Management

---

 

Decision making is an essential part of planning. Decision making and problem solving are used in all management functions, although usually they are considered a part of the planning phase. A discussion of the origins of management science leads into one on modeling, the five-step process of management science, and the process of engineering problem solving.

Decision-making is an integral part of modern management. Essentially, Rational or sound decision making is taken as primary function of management. Every manager takes hundreds and hundreds of decisions subconsciously or consciously making it as the key component in the role of a manager. Decisions play important roles as they determine both organizational and managerial activities. A decision can be defined as a course of action purposely chosen from a set of alternatives to achieve organizational or managerial objectives or goals. Decision making process is continuous and indispensable component of managing any organization or business activities. Decisions are made to sustain the activities of all business activities and organizational functioning.

Relation to Planning

 

Managerial decision making is the process of making a conscious choice between two or more rational alternatives in order to select the one that will produce the most desirable consequences (benefits) relative to unwanted consequences (costs). If there is only one alternative, there is nothing to decide.

If planning is truly “deciding in advance what to do, how to do it, when to do it, and who is to do it” , then decision making is an essential part of planning. Decision making is also required in designing and staffing an organization, developing methods of motivating subordinates, and identifying corrective actions in the control process. However, it is conventionally studied as part of the planning function, and it is discussed here.

Occasions for Decision

 

the occasions for decision originate in three distinct fields:

(a) from authoritative communications from superiors;

(b) from cases referred for decision by subordinates; and

(c) from cases originating in the initiative of the executive concerned.

Types of Decisions

 

TYPES OF DECISIONS:

 

PROGRAMMED DECISIONS:

 

Programmed decisions are routine and repetitive, and the organization typically develops specific ways to handle them. A programmed decision might involve determining how products will be arranged on the shelves of a supermarket. For this kind of routine, repetitive problem, standard arrangement decisions are typically made according to established management guidelines.

 

NON PROGRAMMED DECISIONS:

 

Non programmed decisions are typically one shot decisions that are usually less structured than programmed decision.

 

Decision Making under Certainty

Decision making under certainty implies that we are certain of the future state of nature (or we assume that we are). (In our model, this means that the probability p of future N is 1.0, and all other futures have zero probability.) The solution, naturally, is to choose the alternative A that gives us the most favorable outcome O . Although this may seem like a trivial exercise, there are many problems that are so complex that sophisticated mathematical techniques are needed to find the best solution.

 

Marketing Management is a social and managerial process by which individuals or firms obtain what they need or want through creating, offering, exchanging products of value with each others.

 

CORE CONCEPTS OF MARKETING

 

• NEED/ WANT/ DEMAND:

 

Need: It is state of deprivation of some basic satisfaction.

 

Want: Desire for specific satisfier of need.

 

Demand: Want for a specific product backed up by ability and willingness

to buy.

 

Marketers cannot create needs. Needs pre exists. Marketers can influence wants. This is done in combination with societal influencers.

 

• PRODUCTS- GOODS/ SERVICES/ PLACE.

 

Product is anything that can satisfy need/ want.

 

Product component-              1.Physical Good.

2. Service.
3. Idea.

 

Hence, products are really a via- media for services.

Hence, in marketing, focus is on providing/ satisfying service rather than providing products.

 

Marketing Myopia:  Focus on products rather than on customer needs.

 

(3) VALUE/ COST/ SATISFACTION:

 

• Decision for purchase made based on value/ cost satisfaction delivered by product/ offering.
• Product fulfills/ satisfies Need/ Want.
• Value is products capacity to satisfy needs/ wants as per consumer’s perception or estimation.
• Each product would have a cost/ price elements attached to it.

 

VALUE– Products capacity to satisfy.

COST–    Price of each products.

 

• EXCHANGE/ TRANSACTION:

 

EXCHANGE: – The act/ process of obtaining a desired product from someone by offering something in return. For exchange potential to exist, the following conditions must be fulfilled.

1. There must be at least two parties.
2. Each party has something of value for other party.
3. Each party is capable of communication & delivery
4. Each party is free to accept/ reject the exchange offer.
5. Each party believes it is appropriate to deal with the other party.

 

TRANSACTION: – Event that happens at the end of an exchange. Exchange is a process towards an agreement. When agreement is reached, we say a transaction has taken place.

 

Proof of transaction is BILL/ INVOICE.

 

TRANSFER: – It is one way. Hence, differ from Transaction.

 

NEGOTIATION: – Process of trying to arrive at mutually agreeable terms.

Negotiation may lead to               – Transaction

– Decision not to Transaction

 

• RELATIONSHIP/ NETWORKING:

 

Relationship marketing:-    It’s a pattern of building long term satisfying relationship with customers, suppliers, distributors in order to retain their long term performances and business.

 

Outcome of Relationship Marketing is a MARKETING NETWORK.

 

MARKETING NETWORK:      It is made up of the company and its customers, employees, suppliers, distributors, advertisement agencies, retailers, research & development with whom it has built mutually profitable business relationship.

 

Competition is between whole network for market share and NOT between companies alone.

 

• MARKET:

A market consists of all potential customers sharing particular need/ want who may be willing and able to engage in exchange to satisfy need/ want.

 

Types of Markets:

1. Resource Market,
2. Manufacturing Market,

• Intermediary Market,

1. Consumer Market,
2. Government market.

 

• MARKETERS/ PROSPECTS:

 

Working with markets to actualize potential exchanges for the purpose of satisfying needs and wants.

 

One party seeks the exchange more actively, called as “Marketer”, and the other party is called “Prospect”.

 

Prospect is someone whom marketer identifies as potentially willing and able to engage in exchange.

 

Marketer may be seller or buyer. Most of time, marketer is seller.

A marketer is a company serving a market in the face of competition.

 

Marketing Management takes place when at least one party to a potential exchange thinks about the means of achieving desired responses from other parties.

 

AMA- American Marketing Association.

 

It defines marketing management as the process of planning & executing the conception of pricing, promotion, distribution of goods, services, ideas to create exchanges that satisfy individual and organizational goals.

• Can be practiced in any market.
• Task of marketing management is to influence the level, timing, composition of demand in a way that will help the organization to achieve its objective. Hence, marketing management is essentially demand management.

 

 

Traditional Concept of Marketing

 

According to this concept, marketing consists of those activities which are concerned with the transfer of ownership of goods from producers to consumers. Thus, marketing means selling of goods and services. In other words, it is the process by which goods are made available to ultimate consumers from their place of origin. The traditional concept of marketing corresponds to the general notion of marketing, which means selling goods and services after they have been produced. The emphasis of marketing corresponds is on the sale of goods and services. Consumer satisfaction is not given adequate emphasis. Viewed in this way, marketing is regarded as Production/Sales oriented.

 

Modern concept of Marketing

 

According to the modern concept, Marketing is the concerned with creation of customer. Creation of Customers means identification of Consumer needs and organising business to satisfy needs. Marketing in the modern sense involves decision regarding the following matters.

