DEFINITION
According to Harold Koontz, “Management is an
art of getting things done through and with the people in formally organized
groups. It is an art of creating an environment in which people can perform and
individuals and can co-operate towards attainment of group goals”.
LEVELS OF MANAGEMENT
The three
levels of management are as follows
1.
The Top Management
It consists of board of directors, chief
executive or managing director. The top management is the ultimate source of
authority and it manages goals and policies for an enterprise. It devotes more
time on planning and coordinating functions.
The role of the top management can be summarized
as follows –
b. It issues necessary instructions for preparation
of department budgets, procedures, schedules etc.
c.
It prepares strategic plans & policies for
the enterprise.
d.
It appoints the executive for middle level i.e.
departmental managers.
e.
It controls & coordinates the activities of
all the departments.
f.
It is also responsible for maintaining a contact
with the outside world.
g.
It provides guidance and direction.
h. The top management is also responsible towards
the shareholders for the performance of the enterprise.
2.
Middle Level Management
The branch managers and departmental managers
constitute middle level. They are responsible to the top management for the
functioning of their department. They devote more time to organizational and
directional functions. In small organization, there is only one layer of middle
level of management but in big enterprises, there may be senior and junior
middle level management. Their role can be emphasized as –
a. They execute the plans of the organization in
accordance with the policies and directives of the top management.
b.
They make plans for the sub-units of the
organization.
c.
They participate in employment & training of
lower level management.
d.
They interpret and explain policies from top
level management to lower level.
e. They are responsible for coordinating the
activities within the division or department.
f. It also sends important reports and other
important data to top level management.
g.
They evaluate performance of junior managers.
h. They are also responsible for inspiring lower
level managers towards better performance.
3.
Lower Level Management
Lower level is also known as supervisory /
operative level of management. It consists of supervisors, foreman, section
officers, superintendent etc. According to R.C. Davis, “Supervisory management
refers to those executives whose work has to be largely with
personal oversight and direction of operative
employees”. In other words, they are concerned with direction and controlling
function of management. Their activities include
a.
Assigning of jobs and tasks to various workers.
b.
They guide and instruct workers for day to day
activities.
c.
They are responsible for the quality as well as
quantity of production.
d. They are also entrusted with the responsibility
of maintaining good relation in the organization.
e. They communicate workers problems, suggestions,
and recommendatory appeals etc to the higher level and higher level goals and
objectives to the workers.
f.
They help to solve the grievances of the
workers.
g.
They supervise & guide the sub-ordinates.
h.
They are responsible for providing training to
the workers.
i. They arrange necessary materials, machines,
tools etc for getting the things done.
j.
They prepare periodical reports about the
performance of the workers.
k.
They ensure discipline in the enterprise.
l.
They motivate workers.
m. They are the image builders of the enterprise
because they are in direct contact with the workers.
FUNCTIONS OF MANAGEMENT
Management has been described as a social
process involving responsibility for economical and effective planning &
regulation of operation of an enterprise in the fulfillment of given purposes.
It is a dynamic process consisting of various elements and activities. These
activities are different from operative functions like marketing, finance,
purchase etc. Rather these activities are common to each and every manger
irrespective of his level or status.
Different experts have classified functions of
management. According to George & Jerry, “There are four fundamental
functions of management i.e. planning, organizing, actuating and controlling”.
According to Henry Fayol, “To manage is to forecast and plan, to organize, to
command, & to control”. Whereas Luther Gullick has given a keyword ‘POSDCORB’ where P
stands for Planning, O for Organizing, S for
Staffing, D for Directing, Co for Co-ordination, R for reporting & B for
Budgeting. But the most widely accepted are functions of management given by
KOONTZ and O’DONNEL i.e. Planning, Organizing, Staffing, Directing and Controlling.
For theoretical purposes, it may be convenient
to separate the function of management but practically these functions are
overlapping in nature i.e. they are highly inseparable. Each function blends
into the other & each affects the performance of others.
It is the basic function of management. It deals
with chalking out a future course of action & deciding in advance the most
appropriate course of actions for achievement of pre-determined goals.
According to KOONTZ, “Planning is deciding in advance – what to do, when to do
& how to do. It bridges the gap from where we are & where we want to
be”. A
plan is a future course of actions. It is an exercise in problem solving &
decision making. Planning is determination of courses of action to achieve
desired goals. Thus, planning is a systematic thinking about ways & means
for accomplishment of pre-determined goals. Planning is necessary to ensure
proper utilization of human & non-human resources. It is all pervasive, it
is an intellectual activity and it also helps in avoiding confusion,
uncertainties, risks, wastages etc.
