MG8591- PRINCIPLES OF MANAGEMENT

UNIT I OVERVIEW OF MANAGEMENT

Definition - Management - Role of managers - Evolution of Management thought - Organization and the
environmental factors – Trends and Challenges of Management in Global Scenario.

UNIT II PLANNING
Nature and purpose of planning - Planning process - Types of plans – Objectives - -
Managing by objective (MBO) Strategies - Types of strategies - Policies - Decision
Making - Types of decision - Decision Making Process - Rational Decision Making
Process - Decision Making under different conditions.

UNIT III ORGANIZING

Nature and purpose of organizing - Organization structure - Formal and informal groups
organization - Line and Staff authority - Departmentation - Span of control -
Centralization and Decentralization - Delegation of authority - Staffing - Selection and
Recruitment - Orientation - Career Development - Career stages – Training - -
Performance Appraisal.

UNIT IV DIRECTING
Creativity and Innovation - Motivation and Satisfaction - Motivation Theories -
Leadership Styles - Leadership theories - Communication - Barriers to effective
communication - Organization Culture - Elements and types of culture - Managing
cultural diversity.

UNIT V CONTROLLING
Process of controlling - Types of control - Budgetary and non-budgetary control
techniques - Managing Productivity - Cost Control - Purchase Control - Maintenance Control - Quality
Control - Planning operations.
 UNIT I
OVERVIEW OF MANAGEMENT

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 –
 a. Top management lays down the objectives and broad policies of the enterprise.
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.

1. Planning
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.
 • Promotions & transfer.

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
 sure that the enterprise objectives and plans desired to obtain them as being
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.
b) Informational Roles
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 19 th 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,
b) Behavioral 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
(ii) Production And Operations Management.
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
e) CONTINGENCY APPROACH:
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.

MANAGEMENT
Beginning Dates Emphasis
APPROACHS

CLASSICAL APPROACH

Traditional rules of thumb are replaced by precise

Scientific
1880s procedures developed after careful study of an
Management
individual at work.
Gives idea about the primary functions of
Administrative
1940s management and The 14 Principles of
Management
Administration

Bureaucratic Replaces traditional leadership and charismatic

1920s
Management leadership with legal leadership

BEHAVIORAL APPROACH

Human
1930s workers' attitudes are associated with productivity
Relations

Behavioral Gives idea to understand human behavior in the

1950s
Science organization.
QUANTITATIVE APPROACH

Management
Science Uses mathematical and statistical approaches to
1940s
(Operation solve management problems.
research)
Production This approach focuses on the operation and
and Operations 1940s control of the production process that transforms
Management resources into finished goods and services

RECENT DEVELOPEMENTS

Considers the organization as a system that

SYSTEMS
1950s transforms inputs into outputs while in constant
APPROACH
interaction with its' environment.
Applies management principles and processes as
CONTINGENCY
1960s dictated by the unique characteristics of each
APPROACH
situation.

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
thought to the planning of the performance of operations in the workshop. Taylor suggested
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.
ORGANIZATION AND ENVIRONMENTAL FACTORS
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.
b) MACRO ENVIRONMENTAL FACTORS
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 [Link] 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.