 

• Products to be produced.
• Prices to be charged from Customers.
• Promotional techniques to be adapted to contact and influence existing and potential customers.
• Selection of middlemen to be used to distribute goods and service.

 

Modern concept of marketing requires all the above decisions to be taken after due consideration of consumer needs and their satisfaction.

The business objective of earning profit is sought to be achieved through provision of consumer satisfaction. This concept of marketing is regarded as consumer oriented as the emphasis of business is laid on consumer needs and their satisfaction.

 

Five fundamental concept of marketing are –

1. Exchange concept
2. Production concept
3. Product concept
4. Sales concept
5. Marketing concept

 

1. Exchange Concept: The exchange concept holds that the exchange of a product between seller & buyer is the central idea of marketing Exchange is an important part of marketing, but marketing is much wider concept.

 

2. Production Concept: The production concept is one of the oldest concepts in business. It holds that consumers will prefer products that are widely available and expensive. Manager of Production oriented business concentrate on achieving high production efficiency low cost & mass distribution.

 

3. Product Concept: This concept holds that consumers will prefer those products that are high in quality, performance or innovative features. Managers in these organization focus on making superior products and improving them. Sometimes, this concept leads to marketing myopia, Marketing myopia is a short-sightedness about business. Excessive attention to production or the product or selling aspects at the cost of customers & his actual needs creates this myopia.

 

4. Selling Concepts: This concept focuses on aggressively promoting & pushing its products, it cannot except its product to get picked up automatically by the customer. The purpose is basically to sell more stuff to more people, in order to make profits.

 

5. Marketing Concept: The marketing concept emerged in the mid 1950’s. The business generally shifted from a product – cantered, make & sell philosophy, to a customer centered, sense & respond philosophy. The job is not to find the right customers for your product, but to find right products for your customers. The Marketing concept holds that the key to achieving organizational goals consist of the company being more effective than competitors in creating, delivering & communicating superior customers value. This concept puts the customers at both the beginning & the end of the business cycle. Every department & every worker should think customer & act customer.

 

Marketing involves a number of activities. To begin with, an organisation may decide on its target group of customers to be served. Once the target group is decided, the product is to be placed in the market by providing the appropriate product, price, distribution and promotional efforts. These are to be combined or mixed in an appropriate proportion so as to achieve the marketing goal. Such mix of product, price, distribution and promotional efforts is known as ‘Marketing Mix’.

 

 

 

So, Marketing Mix consists of 4Ps They are :-

 

• Products,
• Price,
• Place (distribution) and

 

These 4 ‘P’s are called as elements of marketing and together they constitute the marketing mix. All these are inter-related because a decision in one area affects decisions in other areas.

 

PRODUCT:

 

Product refers to the goods and services offered by the organisation. A pair of shoes, a plate of dahi-vada, a lipstick, all are products. All these are purchased because they satisfy one or more of our needs.  The term product is defined as “anything that can be offered to a market to satisfy a want”. It normally includes physical objects and services. So, in simple words, product can be described as a bundle of benefits which a marketer offers to the consumer for a price.

 

Product can be broadly classified on the basis of

 

 (1) USE,    (2) DURABILITY,   and    (3)TANGIBLITY

 

• Based onUSE, the product can be classified as:

 

   (a) Consumer Goods and

(b) Industrial Goods.

 

• Consumer goods: Goods meant for personal consumption by the households or ultimate consumers are called consumer goods. This includes items like toiletries, groceries, clothes etc. Based on consumers’ buying behaviour the consumer goods can be further classified as :

 

(i) Convenience Goods;   (ii) Shopping Goods; and  (iii) Speciality Goods.

 

• Convenience Goods :

 

The convenience goods are bought frequently without much planning or shopping effort and are also consumed quickly. Buying decision in case of these goods does not involve much pre-planning. Such goods are usually sold at convenient retail outlets.

 

• Shopping Goods:

 

These are goods which are purchased less frequently and are used very slowly like clothes, shoes, household appliances. In case of these goods, consumers make choice of a product considering its suitability, price, style, quality and products of competitors and substitutes, if any. In other words, the consumers usually spend a considerable amount of time and effort to finalise their purchase decision as they lack complete information prior to their shopping trip. shopping goods involve much more expenses than convenience goods.

 

• Speciality Goods :

 

As  some special characteristics of certain categories of goods, people generally put special efforts to buy them. They are ready to buy these goods at prices at which they are offered and also put in extra time to locate the seller to make the purchase. Examples of speciality goods are cameras, TV sets, new automobiles etc.

 

(b) Industrial Goods:  Goods meant for consumption or use as inputs in production    of other products or provision of some service is termed as ‘industrial goods’. These are meant for non-personal and commercial use and include (i) raw materials, (ii) machinery, (iii) components, and (iv) operating supplies (such as lubricants, stationery etc). The buyers of industrial goods are supposed to be knowledgeable, cost conscious and rational in their purchase and therefore, the marketers follow different pricing, distribution and promotional strategies for their sale.

 

• Based on DURABILITY , the products can be classified as :

 

(a) Durable Goods and

 (b) Non-durable Goods

 

• Durable Goods : Durable goods are products which are used for a long period i.e., for months or years together. Examples of such goods are refrigerator, car, washing machine etc. In case of these goods, seller’s reputation and presale and after-sale service are important determinants of purchase decision.

 

• Non-durable Goods: Non-durable goods are products that are normally consumed in one go or last for a few uses. Examples of such products are soap, salt, pickles, sauce etc. These items are consumed quickly and we purchase these goods more often. Such items are generally made available by the producer through large number of convenient retail outlets. Profit margins on such items are usually kept low.

 

 

• Based on TANGIBLITY , the products can be classified as:

 

(a) Tangible Goods and

(b) Intangible Goods.

 

• Tangible Goods : Most goods, whether these are consumer goods or industrial goods and whether these are durable or non-durable, fall in this category as they have a physical form, that can be touched and seen. Thus, all items like groceries, cars, raw-materials, machinery etc. fall in the category of tangible goods.

 

• Intangible Goods : Intangible goods refer to services provided to the individual consumers or to the organisational buyers (industrial, commercial, institutional, government etc.). Services are essentially intangible activities which provide want or need satisfaction. Medical treatment, postal, banking and insurance services etc., all fall in this category.

 

PRICING

 

 

It is the exchange value of goods and services in terms of money. Pricing (determination of price to be charged) is another important element of marketing mix and It plays a crucial role in the success of a product in the market.

 

It has to be fixed after taking various aspects into consideration. The factors usually taken into account while determining the price of a product can be broadly described as follows:

 

• Cost: No business can survive unless it covers its cost of production and distribution. In large number of products, the retail prices are determined by adding a reasonable profit margin to the cost. Higher the cost, higher is likely to be the price, lower the cost lower the price.