2.
Organizing
It is the process of bringing together physical,
financial and human resources and developing productive relationship amongst
them for achievement of organizational goals. According to Henry Fayol, “To
organize a business is to provide it with everything useful or its functioning
i.e. raw material, tools, capital and personnel’s”. To organize a business
involves determining & providing human and non-human resources to the
organizational structure. Organizing as a process involves:
•
Identification of activities.
•
Classification of grouping of activities.
•
Assignment of duties.
•
Delegation of authority and creation of
responsibility.
•
Coordinating authority and responsibility
relationships.
3.
Staffing
It is the function of manning the organization
structure and keeping it manned. Staffing has assumed greater importance in the
recent years due to advancement of technology, increase in size of business,
complexity of human behavior etc. The main purpose o staffing is to put right
man on right job i.e. square pegs in square holes and round pegs in round
holes. According to Kootz & O’Donell, “Managerial function of staffing
involves manning the organization structure through proper and effective
selection, appraisal & development of personnel to fill the roles designed
un the structure”. Staffing involves:
•
Manpower
Planning (estimating man power in terms of searching, choose the person and
giving the right place).
•
Recruitment, selection & placement.
•
Training & development.
•
Remuneration.
•
Performance appraisal.
4.
Directing
It is that part of managerial function which
actuates the organizational methods to work efficiently for achievement of
organizational purposes. It is considered life-spark of the enterprise which
sets it in motion the action of people because planning, organizing and
staffing are the mere preparations for doing the work. Direction is that
inert-personnel aspect of management which deals directly with influencing,
guiding, supervising, motivating sub-ordinate for the achievement of
organizational goals. Direction has following elements:
•
Supervision
•
Motivation
•
Leadership
•
Communication
(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.
5.
Controlling
It implies measurement of accomplishment against
the standards and correction of deviation if any to ensure achievement of
organizational goals. The purpose of controlling is to ensure that everything
occurs in conformities with the standards. An efficient system of control helps
to predict deviations before they actually occur. According to Theo Haimann,
“Controlling is the process of checking whether or not proper progress is being
made towards the objectives and goals and acting if necessary, to correct any
deviation”. According to Koontz & O’Donell “Controlling is the measurement
& correction of performance activities of subordinates in order to make
accomplished”. Therefore controlling has following steps:
(i)
Establishment of standard performance.
(ii)
Measurement of actual performance.
(iii) Comparison of actual performance with the
standards and finding out deviation if any.
(iv)Corrective action.
ROLES OF MANAGER
Henry
Mintzberg identified ten different roles, separated into three categories. The
categories he
defined
are as follows
a) Interpersonal Roles
The ones
that, like the name suggests, involve people and other ceremonial duties. It
can be
further
classified as follows
•
Leader – Responsible for staffing, training, and
associated duties.
•
Figurehead – The symbolic head of the
organization.
•
Liaison –
Maintains the communication between all contacts and informers that compose the
organizational network.
Related to
collecting, receiving, and disseminating information.
•
Monitor –
Personally seek and receive information, to be able to understand the
organization.
•
Disseminator
– Transmits all import information received from outsiders to the members of
the organization.
•
Spokesperson
– On the contrary to the above role, here the manager transmits the
organization’s plans, policies and actions to outsiders.
c) Decisional Roles
Roles that
revolve around making choices.
•
Entrepreneur
– Seeks opportunities. Basically they search for change, respond to it, and
exploit it.
•
Negotiator – Represents the organization at
major negotiations.
•
Resource
Allocator – Makes or approves all significant decisions related to the
allocation of resources.
•
Disturbance
Handler – Responsible for corrective action when the organization faces
disturbances.
EVOLUTION OF MANAGEMENT THOUGHT
The practice of management is as old as human
civilization. The ancient civilizations of Egypt (the great pyramids), Greece
(leadership and war tactics of Alexander the great) and Rome displayed the
marvelous results of good management practices.
The origin of management as a discipline was
developed in the late 19th century. Over time, management thinkers
have sought ways to organize and classify the voluminous information about
management that has been collected and disseminated. These attempts at
classification have resulted in the identification of management approaches.
The approaches of management are theoretical frameworks for the study of
management. Each of the approaches of management are based on somewhat
different assumptions about human beings and the organizations for which they
work.
The different approaches of management are a)
Classical approach,
c)
Quantitative approach,
d)
Systems approach,
e)
Contingency approach.
