shares, debentures, bonds, mutual funds etc.) in electronic form on behalf of the investor. In the depository a securities account can be opened, all shares can be deposited, they can be withdrawn/ sold at any time and instruction to deliver or receive shares on behalf of the investor can be given. At present there are two depositories in India: NSDL. (National Securities Depository Ltd.) and CDSL (Central Depository Services Ltd.). which are known as “Depository Participants”. (DPs)
Services provided by Depository
Dematerialisation (usually known as demat) is converting physical certificates to electronic form. Rematerialisation, known as remat, is reverse of demat, i.e getting physical certificates from the electronic securities.
Transfer of securities, change of beneficial ownership.
_ Settlement of trades done on exchange connected to the Depository. Now a days on-line paper-less trading in shares of the company is compulsory in India. Depository services is the name of that mechanism. In this system transfer of ownership in shares take place by means of book entry without the physical delivery of shares. When an investor wants to deal in shares of any company he has to open a Demat account. There
are four players who participate in this system.
1. The Depository: A depository is an institution which holds the shares of an investor in electronic form. There are two depository institutions in India these are NSDL and CDSL.
2. The Depository Participant: He opens the account of Investor and maintains securities records.
3. The Investor: He is a person who wants to deal in shares whose name is recorded
4. The Issuing Company: That organization which issues the securities. This issuing company sends a list of the shareholders to the depositories.
Benefits of Depository Services
• Sale and Purchase of shares and stocks of any company on any stock Exchange.
• Saves time.
• Lower transaction costs
• Ease in trading.
• Transparency in transactions.
• No counterfeiting of security certificate
• Physical presence of investor is not required in stock exchange.
• Risk of mutilation and loss of security certificate is eliminated.
Demat Account
Demat (Dematerialized) account refers to an account which an Indian citizen must open with the depository participant (banks, stockbrokers) to trade in listed securities in electronic form. The securities are held in the electronic form by a depository.
Benefits of Demat Account
1. Reduces paper work.
2. Elimination of problems on transfer of shares such as loss, theft and delay.
3. Exemption of stamp duty when transfer of shares.
4. The concept of odd lot stand abolished.
5. Increase liquidity through speedy settlement.
6. Attract foreign investors and promoting foreign investment.
7. A single demat account can hold investments in both equity and debt instruments.
8. Traders can work from anywhere.
9. Automatic credit into demat account for shares arising out of bonus/split/consolidation % merger.
10. Immediate transfers of securities.
11. Change in address recorded with a DP gets registered with all companies in which investor holds securities eliminating the need to correspond with each of them.
Opening of Demat Account
A Demat account is opened on the same lines as that of a bank account. Prescribed account opening forms available with the DP, need to be filled in. Standard agreement is to be signed by the client and the DP, which details the rights and obligation of both parties. Along with the form, the client is required to attach photograph, attested copies of residence proof and proof of identity need to be submitted.
Securities and Exchange Board of India (SEBI)
SEBI was established by Government of India on 12 April 1988 as an interim administrative body to promote orderly and healthy growth of securities market and for investor protection. It was given a statutory status on 30 January1992 through an ordinance which was later replaced by an Act of Parliament known as the SEBI Act, 1992. It seeks to protect the interest of investors in new and second hand securities.
Objectives of SEBI
1. To regulate stock exchange and the securities market to promote their orderly functioning.
2. To protect the rights and interests of investors and to guide & educate them.
3. To prevent trade mal practices such as internal trading.
4. To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant bankers etc.
Functions of SEBI
1. Protective Functions :a) Prohibit fraudulent & unfair trade practices in secondary market (e.g. Price rigging & misleading statement) .b) Prohibit insider trading. c) Educate investors Promote fair practice & code of conduct in securities market
2.Development Functions : a) Promotes training of intermediaries of the securities market . b) Investor education c) Promotion of fair practices code of conduct of all SRO‘s. d) Conducting research & publish information useful to all market participants
3. Regulation Functions : a) Registration of brokers and sub brokers & other players in the mkt. b)) Registration of collective investment schemes & mutual funds. c) Regulation of stock bankers & portfolio exchanges & merchant bankers.
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