 

• Demand: Demand also affects the price in a big way. When there is limited supply of a product and the demand is high, people buy even if high prices are charged by the producer. The price is dependent upon prospective buyers’ capacity and willingness to pay and their preference for the product. In this context, price elasticity, i.e. responsiveness of demand to changes in price should also be kept in view.

 

 

• Competition: The price charged by the competitor for similar product is an important determinant of price. A marketer would not like to charge a price higher than the competitor for fear of losing customers.

 

• Marketing Objectives: A firm may have different marketing objectives such as maximisation of profit, maximisation of sales, bigger market share, survival in the market and so on. The prices have to be determined accordingly.

 

• Government Regulation: Prices of some essential products are regulated by the government under the Essential Commodities Act. For example, prior to liberalisation of the economy, cement and steel prices were decided by the government. Hence, it is essential that the existing statutory limits, if any, are also kept in view while determining the prices of products by the producers.

 

METHODS OF PRICE FIXATION

Methods of fixing the price can be broadly divided into the following categories-

 

1. Cost based pricing
2. Competition based pricing
3. Demand based pricing
4. Objective based pricing

 

1. Cost Based Pricing: Under this method, price of the product is fixed by adding the amount of desired profit margin to the cost of the product. While calculating the price in this way, all costs (variable as well as fixed) incurred in manufacturing the product are taken into consideration.

 

2. Competition Based Pricing: In case of products where market is highly competitive and there is negligible difference in quality of competing brands, price is usually fixed closer to the price of the competing brands. It is called ‘young rate pricing’ and is a very convenient method because the marketers do not have to worry much about demand and cost and effect the change as per the changes by the industry leaders.

 

3. Demand Based Pricing: At times, prices are determined by the demand for the product. Under this method, without paying much attention to cost and competitor’s prices, the marketers try to ascertain the demand for the product. If the demand is high they decide to take advantage and fix a high price. If the demand is low, they fix low prices for their product

 

4. Objective Based Pricing: This method is applicable to introduction of new (innovative) products. If, at the introductory stage of the products, the organisation wishes to penetrate the market i.e., to capture large parts of the market and discourage the prospective competitors to enter into the fray, it fixes a low price. Alternatively, the organisation may decide to skim the market i.e., to earn high profit by taking advantage of a group of customers who give more importance to their status or distinction and are willing to pay even a higher price for it. In such a situation they fix quite high price at the introductory stage of their product and market it to only those customers who can afford it.

 

 

PLACE/DISTRIBUTION

 

A distribution channel consists of the set of people and firms involved in the transfer of title to a product as the product moves from producer to ultimate consumer or business user. Basically it refers to the vital links connecting the manufacturers and producers and the ultimate consumers/users. It includes both the producer and the end user and also the middlemen/agents engaged in the process of transfer of title of goods.

 

 

 

TYPES OF CHANNELS OF DISTRIBUTION

 

• Zero stage channel of distribution

 

Manufacturer —-> Consumer

 

Zero stage distribution channel exists where there is direct sale of goods by the producer to the consumer. This direct contact with the consumer can be made through door-todoor salesmen, own retail outlets or even through direct mail.

 

• One stage channel of distribution

 

Manufacturer—–>Retailer——–> Consumer

 

This type of distribution channel is preferred by manufacturers of consumer durables like refrigerator, air conditioner, washing machine, etc. where individual purchase involves large amount.

 

• Two stage channel of distribution

 

Manufacturer—->Wholesaler—>Retailer—>Consumer

 

This is the most commonly used channel of distribution for the sale of consumer    goods. In this case, there are two middlemen used, namely, wholesaler and retailer. This is applicable to products where markets are spread over a large area, value of individual purchase is small and the frequency of purchase is high.

 

• Three stage channel of distribution

 

Manufacturer—->Agents—-> Wholesaler—>Retailer—>Consumer

 

When the number of wholesalers used is large and they are scattered throughout the country, the manufacturers often use the services of mercantile agents who act as a link between the producer and the wholesaler. They are also known as distributor.

 

 

PROMOTION

 

Promotion refers to the process of informing and persuading the consumers to buy certain product. By using this process, the marketers convey persuasive message and information to its potential customers.

 

It is thus a persuasive communication and also serves as a reminder. A firm uses different tools for its promotional activities which are as follows:

 

– Advertising

– Publicity

– Personal selling

– Sales promotion

 

These are also termed as four elements of a promotion mix.

 

 

 

 

• Advertising: Advertising is the most commonly used tool for informing the present and prospective consumers about the product, its quality, features, availability, etc. It is a paid form of non-personal communication through different media about a product, idea, a service or an organisation by an identified sponsor. It can be done through print media like newspaper, magazines, billboards, electronic media like radio, television etc. It is a very flexible and comparatively low cost tool of promotion.

 

• Publicity: This is a non-paid process of generating wide range of communication to contribute a favourable attitude towards the product and the organisation. As the articles in newspapers about an organisation, its products and policies. The other tools of publicity are press conference, publication and news in the electronic media etc. It is published or broadcasted without charging any money from the firm. Marketers often spend a lot of time and effort in getting news items placed in the media for creation of a favourable image of the company and its products.

 

 

• Personal selling: It is a direct presentation of the product to the consumers or prospective buyers. It refers to the use of salespersons to persuade the buyers to act favourably and buy the product. It is most effective promotional tool in case of industrial goods.

 

• Sales promotion: This refers to short-term and temporary incentives to purchase or induce trials of new goods. The tool includes contests, games, gifts, trade shows, Discounts, etc. Sales promotional activities are often carried out at retail levels.

 

 

 

Concept:

 

 

Wealth maximization is the concept of increasing the value of a business in order to increase the value of the shares held by stockholders. The concept requires a company’s management team to continually search for the highest possible returns on funds invested in the business, while mitigating any associated risk of loss.

 

Wealth maximization simply means maximization of shareholder’s wealth. It is a combination of two words viz. wealth and maximization. A wealth of a shareholder maximizes when the net worth of a company maximizes.

 

Objectives:

 

 

1. Measurement of Wealth
2. Market Value of Shares
3. Common Goal
4.  D’s Of Financial Decisions
5. Shareholder’s Expectations

 

 

1. Measurement of Wealth

 

The main Principle of financial management is the Maximization of Shareholders Wealth. Shareholder’s Wealth is measured on the basis of economic value. Economic value is based on cash flows and not profit. Economic Value is defined as: “The present value of future cash flows generated by a decision, discounted at appropriate rate of discount which reflects the degree of associated risk“.

 

2. Market Value of Shares

 

The future cash flow is estimated for the present value. The present value is the Market price of share. As Shareholder’s wealth is equal to the market price of shares held by him, any increase in Market price of shares would result in an increase in Shareholder’s Wealth.

 

3. Common Goal

The Maximization of Shareholder’s Wealth is the common goal between the Shareholders and the Management. The recognition of this goal motivates the Management to allocate the available resources in an optimum way.

 

 

 

 

 

4. 3 D’s Of Financial Decisions

The Maximization of Shareholder’s wealth indicates that the Market price of share is related to three basic financial decisions:

The investment decisions,

The financing decision,

The dividend decision.