The formal study of management is largely a
twentieth-century phenomenon, and to some degree the relatively large number of
management approaches reflects a lack of consensus among management scholars
about basic questions of theory and practice.
a) THE CLASSICAL APPROACH:
The classical approach is the oldest formal approach
of management thought. Its roots pre-date the twentieth century. The classical
approach of thought generally concerns ways to manage work and organizations
more efficiently. Three areas of study that can be grouped under the classical
approach are scientific management, administrative management, and bureaucratic
management.
(i) Scientific Management.
Frederick Winslow Taylor is known as the father
of scientific management. Scientific management (also called Taylorism or the
Taylor system) is a theory of management that analyzes and synthesizes workflows, with the objective of improving labor
productivity. In other
words, Traditional rules of thumb are replaced by precise procedures developed
after careful study of an individual at work.
(ii)
Administrative Management.
Administrative management focuses on the
management process and principles of management. In contrast to scientific
management, which deals largely with jobs and work at the individual level of
analysis, administrative management provides a more general theory of
management. Henri Fayol is the major contributor to this approach of management
thought.
(iii)
Bureaucratic Management.
Bureaucratic management focuses on the ideal
form of organization. Max Weber was the major contributor to bureaucratic
management. Based on observation, Weber concluded that many early organizations
were inefficiently managed, with decisions based on personal relationships and
loyalty. He proposed that a form of organization, called a bureaucracy,
characterized by division of labor, hierarchy, formalized rules, impersonality,
and the selection and promotion of employees based on ability, would lead to
more efficient management. Weber also contended that managers' authority in an
organization should be based not on tradition or charisma but on the position
held by managers in the organizational hierarchy.
b) THE BEHAVIORAL APPROACH:
The behavioral approach of management thought
developed, in part, because of perceived weaknesses in the assumptions of the
classical approach. The classical approach emphasized efficiency, process, and
principles. Some felt that this emphasis disregarded important aspects of
organizational life, particularly as it related to human behavior. Thus, the
behavioral approach focused on trying to understand the factors that affect
human behavior at work.
(i) Human
Relations.
The Hawthorne Experiments began in 1924 and
continued through the early 1930s. A variety of researchers participated in the
studies, including Elton Mayo. One of the major conclusions of the Hawthorne
studies was that workers' attitudes are associated with productivity. Another
was that the workplace is a social system and informal group influence could
exert a powerful effect on individual behavior. A third was that the style of
supervision is an important factor in increasing workers' job satisfaction.
(ii)
Behavioral Science.
Behavioral science and the study of
organizational behavior emerged in the 1950s and 1960s. The behavioral science
approach was a natural progression of the human relations movement. It focused
on applying conceptual and analytical tools to the problem of understanding and
predicting behavior in the workplace.
The behavioral science approach has contributed
to the study of management through its focus on personality, attitudes, values,
motivation, group behavior, leadership, communication, and conflict, among
other issues.
c) THE QUANTITATIVE APPROACH:
The quantitative approach focuses on improving
decision making via the application of quantitative techniques. Its roots can
be traced back to scientific management.
(i)
Management Science (Operations Research)
Management science (also called operations
research) uses mathematical and statistical approaches to solve management
problems. It developed during World War II as strategists tried to apply
scientific knowledge and methods to the complex problems of war. Industry began
to apply management science after the war. The advent of the computer made many
management science tools and concepts more practical for industry
This approach focuses on the operation and
control of the production process that transforms resources into finished goods
and services. It has its roots in scientific management but became an
identifiable area of management study after World War II. It uses many of the
tools of management science.
Operations management emphasizes productivity
and quality of both manufacturing and service organizations. W. Edwards Deming
exerted a tremendous influence in shaping modern ideas about improving
productivity and quality. Major areas of study within operations management
include capacity planning, facilities location, facilities layout, materials
requirement planning, scheduling, purchasing and inventory control, quality
control, computer integrated manufacturing, just-in-time inventory systems, and
flexible manufacturing systems.
d) SYSTEMS APPROACH:
The simplified block diagram of the systems approach is given below.
The systems approach focuses on understanding
the organization as an open system that transforms inputs into outputs. The
systems approach began to have a strong impact on management thought in the
1960s as a way of thinking about managing techniques that would allow managers
to relate different specialties and parts of the company to one another, as
well as to external environmental factors. The systems approach focuses on the
organization as a whole, its interaction with the environment, and its need to
achieve equilibrium
The contingency
approach focuses on applying management principles and processes as dictated by
the unique characteristics of each situation. It emphasizes that there is no
one best way to manage and that it depends on various situational factors, such
as the external environment, technology, organizational characteristics,
characteristics of the manager, and characteristics of the subordinates.