 

5. Shareholder’s Expectations

 

Shareholder’s expectations are about future cash flows based on current cash flows and projected future growth. The market price of share shows these expectations.

 

Sources of finance are the most explored area especially for the entrepreneurs about to start a new business. It is perhaps the toughest part of all the efforts. There are various sources of finance classified based on time period, ownership and control, and source of generation of finance.

 

The process of selecting right source of finance involves in-depth analysis of each and every source of finance. For analyzing and comparing the sources of finance, it is required to understand all characteristics of the financing sources. There are many characteristics on the basis of which sources of finance are classified.

On the basis of a time period, sources are classified into long term, medium term, and short term. Ownership and control classify sources of finance into owned capital and borrowed capital. Internal sources and external sources are the two sources of generation of capital. All the sources of capital have different characteristics to suit different types of requirements. Let’s understand them in a little depth.

 

ACCORDING TO TIME-PERIOD:

 

Sources of financing a business are classified based on the time period for which the money is required. Time period is commonly classified into following three:

• Long Term Sources of Finance:

 

Long-term financing means capital requirements for a period of more than 5 years to 10, 15, 20 years or maybe more depending on other factors. Capital expenditures in fixed assets like plant and machinery, land and building etc of a business are funded using long-term sources of finance. Part of working capital which permanently stays with the business is also financed with long-term sources of finance. Long term financing sources can be in form of any of them:

 

• Share Capital or Equity Shares
• Preference Capital or Preference Shares
• Retained Earnings or Internal Accruals
• Debenture / Bonds
• Term Loans from Financial Institutes, Government, and Commercial Banks
• Venture Funding
• Asset Securitization
• International Financing by way of Euro Issue, Foreign Currency Loans, ADR, GDR etc.

 

• Medium Term Sources of Finance:

 

Medium term financing means financing for a period of 3 to 5 years. Medium term financing is used generally for two reasons. One, when long-term capital is not available for the time being and second, when deferred revenue expenditures like advertisements are made which are to be written off over a period of 3 to 5 years. Medium term financing sources can in the form of one of them:

 

• Preference Capital or Preference Shares
• Debenture / Bonds
• Medium Term Loans from
  • Financial Institutes
  • Government, and
  • Commercial Banks
• Lease Finance
• Hire Purchase Finance.

 

• Short Term Sources of Finance: Short term financing means financing for a period of less than 1 year. Need for short term finance arises to finance the current assets of a business like an inventory of raw material and finished goods, debtors, minimum cash and bank balance etc. Short term financing is also named as working capital financing. Short term finances are available in the form of:

 

• Trade Credit
• Short Term Loans like Working Capital Loans from Commercial Banks
• Fixed Deposits for a period of 1 year or less
• Advances received from customers
• Creditors
• Payables
• Factoring Services
• Bill Discounting etc.

 

There are two main categories of sources from which the firm can get the required funds for their business. These are:

 

 (1) Internal sources; and

(2) External sources.

When the businessman invests his own money (called owner’s capital), and retains a part of the profits earned in the business it constitute the internal sources of finance. It is an integral part of every business organisation and it is cost effective. But, this source has its own limitations. Hence the business houses have to resort to the external sources of finance. The various external sources from where businessmen can get the finance include, friends and relatives, banks and other financial institutions, moneylenders, capital market, manufacturers and producers, customers, foreign financial institutions and agencies, etc. It is observed that the scope of raising funds also depends upon the nature and form of business organisation.

 

The following are the usual sources of finance. (a) Capital Market (b) Financial Institutions (c) Public Deposits (d) Commercial Banks (e) Leasing Companies (f) Investment Trusts (g) Retained Profits

 

The financial requirement of a firm can be met through ownership capital and/or borrowed capital. The ownership capital refers to the amount of capital contributed by the owners. In case of a company, it refers to the amount of funds raised by issuing shares. The main characteristic of the ownership capital is that its contributors are entitled to get dividend out of earnings after the payment of interest and taxes. Hence, the rate of return on such capital depends upon the level of profits earned, and, if there are no profits, no dividend may be paid.

 

Borrowed capital, on the other hand, refers to the amount of funds raised through long term loans and debentures on which its contributors are entitled to a fixed rate of interest which has to be paid at regular intervals (half-yearly or yearly) irrespective of the profits earned. There is also a commitment that the principal amount shall be repaid on maturity. However, it is still considered advantageous to finance business activities through borrowed capital because if the rate of earnings from the planned business investment is expected to be better than the rate of interest on the borrowed funds, it shall ensure higher returns on owners’ funds. Let us take an example and understand this concept more clearly.

 

“The mix of equity and debt actually used by a company for meeting its requirement of capital is known as its capital structure.”

 

Thus, the term capital structure refers to the makeup of a firm’s capital in terms of the planned mix of different kinds of long-term funds like equity shares, preference shares, debentures and long term funds. So capital structure involves two basic decisions:

 

(a) The type of securities to be issued or raised; and

(b) The relative proportion of each type of security

 

Factors Determining the Capital Structure

 

1. Expected earnings and their stability: If the expected earnings, in terms of rate of return on the amount to be invested are sufficiently large, use of debt is considered quite desirable. Not only that, the stability of earnings should also be taken into account because if the firm is engaged is business activities in which sales and profits are subject to wide fluctuations, it will be risky to use higher proportion of debt. In other words, if there is an element of uncertainty about the expected earnings it is considered better to rely more on equity share capital. However, with assured prospects of rising earnings, there should be greater reliance on debt so as to take advantage of leverage effect.

 

2. Cost of debt : If the rate of interest on borrowings is lower than the expected rate of return on capital employed, then debt may be preferred. With lower cost of debt financing, the overall cost of financing is reduced and the return on equity capital will be higher, as explained earlier.

 

3. Right to manage the business: You know that the debenture holders and preference shareholders do not have much say in management of the company. This authority lies primarily with the equity shareholders who have the voting rights. Hence, while deciding on the mix of equity and debt, the promoters/existing management of the company may also take into account the possible effect of raising funds through equity shares on the right to control the business. In order to retain their right to control the affairs of the company, they may prefer to raise additional funds mainly through debentures and preference shares.

 

4. Capital market conditions: The conditions in the capital market also influence the capital structure decision. At times capital market is so depressed that the investors are unwilling to subscribe to shares. In such a situation, it is considered better to rely on debt or defer the decision till a favourable market condition is restored.

 

5. Regulatory norms : While deciding on the capital structure, the legal constraints like the limit on debt-equity ratio should also be kept in view. At present, such limit is 2:1 in most cases. This implies that at any point of time, the debt should not be more than twice the amount of share capital. This limit keeps on changing with changing economic environment and varies from industry to industry.

 

6. Flexibility: The planned capital structure should be flexible enough to raise additional funds without much difficulty. The company should be able to raise additional capital in the form of debt or equity whenever required. But if the company’s capital structure has too much debt, then the lenders may not be able to give more loan to the company. In a such a situation it may be forced to raise the funds only through shares for which the capital market condition may not be conducive. Similarly, when on account of declining business and lack of other investment opportunities the funds need to be refunded, it may not be possible to do so if the company has heavily relied on equity shares which cannot be redeemed easily. Hence, to ensure an element of flexibility, it is better if the firm relies more on redeemable securities that can be paid off if necessary and, at the same time, have some unused debt raising capacity so that future financial needs can be fully taken care of without much difficulty.

 

7. Investors’ attitude towards investment: While planning the capital structure of a company one must bear in mind that all investors do not have the same attitude towards their investment. Some are highly conservative who prefer safety to return. For such investors, debentures are considered most suitable. As against this, there are some who are interested in high return on their investments and are ready to take the risk involved. Such investors prefer equity shares. Then, there are many who are willing to take a limited risk provided the return is better than the rate on secured debentures and bonds. Preference shares are most suitable for this category of investors. In order to attract all categories of investors, it is considered more desirable to issue different types of securities especially when the amount of capital requirement is large.

 

COST OF CAPITAL

 

The primary meaning of cost of capital is simply the cost an entity must pay to raise funds. The term can refer, for instance, to the financing cost (interest rate) a company pays when securing a loan.

 

In other words, Cost of capital refers to the opportunity cost of making a specific investment. It is the rate of return that could have been earned by putting the same money into a different investment with equal risk. Thus, the cost of capital is the rate of return required to persuade the investor to make a given investment.

 

The cost of various capital sources varies from company to company, and depends on factors such as its operating history, profitability, credit worthiness, etc. In general, newer enterprises with limited operating histories will have higher costs of capital than established companies with a solid track record, since lenders and investors will demand a higher risk premium for the former.

 

Concept and Main theories of Leadership and Motivation, Communication, Basics of recruitment, selection, induction, training & development are covered in Functions of Management

 

Performance appraisal is a vital tool to measure the frameworks set by any organization to its employees. It is utilized to track individual contribution and performance against organizational goals and to identify individual strengths and opportunities for future improvements and assessed whether organizational goals are achievedor serves as basis for the company’s future planning and development .

Performance appraisal is a formal system that evaluates the quality of an employee’s performance. An appraisal should not be viewed as an end in itself, but rather as and important process within a broader performance management system that links:

• Organizational objectives
• Day to day performance
• Professional development
• Rewards and incentives

In simple terms, appraisal may be understood as the assessment of an individual’s performance in a systematic way, the performance being measured against such factors as job knowledge, quality and quantity of output,initiative, leadership abilities, supervision, dependability, cooperation, judgment, versatility, health and the like.Assessment should not be confirmed to past performance alone. Potentials of the employee for future performance must also be assessed.

Methord for performance and appraisals involves:

•  Integrating performance appraisal into a formal goal setting system
• Basting appraisals on accurate and current job descriptions
• Offering adequate support and assistance to employees to improve their performance (e.g., professional development opportunities)
• Ensuring that appraisers have adequate knowledge and direct experience of the employee’s performance
  Conducting appraisals on a regular basis.

 

 

 

 

COORDINATION

 

“The Harmonization of activities of different work groups and departments.”

 

Coordination is the orderly arrangement of individual and group efforts to provide unity of action in the pursuit of a common goal. All these departments must function in an integrated manner so that the organisational goal can be duly achieved. Thus, coordination involves synchronisation of different activities and efforts of the various units of an organisation so that the planned objectives may be achieved with minimum conflict.

 

In other words, coordination is the orderly arrangement of individual and group efforts to provide unity of action in the pursuit of a common goal.

 

Types of Organization

 

• Internal Coordination

 

• Vertical – Between different persons & department at different level of an organization.

 

• Horizontal – Between the individual or Department at the same level in the organization.

 

• Procedural and Substantive Coordination-

It refers to the integration of follow and process of activites and behaviour and relations of the members in an organization.

Substantive Coordination is concerned with the content of the organization’s activities.

 

• External Coordination

 

Coordination with external environment as customers, investors, suppliers, employers, govt, political, public etc.

 

 

 

 

Difference between Cooperation and coordination:-

 

Cooperation is the collective will of the people in an organization to contribute the achievement of the organizational goals and cooperation is informal, voluntary & emotional.

Coordination without cooperation cant be achieved ie can be achieved through cooperation, on the other side, Cooperation without coordination is worthless.

 

Significance of Coordination:

 

• The significance of co-ordination as a function of management mainly arises from the fact that work performed by different groups, units or departments form integral part of the total work for which an organisation is established

 

• When there is growth in size and the volume of work, there will be more people and work groups. So there is greater possibility of people working at cross purposes as the unit and sub-unit goals may be considered more important by them than the organisational goals.

 

 

• Large organisations generally tend to have activities located at different places, which may not permit frequent and close interaction among people. Hence, the need for co-ordination becomes greater and it becomes a major responsibility for the managers.

 

• Growth in size of an organisation is often combined with diversification of business activities. This may be due to new unrelated products being added to the existing products. As a result, there may be more division and sub-division of activities. At the same time, there is an increase in the number of managerial levels and vertical division of responsibilities. All these make coordination more difficult as well as important

 

 

 

CONTROL

 

Control is the process by which Managers ensure that performance is an conformity with the plans and goals.

 

Controlling as a function of management refers to the evaluation of actual performance of work against planned or standard performance and taking the corrective action.

 

Planning and controlling are closely related and depend upon each other. Controlling depends upon planning because planning provides the targets or standards against which actual performance can be compared. Controlling, on the other hand, appraises planning. It brings out the shortcomings of planning and helps to improve upon the plans.

 

Process of Controlling

 

The process of control consists of various steps

 

1. Establishment of Standards: Setting standard is the first requirement of control. Standards arise out of plans and provide the basis of comparison. There can be different types of standards, e.g., number of units to be produced per hour, cost of production per unit, permissible quantity of scrap and wastage per day, quality of the products and so on. As far as possible, the standards should be laid down in quantitative terms. A quantitative standard provides a concrete measure and helps in comparison. It is equally important that the standards fixed are realistic and attainable, neither too high nor very low. If these are too high, employees will be discouraged. On the other hand, if these are too low, the organisation will operate at a lower efficiency level leading to higher cost. When standards may not be achieved fully, a range of tolerable deviations should also be fixed. This can be expressed in terms of minimum and maximum limits. Performance within the permissible range may not require any corrective action.

 

2. Measurement of Performance: When standards are established, the next step to measure the performance at regular intervals. Measurement is not difficult in case of physical operations, e.g., units produced, cost incurred, time spent, etc., as these can be easily measured. Performance can be measured by observations, inspection and reporting. Generally, at lower levels, a detailed control is exercised at frequent intervals on the basis of observation and inspection. For higher levels of management, reports are prepared at regular intervals. Performance should be measured as early as possible so that if a corrective action is called for it may be taken in time.