Contingency theorists often implicitly or explicitly criticize the classical
approach for its emphasis on the universality of management principles;
however, most classical writers recognized the need to consider aspects of the
situation when applying management principles.
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MANAGEMENT
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CLASSICAL APPROACH
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Scientific
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QUANTITATIVE APPROACH
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CONTRIBUTION
OF FAYOL AND TAYLOR
F.W. Taylor and Henry
Fayol are generally regarded as the founders of scientific management and
administrative management and both provided the bases for science and art of
management.
Taylor's Scientific
Management
Frederick Winslow Taylor well-known as the
founder of scientific management was the first to recognize and emphasis the
need for adopting a scientific approach to the task of managing an enterprise.
He tried to diagnose the causes of low efficiency in industry and came to the
conclusion that much of waste and inefficiency is due to the lack of order and
system in the methods of management. He found that the management was usually
ignorant of the amount of work that could be done by a worker in a day as also
the best method of doing the job. As a result, it remained largely at the mercy
of the workers who deliberately shirked work. He
therefore, suggested that those responsible for
management should adopt a scientific approach in their work, and make use of
"scientific method" for achieving higher efficiency. The scientific
method consists essentially of
(a)
Observation
(b)
Measurement
(c)
Experimentation and
(d)
Inference.
He advocated a thorough planning of the job by
the management and emphasized the necessity of perfect understanding and
co-operation between the management and the workers both for the enlargement of
profits and the use of scientific investigation and knowledge in industrial
work. He summed up his approach in these words:
•
Science, not rule of thumb
•
Harmony, not discord
•
Co-operation, not individualism
•
Maximum output, in place of restricted output
•
The development of each man to his greatest
efficiency and prosperity.
Elements of Scientific Management: The techniques which Taylor regarded as its
essential elements or features may
be classified as under:
1.
Scientific Task and Rate-setting, work
improvement, etc.
2.
Planning the Task.
3.
Vocational Selection and Training
4.
Standardization (of working conditions, material
equipment etc.)
5.
Specialization
6.
Mental Revolution.
1. Scientific
Task and Rate-Setting (work study): Work study may be defined as the
systematic, objective and critical examination of all the factors governing the
operational efficiency of any specified activity in order to effect
improvement.
Work study
includes.
(a) Methods
Study: The management should
try to ensure that the plant is laid out in the best manner and is equipped with the best tools and machinery. The
possibilities of eliminating or combining certain operations may be studied.
(b)
Motion Study: It is a study of the movement, of an operator (or
even of a
machine)
in performing an operation with the purpose of eliminating useless motions.
(c)
Time Study (work measurement): The basic purpose of time study is to determine
the proper time for performing the
operation. Such study may be conducted after the motion study. Both time study
and motion study help in determining the best method of doing a job and the
standard time allowed for it.
(d) Fatigue
Study: If, a standard task is
set without providing for measures to eliminate fatigue, it may either be beyond the workers or the workers may over strain
themselves to attain it. It is necessary, therefore, to regulate the working
hours and provide for rest pauses at scientifically determined intervals.
(e) Rate-setting:
Taylor recommended the differential piece wage
system, under which workers performing
the standard task within prescribed time are paid a much higher rate per unit
than inefficient workers who are not able to come up to the standard set.
2. Planning
the Task: Having set the task
which an average worker must strive to perform to get wages at the higher piece-rate, necessary steps have to be
taken to plan the production thoroughly so that there is no bottlenecks and the
work goes on systematically.
3. Selection
and Training: Scientific
Management requires a radical change in the methods and procedures of selecting workers. It is therefore necessary to
entrust the task of selection to a central personnel department. The procedure
of selection will also have to be systematised. Proper attention has also to be
devoted to the training of the workers in the correct methods of work.
4.
Standardization: Standardization may be
introduced in respect of the following.
(a) Tools
and equipment: By
standardization is meant the process of bringing about uniformity. The management must select and store
standard tools and implements which will be nearly the best or the best of
their kind.
(b) Speed:
There is usually an optimum speed for every
machine. If it is exceeded, it is likely to
result in damage to machinery.
(c) Conditions
of Work: To attain standard
performance, the maintenance of standard
conditions of ventilation, heating, cooling, humidity, floor space, safety
etc., is very essential.
(d) Materials:
The efficiency of a worker depends on the
quality of materials and the method of handling
materials.
5. Specialization:
Scientific management will not be complete
without the introduction of specialization.
Under this plan, the two functions of 'planning' and 'doing' are separated in
the organization of the plant. The `functional foremen' are specialists who
join their heads to give
eight
functional foremen under his scheme of functional foremanship.
(a) The
Route Clerk: To lay
down the sequence of operations and instruct the workers concerned about it.