 

3. Comparison of Performance with Standards: The next step in the control process is comparison of actual performance against the standards. In case the standards set are well defined and can be measured objectively, comparison becomes very simple. But, in case of activities where, it is difficult to develop measurable quantitative standards, the measurement and appraisal of performance becomes difficult. Comparison of actual and standard performance may lead to three possible outcomes: actual performance may be (a) equal to, (b) more than, or (c) less than the standard. If actual performance is equal to the standard, managers need not take any action but where deviations are noticed, corrective action becomes necessary. The managers should ascertain whether these deviations are within the permissible range or outside it. Corrective action becomes necessary only for deviations which fall outside the permissible range.

 

4. Detecting the Reasons for Deviations: Before taking any corrective action, managers should try to ascertain the reasons for the occurrence of deviations. The fault may be that standards fixed were unattainable rather than the subordinate ‘inefficiency. Again, the deviations might have been caused by the nature of instructions issued by the manager rather than due to the subordinate’s mistake. Hence, it is essential that the reasons, which caused the deviation, be ascertained to determine the appropriate corrective action.

 

5. Taking Corrective Action: Once the causes for deviations become known, the next step is to go in for a corrective action which may involve revision of standards, changing the methods of selection and training of workers or providing better motivation. As stated earlier, managers should concentrate only on major deviations. The minor deviations, i.e., deviations within permissible range, should not be cause of anxiety. The rectification of deviations from the standards should be undertaken promptly so that further losses are avoided.

 

 

Techniques of Control :

 

• Traditional Techniques : Personal observation, Setting examples, plans & policies, Charts and Manuals, Disciplinary Systems, Written instruction, Statistical Data, Special Reports and Records, Financial Statements, Operational audit, Break-even analysis, Standard Costing, Budget/Budgetary Control.

 

• Modern Techniques: Return on investment, Management Audit, MIS, Zero based budgeting, PERT/CPM.

 

 

 

 

 

 

 

 

 

 

Decision-Making: concept, process and techniques

Decision making is an essential part of planning. Decision making and problem solving are used in all management functions, although usually they are considered a part of the planning phase. A discussion of the origins of management science leads into one on modeling, the five-step process of management science, and the process of engineering problem solving.

Decision-making is an integral part of modern management. Essentially, Rational or sound decision making is taken as primary function of management. Every manager takes hundreds and hundreds of decisions subconsciously or consciously making it as the key component in the role of a manager. Decisions play important roles as they determine both organizational and managerial activities. A decision can be defined as a course of action purposely chosen from a set of alternatives to achieve organizational or managerial objectives or goals. Decision making process is continuous and indispensable component of managing any organization or business activities. Decisions are made to sustain the activities of all business activities and organizational functioning.

Relation to Planning

 

Managerial decision making is the process of making a conscious choice between two or more rational alternatives in order to select the one that will produce the most desirable consequences (benefits) relative to unwanted consequences (costs). If there is only one alternative, there is nothing to decide.

If planning is truly “deciding in advance what to do, how to do it, when to do it, and who is to do it” , then decision making is an essential part of planning. Decision making is also required in designing and staffing an organization, developing methods of motivating subordinates, and identifying corrective actions in the control process. However, it is conventionally studied as part of the planning function, and it is discussed here.

Occasions for Decision

 

the occasions for decision originate in three distinct fields:

(a) from authoritative communications from superiors;

(b) from cases referred for decision by subordinates; and

(c) from cases originating in the initiative of the executive concerned.

Types of Decisions

 

TYPES OF DECISIONS:

 

PROGRAMMED DECISIONS:

 

Programmed decisions are routine and repetitive, and the organization typically develops specific ways to handle them. A programmed decision might involve determining how products will be arranged on the shelves of a supermarket. For this kind of routine, repetitive problem, standard arrangement decisions are typically made according to established management guidelines.

 

NON PROGRAMMED DECISIONS:

 

Non programmed decisions are typically one shot decisions that are usually less structured than programmed decision.

 

Decision Making under Certainty

Decision making under certainty implies that we are certain of the future state of nature (or we assume that we are). (In our model, this means that the probability p of future N is 1.0, and all other futures have zero probability.) The solution, naturally, is to choose the alternative A that gives us the most favorable outcome O . Although this may seem like a trivial exercise, there are many problems that are so complex that sophisticated mathematical techniques are needed to find the best solution.

 

 

 

 

 

 

 

 

 

 

 

Directing is concerned with instructing, guiding, supervising and inspiring people in the organisation to achieve its objectives. It is the process of telling people what to do and seeing that they do it in the best possiblemanner.

 

Elements in Directing: The four essential elements in Directing are :

 

1. Communication
2. Supervision
3. Motivation
4. Leadership

 

 

1. COMMUNICATION

 

Communication is a basic organisational function, which refers to the process by which a person (known as sender) transmits information or messages to another person (known as receiver). The purpose of communication in organisations is to convey orders, instructions, or information so as to bring desired changes in the performance and other attitude of employees. In an organisation, supervisors transmit information to subordinates. Proper communication results in clarity and securing the cooperation of subordinates. Faulty communication may create problems due to misunderstanding between the superior and subordinates. The subordinates must correctly understand the message conveyed to them.

 

Communication Cycle :-

 

Sender—> Message—>Encoding—>Channel/Medium—>Transmission of message—> Receiving & Decoding—>Response & feedback—> Receiver.

 

Classification of Communication :-

 

• On the basis of Organizational Structure:

 

• Formal and Informal Communication

The path through which information flows is called channel of communication. In every organisation we have both formal and informal channels. The paths of communication which are based on relationship established formally by management are the formal channels.

For example, The Collector of the district communicates a decision to the SDM who may then issue orders or instructions to the Tahsildaar.

 

Communication, which takes place on the basis of informal or social relations among staff, is   called informal communication.

For example, any sharing of information between a police inspector and an accountant, as they happen to be friends or so. Mostly informal channels are used due to friendly interaction of members of an organisation. In fact, it may be purely personal or related to organisational matters.

 

 

 

• On the basis of Direction

 

• Upward: When employees make any request, appeal, report, suggest or communicate ideas to the superior, the flow of communication is upward i.e., from bottom to top. For instance, when a typist drops a suggestion in the suggestion box, or a foreman reports breakdown of machinery to the factory manager, the flow of communication is upward. Upward communication encourages employees to participate actively in the operations of their department. They get encouraged and their sense of responsibility increases when they are heard by their supervisors about problems affecting the jobs.

 

• Downward: When communication is made from superiors down the hierarchy it is called a downward communication. For instance, when superiors issue orders and instructions to subordinates, it is known as downward communication. When the General Manager orders supervisors to work overtime, the flow of communication is downward i.e., from top to bottom. Similarly, communication of work assignments, notices, requests for performance, etc. through bulletin boards, memos, reports, speeches, meetings, etc, are all forms of downward communication.

 

 

• Horizontal: Communication can also be amongst members at the same level in the organisation. For instance, production manager may communicate the production plan to the sales manager. This is known as horizontal flow of communication. Here, the communications among people of the same rank and status. Such communication facilitates coordination of activities that are interdependent.

 

• Diagonal: when communication is not made between people who are in the same department nor at the same level of organisational hierarchy, it is called diagonal communication. For example, cost accountant may request for reports from sales representatives not the sales manager for the purpose of distribution cost analysis. This type of communication does take place under special circumstances.

 

• On the basis of Mode of Expression

 

• Verbal and Non verbalCommunication : On the basis of the mode used, communication may be verbal or non-verbal. While communicating, managers may talk to their subordinates either face to face or on telephone or they may send letters, issue notices, or memos. These are all verbal communication. Thus, the verbal modes of communication may be oral and written. Face to face communication, as in interviews, meetings and seminars, are examples of oral communication. Issuing orders and instructions on telephone or through an inter-communication system is also oral communication. The written modes of communication include letters, circulars, notices and memos. Sometimes verbal communication is supported by non-verbal communication such as facial expressions and body gestures. For example – wave of hand, a smile or a frown etc. This is also termed as the gestural communication

 

 

 

 

 

 

 

 

 

 

2. SUPERVISION

 

It is the duty of the manager to see that they perform the work as per instructions. Managers play the role of supervisors and ensure that the work is done as per the instructions and the plans. Supervisors clarify all instructions and guide employees to work as a team in co-operation with others.

Though supervision is required at all levels of management, it is of great importance at the operational level i.e., at the level of first line supervisor. Managers at this level devote maximum time in supervising the work of subordinates. Though the top or middle level managers also supervise the work of their subordinate managers, but it is the first line supervisors who are in direct and constant touch with operatives i.e., workers in the factory and clerical staff in the office. Thus, they are directly responsible for getting the work done through most of the employees in an organisation.

 

Functions of a Supervisor

 

A supervisor works at the lowest level of management like all other managers he performs the functions of planning, organising, directing and controlling with respect to his own subordinates and department. A major part of his time is devoted in directing and controlling the activities of his subordinates. He also coordinates the activities of his subordinates by integrating the same with the activities of other departments of the enterprise. Besides he performs certain special functions which have been described below:

 

1. Link between Top Management and Workers: A supervisor works as a link between managers working at higher levels and workers. He conveys the decision of the higher level managers to the workers and also communicates the performance of the workers to the higher level management through different performance reports. He also communicates the grievances, feelings of demands etc. of the workers to the higher level management.

 

2. Creating Ideal Atmosphere: Being an important link between the operatives and the management a supervisor is expected to create an ideal atmosphere for work in the organisation by correctly communicating the ideas, wishes and decisions of the higher level management to the workers.

 

3. Guiding the Workers: For obtaining best results the supervisor assigns jobs to the workers keeping in mind their ability and aptitude for work. He makes them available the necessary tools and equipments, raw materials etc. for proper execution of the jobs. He also guides the worker properly to ensure that the job is done with perfection and accuracy.

 

4. Quality Output : A supervisor has to ensure quality output through constant watch on the performance of workers. He ensures that the performance of the worker takes place as per the plans. This results into study flow of output.

 

5. Feedback: A supervisor keeps on watching the performance of his subordinates and identifies their strengths and weaknesses. He gives the feedback about this to the workers with the object to further improve the performance of the workers in future.

 

6. Suggest Training Programmes: A supervisor identifies the areas in which the workers require training and accordingly suggests training programmes that should be organised for them.

 

 

 

3. MOTIVATION

 

Motivation is one of the important elements of directing.

It is a force that inspires a person at work to intensify his willingness to use the best of his capability for achievement of specified objectives. It may be in the form of incentives like financial (such as bonus, commission etc.) or, non-financial (such as appreciation, growth etc.), or it could be positive or negative. Basically, motivations directed towards goals and prompt people to act.

 

The importance of motivation lies in converting this ability to work into willingness to work. Performance depends on ability as well as willingness; and willingness depends on motivation. Thus, motivation is a key element in directing people to do the job.

 

Each employee has some needs of his own that he wants to fulfil. While directing, it is essential to ensure that any of the unfulfilled need of the individual is being taken care of.

Maslow’s Hierarchy of Needs:-

 

According to Maslow, an individual has many needs and their order can be determined. If a person satisfies his first need, then he thinks about his next need. After satisfying the second need, he tries to satisfy third need and so on. So needs are the motivators. Maslow has given hierarchy of needs in the following ways :

 

1. Physiological Needs: These needs include need for food, shelter and clothing.

 

2. 2. Safety and Security Needs: Once physiological needs are fulfilled then the people start thinking about their safety. Safety needs include need for physical safety and economic safety. Physical safety means safety from accidents, disease etc. Economic safety refers to safety of livelihood.

 

3. Social Needs: Man is a social animal. He wants to live in the society honourably. Therefore, he wants friends and relatives with whom he can share his joys and sorrows. Social needs include need for love, affection, friendship etc.
4. 4. Esteem Needs: These are the need for respect and recognition. Esteem needs are also known as Ego needs.

 

5. Self ActualisationNeeds : Self actualisation needs are concerned with becoming what a person is capable of becoming. These needs include need for growth, self-fulfilment etc.

 

 

Financial and Non-financial Hierarchy Theory

 

Monetary / Financial incentives are directly related with money. Non-financial incentives are not directly related with money. Following are the financial incentives:

 

1. Pay and Allowances: Salary is the basic monetary incentive of every employee. Salary includes basic pay, dearness allowance etc.

 

2. Bonus: Bonus means the payment to employees in addition to their regular remuneration. Bonus is provided in the form of cash, free trips to resorts or foreign countries etc.

 

3. Commission: In sales department, sales persons get commission on the basis of their sales.

 

4. Retirement Benefit: Every employee is concerned about his future after retirement. Some retirement benefits are Provident fund, Pension, Gratuity etc.

 

5. Perquisites: Rent free accommodation, car allowance, facility of a servant etc.are called as perquisites.

 

Non-financial Incentives: Besides the financial incentives there is certain non financial incentive that motivates the employees. The important non-financial incentive is given below:

 

1. Career Advancement Opportunity : Appropriate skill development programmes will encourage employees to show improved performance.

 

2. Status: Status means the rank of a person in a organisation. The rank is linked with authority, responsibility and other extra benefits. Everybody has a wish to be in high rank. Therefore an employee can be motivated by placing him in higher rank.

 

3. Employee Recognition Programmes: Every employee wants to be considered as an important part of the organisation. Work of an organisation should be distributed in such a way that every employee feels that his work is yield and he is capable to do that work. This motivates the worker and he works hard and in a responsible manner.

 

4. Employee Participation: It means involving employee in decision making especially when decisions are related to workers.