(b) The
Instruction Card Clerk: To
prepare detailed instructions regarding different aspects of work.
(c) The
Time and Cost Clerk: To send
all information relating to their pay to the workers and to secure proper returns of work from them.
(d)
The Shop Disciplinarian: To deal
with cases of breach of discipline and absenteeism.
(e) The
Gang Boss: To
assemble and set up tools and machines and to teach the workers to make all their personal motions in the
quickest and best way.
(f) The
Speed Boss: To ensure
that machines are run at their best speeds and proper tools are used by the workers.
(g) The
Repair Boss: To ensure
that each worker keeps his machine in good order and maintains cleanliness around him and his machines.
(h)
The Inspector: To show to the worker
how to do the work.
6. Mental
Revolution: At
present, industry is divided into two groups – management and labour. The major problem between
these two groups is the division of surplus. The management wants the maximum
possible share of the surplus as profit; the workers want, as large share in
the form of wages. Taylor has in mind the enormous gain that arises from higher
productivity. Such gains can be shared both by the management and workers in
the form of increased profits and increased wages.
Henry Fayol's 14 Principles of Management:
The principles of management are given below:
1. Division
of work: Division of work or
specialization alone can give maximum productivity and efficiency. Both technical and managerial activities can be
performed in the best manner only through division of labour and
specialization.
2. Authority
and Responsibility: The right
to give order is called authority. The obligation to accomplish is called responsibility. Authority and Responsibility
are the two sides of the management coin. They exist together. They are
complementary and mutually interdependent.
3.
Discipline: The objectives, rules and regulations, the policies and procedures must
be honoured by each member of an
organization. There must be clear and fair agreement on the rules and
objectives, on the policies and procedures. There must be penalties
(punishment) for non-obedience or indiscipline. No organization can work
smoothly without discipline - preferably voluntary discipline.
4. Unity
of Command: In order
to avoid any possible confusion and conflict, each member of an organization must received orders
and instructions only from one superior (boss).
5. Unity
of Direction: All
members of an organization must work together to accomplish common objectives.
6. Emphasis
on Subordination of Personal Interest to General or Common Interest: This is also
called principle of co-operation. Each shall work for all and all for each.
General or common interest must be supreme in any joint enterprise.
7. Remuneration:
Fair pay with non-financial rewards can act as
the best incentive or motivator for
good performance. Exploitation of employees in any manner must be eliminated.
Sound scheme of remuneration includes adequate financial and nonfinancial
incentives.
8. Centralization:
There must be a good balance between
centralization and decentralization of authority
and power. Extreme centralization and decentralization must be avoided.
9. Scalar
Chain: The unity of command
brings about a chain or hierarchy of command linking all members of the organization from the top to the bottom. Scalar
denotes steps.
10. Order:
Fayol suggested that there is a place for
everything. Order or system alone can create
a sound organization and efficient management.
11. Equity:
An organization consists of a group of people
involved in joint effort. Hence, equity (i.e.,
justice) must be there. Without equity, we cannot have sustained and adequate
joint collaboration.
12. Stability
of Tenure: A person
needs time to adjust himself with the new work and demonstrate efficiency in due course. Hence, employees and
managers must have job security. Security of income and employment is a
pre-requisite of sound organization and management.
13. Esprit
of Co-operation: Esprit de
corps is the foundation of a sound organization. Union is strength. But unity demands co-operation. Pride, loyalty and sense
of belonging are responsible for good performance.
14. Initiative:
Creative thinking and capacity to take
initiative can give us sound managerial planning
and execution of predetermined plans.
An organization is a group of people
intentionally organized to accomplish a common or set of goals.
Types of Business Organizations
When organizing a new business, one of the most
important decisions to be made is choosing the structure of a business.
a) Sole Proprietorships
The vast majority of small business starts out
as sole proprietorships . . . very dangerous. These firms are owned by one
person, usually the individual who has day-to-day responsibility for running
the business. Sole proprietors own all the assets of the business and the
profits generated by it. They also assume "complete personal"
responsibility for all of its liabilities or debts. In the eyes of the law, you
are one in the same with the business.
Merits:
•
Easiest and least expensive form of ownership to
organize.
•
Sole proprietors are in complete control, within
the law, to make all decisions.
•
Sole proprietors receive all income generated by
the business to keep or reinvest.
•
Profits from the business flow-through directly
to the owner's personal tax return.
•
The business is easy to dissolve, if desired.
Demerits:
•
Unlimited liability and are legally responsible
for all debts against the business.
•
Their business and personal assets are 100% at
risk.
•
Has almost been ability to raise investment
funds.
•
Are limited to using funds from personal savings
or consumer loans.
•
Have a
hard time attracting high-caliber employees, or those that are motivated by the
opportunity to own a part of the business.
•
Employee
benefits such as owner's medical insurance premiums are not directly deductible
from business income (partially deductible as an adjustment to income).
b) Partnerships
In a Partnership, two or more people share ownership of a single
business. Like proprietorships, the law does not distinguish between the
business and its owners. The Partners should have a
legal agreement that sets forth how decisions
will be made, profits will be shared, disputes will be resolved, how future
partners will be admitted to the partnership, how partners can be bought out,
or what steps will be taken to dissolve the partnership when needed. Yes, its
hard to think about a "break-up" when the business is just getting
started, but many partnerships split up at crisis times and unless there is a
defined process, there will be even greater problems. They also must decide up
front how much time and capital each will contribute, etc.
Merits:
•
Partnerships
are relatively easy to establish; however time should be invested in developing
the partnership agreement.
•
With more than one owner, the ability to raise
funds may be increased.
•
The profits from the business flow directly
through to the partners' personal taxes.
•
Prospective employees may be attracted to the
business if given the incentive to become a
partner.
Demerits:
•
Partners are jointly and individually liable for
the actions of the other partners.
•
Profits must be shared with others.
•
Since decisions are shared, disagreements can
occur.
•
Some employee benefits are not deductible from
business income on tax returns.
•
The partnerships have a limited life; it may end
upon a partner withdrawal or death.
c) Corporations
A corporation, chartered by the state in which
it is headquartered, is considered by law to be a unique "entity",
separate and apart from those who own it. A corporation can be taxed; it can be
sued; it can enter into contractual agreements. The owners of a corporation are
its shareholders. The shareholders elect a board of directors to oversee the
major policies and decisions. The corporation has a life of its own and does
not dissolve when ownership changes.
Merits:
•
Shareholders
have limited liability for the corporation's debts or judgments against the
corporations.
•
Generally,
shareholders can only be held accountable for their investment in stock of the
company. (Note however, that officers can be held personally liable for their
actions, such as the failure to withhold and pay employment taxes.)
•
Corporations can raise additional funds through
the sale of stock.
•
A corporation may deduct the cost of benefits it
provides to officers and employees.
•
Can elect S corporation status if certain
requirements are met. This election enables
company to be taxed similar to a partnership.
Demerits:
•
The
process of incorporation requires more time and money than other forms of
organization.
•
Corporations
are monitored by federal, state and some local agencies, and as a result may
have more paperwork to comply with regulations.
•
Incorporating
may result in higher overall taxes. Dividends paid to shareholders are not
deductible form business income, thus this income can be taxed twice.
d) Joint Stock Company:
Limited financial resources & heavy burden
of risk involved in both of the previous forms of organization has led to the
formation of joint stock companies these have limited dilutives.
The capital is raised by selling shares of
different values. Persons who purchase the shares are called shareholder. The
managing body known as; Board of Directors; is responsible for policy making
important financial & technical decisions.
There are
two main types of joint stock Companies.
(i)
Private limited company.
(ii)
Public limited company
(i) Private limited company: This type company can
be formed by two or more persons. Te maximum number of member ship is limited
to 50. In this transfer of shares is limited to members only. The government
also does not interfere in the working of the company.
(ii) Public Limited Company: Its is one whose
membership is open to general public. The minimum number required to form such
company is seven, but there is no upper limit. Such company’s can advertise to
offer its share to genera public through a prospectus. These public
limited
companies are subjected to greater control & supervision of control.
Merits:
•
The
liability being limited the shareholder bear no Rick& therefore more as
make persons are encouraged to invest capital.
•
Because of large numbers of investors, the risk
of loss is divided.
•
Joint stock companies are not affected by the
death or the retirement of the shareholders.
Disadvantages:
•
It is difficult to preserve secrecy in these
companies.
•
It requires a large number of legal formalities
to be observed.
•
Lack of personal interest.
e) Public Corporations:
A public corporation is wholly owned by the
Government centre to state. It is established usually by a Special Act of the
parliament. Special statute also prescribes its management pattern power duties
& jurisdictions. Though the total capital is provided by the Government,
they have separate entity & enjoy independence in matters related to
appointments, promotions etc.
Merits:
•
These are
expected to provide better working conditions to the employees & supported
to be better managed.
•
Quick decisions can be possible, because of
absence of bureaucratic control.
•
More Hexibility as compared to departmental
organization.
•
Since the management is in the hands of
experienced & capable directors & managers,
these ate managed more efficiently than that of government departments.