 

5. Organisation Climate: It means the relationship between superior and subordinates. Employees can put their best if healthy climate exist in an organisation. It is important to remember that the needs and desires of people change. Once their basic needs are satisfied, other needs arise. Managers have thus, to understand the needs and desires of subordinates and decide how to motivate them. The knowledge of the different types of need enables a manager to adopt different ways to motivate individuals depending upon which need is unsatisfied for the individual. For example, a person whose physiological needs are not fulfilled may be motivated to work with a promise of increase in pay, whereas another person may be motivated if he is given a very challenging job to perform regardless of the pay.

 

 

 

4. LEADERSHIP

 

Leadership is the process, which influences the people and inspires them to willingly accomplish the organisational objectives. The main purpose of managerial leadership isto gets willing cooperation of the workgroup to achieve the goals.

Leadership is the ability to persuade and motivate others to work in desired way for achieving the goals. Thus, a person who is able to influence others and make them follow his instructions is called a leader.

Leadership and Management are two separate concepts.

Leadership exists in both formal and informal organization but Management operates in formal organization.

 

Leadership Styles :

 

• Autocratic or Authoritarian Style : 2 types

Pure autocrative or negative Leader : Dictator & makes all decisions by himself.

Benevolent autocrat or Positive Leader : Reward power to influence subordinate and welfare of subordinates.

 

• Participative Leaders : Decentralise authority, Such leaders involve subordinates in decision-making process.

 

• Free-rein or Laissez – faire Style : Leaders uses his power very little, gives high degree of freedom to his subordinates in their operation. Aids subordinates in performing their job.

 

 

• Paternalistic Leadership : It is authoritarian by Nature. Heavily work-centred but has consideration for subordinates.

 

Leadership Qualities: – In order to be successful, a leader must possess certain qualities. A good leader should be professionally competent, intelligent, analytical and he/she should have a sense of fair play, including honesty, sincerity, integrity, and sense of responsibility. He must possess initiative, perseverance, be diligent and realistic in his outlook. He must also be able to communicate his subordinates effectively. Human relation skills are must for any leader. Earlier, it was believed that the success or effectiveness of a leader depends upon his personal traits or characteristics, like physical appearance, intelligence, self-confidence, alertness, and initiative.

 

 

Organizing is the process of identification and grouping of activities, assigning duties and delegating authority to the managers, allocating necessary resources and establishing coordination among individuals and department of an organization with a view to attain its objectives.

 

PROCESS OF ORGANIZING :

 

The process of organising consists of the following steps –

 

1. Identification of activities: Every enterprise is created with a specific purpose. Based on this, the activities involved can be identified. For example, in a manufacturing firm, producing goods and selling them are the major activities in addition to routine activities like, paying salary to employees; raising loans from outside, paying taxes to the government etc. and these activities vary when the organisation is a service concern or a trading firm.

 

2. Grouping of activities: Once activities are identified, then they need to be grouped. They are grouped in different ways. The activities which are similar in nature can be grouped as one and a separate department can be created. For example – activities undertaken before sale of a product, during the sale of the product and after the sale of the product can be grouped under the functions of a marketing department. Normally, all activities of a manufacturing unit can be grouped into major functions like purchasing, production, marketing, accounting and finance, etc. and each function can be subdivided into various specific jobs.

 

 

3. Assignment of Responsibilities: Having completed the exercise of identifying, grouping and classifying all activities into specific jobs, they can be assigned to individuals to take care of.

 

4. Granting authority: On the basis of responsibilities given to specific individuals, they are also to be given the necessary authority to ensure effective performance.

 

5. Establishing relationship: This is a very important job of management as everybody in the organisation should know as to who he/she is to report, thereby establishing a structure of relationships. By doing so, relationships become clear and delegation is facilitated.

 

ORGANIZATION STRUCTURE

 

Organization structure is a network of formal authority relationships among people within which behaviour and activities of people are regulated for the accomplishment of organizational objectives.

 

Forms of Organizational Structure

 

• Line Organization

 

• Pure Line: – Activities at a particular level are same, every employee performs by & large the same type of work.

 

• Departmental Line: – Whole work divided into functional Departments. Each Department works as a self-sufficient unit under the supervision & direction of a department manager who himself work under the immediate boss.

 

• Line and Staff Organization

 

It is one that has line managers with direct vertical relationships between different levels in the organization in addition to the specialist responsible for advising and assisting the line managers.

 

• Functional Organization

 

According to this, Line authority is channelized through the staff specialists. In such an organizational structure, Line authority runs through many functional experts who have authority to issue orders in their respective areas of specialisation.

 

• Project Organization

 

It is a temporary structure designed to accomplish a specific task or project with the help of specialists drawn from different functional departments within the organization.

 

 

• Matrix OR Grid Organization

 

It is permanent Organizational Structure designed to accomplish specific project or result by using using teams of specialists drawn from different functional departments within the organization.It is a combination of project organization and functional organization.

 

• Committee Organization

 

It is a group of 2 or more appointed, nominated or elected persons to consider, discuss decide, recommend or report on some issue or matter assigned to it.

 

 

Informal & Formal Organization

 

Formal organisation refers to the officially established pattern of relationships among departments, divisions and individuals to achieve well-defined goals and is a consciously designed structure of roles.

 

Informal organisations on the other hand, refers to relationship between individuals in the organisation based on personal attitudes, likes and dislikes and originates to meet their social and emotional needs and develops spontaneously.

 

Delegation

 

The active process of entrustment of a part of work or responsibility and authority to another and the creation of accountability for performance is known as delegation. Thus, there are three elements of delegation as follows-

 

• Assignment of Responsibility: This is also known as entrustment of duties. Duties can be divided into two parts: one part, that the individual can perform himself and the other part, that he can assign to his subordinates to perform.

 

• Granting Authority: Authority refers to the official powers and position required to carry on any task. When duties are assigned to subordinates then the required authority must also be conferred to him

 

• Creating Accountability: The delegatee is fully answerable to his superior for performance of the task assigned to him. Thus, the superior ensures performance through accountability by his subordinate.

 

 

Decentralization

 

Decentralisation refers to a systematic effort to delegate authority at all levels of management and in all departments. This shifts the power of decision making to lower level under a well considered plan.

Decentralisation has number of benefits. Firstly, it reduces the workload of the top level management. Secondly, it motivates the employees and gives them more autonomy. It promotes initiative and creativity. It also helps employees to take quick and appropriate decisions. In this process, the top management is freed from the routine jobs and it enables them to concentrate on crucial areas and plan for growth.

 

Distinction between Delegations and Decentralisation

 

Decentralisation is not same as delegation. The points of differences are –

• While delegation is the process of assigning responsibility and authority and thereby creating accountability; decentralisation is the ultimate outcome of planned delegation.
• Delegation of authority takes place between the manager and his subordinates while decentralisation involves the entire organisation, and is between top management and divisions/departments.
• Delegation is done to speed up the work and is essential in trace; while decentralisation is optional and is usually done in large scale organisations.
• In case of delegation the responsibility and authority delegated may be withdrawn by the delegator; which is not so easy in case of decentralisation.