Demerits:
•
Any
alteration in the power & Constitution of Corporation requires an amendment
in the particular Act, which is difficult & time consuming.
•
Public
Corporations possess monopoly & in the absence of competition, these are
not interested in adopting new techniques & in making improvement in their
working.
f) Government Companies:
A state enterprise can also be organized in the
form of a Joint stock company; A government company is any company in which of
the share capital is held by the central government or partly by central
government & party by one to more state governments. It is managed b the
elected board of directors which may include private individuals. These are
accountable for its working to the concerned ministry or department & its
annual report is required to be placed ever year on the table of the parliament
or state legislatures along with the comments of the government to concerned
department.
Merits:
•
It is easy to form.
•
The directors of a government company are free
to take decisions & are not bound by
certain rigid rules & regulations.
Demerits:
•
Misuse of excessive freedom cannot be ruled out.
•
The
directors are appointed by the government so they spend more time in pleasing their
political masters & top government officials, which results in inefficient
management.
CLASSIFICATION OF ENVIRONMENTAL FACTORS
On the
basis of the extent of intimacy with the firm, the environmental factors may be
classified
into
different types namely internal and external.
1) INTERNAL ENVIRONMENTAL FACTORS
The internal environment is the environment that
has a direct impact on the business. The internal factors are generally
controllable because the company has control over these factors. It can alter
or modify these factors. The internal environmental factors are resources,
capabilities and culture.
i) Resources:
A good starting point to identify company
resources is to look at tangible, intangible and human resources.
Tangible resources are the easiest to identify
and evaluate: financial resources and physical assets are identifies and valued
in the firm’s financial statements.
Intangible resources are largely invisible, but
over time become more important to the firm than tangible assets because they
can be a main source for a competitive advantage. Such intangible recourses
include reputational assets (brands, image, etc.) and technological assets
(proprietary technology and know-how).
Human resources or human capital are the
productive services human beings offer the firm in terms of their skills,
knowledge, reasoning, and decision-making abilities.
ii) Capabilities:
Resources are not productive on their own. The
most productive tasks require that resources collaborate closely together
within teams. The term organizational capabilities are used to refer to a
firm’s capacity for undertaking a particular productive activity. Our interest
is not in capabilities per se, but in capabilities relative to other firms. To
identify the firm’s capabilities we will use the functional classification
approach. A functional classification identifies organizational capabilities in
relation to each of the principal functional areas.
iii) Culture:
It is the specific collection of values and
norms that are shared by people and groups in an organization and that helps in
achieving the organizational goals.
2) EXTERNAL ENVIRONMENT FACTORS
It refers to the environment that has an
indirect influence on the business. The factors are uncontrollable by the
business. The two types of external environment are micro environment and macro
environment.
a) MICRO ENVIRONMENTAL FACTORS
These are external factors close to the company
that have a direct impact on the organizations process. These factors include:
i) Shareholders
Any person or company that owns at least one
share (a percentage of ownership) in a company is known as shareholder. A
shareholder may also be referred to as a "stockholder". As
organization requires greater inward investment for growth they face increasing
pressure to move from private ownership to public. However this movement
unleashes the forces of shareholder pressure on the strategy of organizations.
ii) Suppliers
An individual or an organization involved in the
process of making a product or service available for use or consumption by a
consumer or business user is known as supplier. Increase in raw material prices
will have a knock on affect on the marketing mix strategy of an organization.
Prices may be forced up as a result. A closer supplier relationship is one way
of ensuring competitive and quality products for an organization.
iii) Distributors
Entity that buys non-competing products or product-lines, warehouses them, and resells them to retailers or direct to the end users or customers is known as distributor. Most distributors provide strong manpower and cash support to the supplier or manufacturer's promotional efforts. They usually also provide a range of services (such as product information, estimates, technical support, after-sales services, credit) to their customers. Often getting products to the end customers can be a
major issue for firms. The distributors used will determine the final price of
the product and how it is presented to the end customer. When selling via
retailers, for example, the retailer has control over where the products are
displayed, how they are priced and how much they are promoted in-store. You can
also gain a competitive advantage by using changing distribution channels.
iv) Customers
A person, company, or other entity which buys goods and services produced by another person, company, or other
entity is known as customer. Organizations survive on the basis of meeting the
needs, wants and providing benefits for their customers. Failure to do so will
result in a failed business strategy.
v) Competitors
A company in the same industry or a similar industry which offers a similar product or service is known as competitor. The presence of one or more competitors can
reduce the prices of goods and services as the companies attempt to gain a larger market share. Competition also requires companies to become more efficient in order to reduce costs. Fast-food restaurants McDonald's and Burger King are competitors, as are
Coca-Cola and Pepsi, and Wal-Mart and Target.
vi) Media
Positive or adverse media attention on an
organisations product or service can in some cases make or break an
organisation.. Consumer programmes with a wider and more direct audience can
also have a very powerful and positive impact, hforcing organisations to change
their tactics.
An organization's macro environment consists of
nonspecific aspects in the organization's surroundings that have the potential
to affect the organization's strategies. When compared to a firm's task
environment, the impact of macro environmental variables is less direct and the
organization has a more limited impact on these elements of the environment.
The macro environment consists of forces that
originate outside of an organization and generally cannot be altered by actions
of the organization. In other words, a firm may be influenced by changes within
this element of its environment, but cannot itself influence the environment.
The curved lines in Figure 1 indicate the indirect influence of the environment
on the organization.
Macro environment includes political, economic,
social and technological factors. A firm considers these as part of its
environmental scanning to better understand the threats and opportunities
created by the variables and how strategic plans need to be adjusted so the
firm can obtain and retain competitive advantage.
i) Political Factors
Political factors include government regulations
and legal issues and define both formal and informal rules under which the firm
must operate. Some examples include:
•
tax policy
•
employment laws
•
environmental regulations
•
trade restrictions and tariffs
•
political stability
ii) Economic Factors
Economic factors affect the purchasing power of potential customers and
the firm's cost of capital. The following are examples of factors in the
macroeconomy:
•
economic growth
•
interest rates
•
exchange rates
•
inflation rate
iii) Social Factors
Social factors include the demographic and cultural
aspects of the external macro environment. These factors affect customer needs
and the size of potential markets. Some social factors include:
•
health consciousness
•
population growth rate
•
age distribution
•
career attitudes
•
emphasis on safety
iv) Technological Factors
Technological factors can lower barriers to entry, reduce minimum
efficient production levels, and influence outsourcing decisions. Some
technological factors include:
•
R&D activity
•
automation
•
technology incentives
•
rate of technological change
TRENDS AND
CHALLENGES OF MANAGEMENT
IN GLOBAL
SCENARIO
The management functions are planning and
decision making, organizing. leading, and controlling — are just as relevant to
international managers as to domestic managers. International managers need to
have a clear view of where they want their firm to be in the future; they have
to organize to implement their plans: they have to motivate those who work lot
them; and they have to develop appropriate control mechanisms.
a) Planning and Decision Making in a Global
Scenario
To effectively plan and make decisions in a
global economy, managers must have a broad-based understanding of both
environmental issues and competitive issues. They need to understand local
market conditions and technological factor that will affect their operations.
At the corporate level, executives need a great deal of information to function
effectively. Which markets are growing? Which markets are shrinking? Which are
our domestic and foreign competitors doing in each market? They must also make
a variety of strategic decisions about their organizations. For example, if a
firm wishes to enter market in France, should it buy a local
firm there, build a plant, or seek a strategic
alliance? Critical issues include understanding environmental circumstances,
the role of goals and planning in a global organization, and how decision
making affects the global organization.
b) Organizing in a Global Scenario
Managers in international businesses must also
attend to a variety of organizing issues. For example, General Electric has
operations scattered around the globe.The firm has made the decision to give
local managers a great deal of responsibility for how they run their business.
In contrast, many Japanese firms give managers of their foreign operations
relatively little responsibility. As a result, those managers must frequently
travel back to Japan to present problems or get decisions approved. Managers in
an international business must address the basic issues of organization
structure and design, managing change, and dealing with human resources.
c) Leading in a Global Scenario
We noted earlier some of the cultural factors
that affect international organizations. Individual managers must be prepared
to deal with these and other factors as they interact people from different
cultural backgrounds .Supervising a group of five managers, each of whom is
from a different state in the United States, is likely to be much simpler than
supervising a group of five managers, each of whom is from a different culture.
Managers must understand how cultural factors affect individuals. How
motivational processes vary across cultures, how the role of leadership changes
in different cultures, how communication varies across cultures, and how
interpersonal and group processes depend on cultural background.
d) Controlling in a Global Scenario
Finally, managers in international organizations
must also be concerned with control. Distances, time zone differences, and
cultural factors also play a role in control. For example, in some cultures,
close supervision is seen as being appropriate, whereas in other cultures, it
is not Like-wise, executives in the United States and Japan may find it
difficult to communicate vital information to one another because of the time
zone differences. Basic control issues for the international manager revolve
around operations management productivity, quality, technology and information
systems.
