GENERAL

MANAGEMENT
TEXTBOOK FOR MP PEB AND NCERT BASED EXAM

Part A & B

Shailendra yadav

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 Part-A
Principles and Functions
of Management
Unit Name of the Unit
1. Nature and Significance of Management
2. Principles of Management
3. Business Environment
4. Planning
5. Organising
6. Staffing
7. Directing
8. Controlling

Unit 5: Organising
• Concept and Importance • Organising Process • Structure
Unit 1 : Nature and Significance of Management of Organisation—Functional and Divisional concept. Formal
• Management—Concept, Objectives and Importance and Informal Organisation— concept • Delegation—Concept,
• Management as Science, Art, Profession • Levels of Elements and Importance • Decentralisation—Concept and
Importance
Management • Management Functions—Planning, Organising,
Staffing, Directing and Controlling • Coordination—Concept Unit 6: Staffing
and Importance • Concept and Importance of Staffing • Staffing as a part of
Human Resource Management-Concept • Staffing Process
Unit 2: Principles of Management • Recruitment Process • Selection Process • Training and
• Principles of Management—Concept and Significance • Fayol’s Development—Concept and Importance; Methods of Training—
Principles of Management • Taylor’s Scientific Management— on the job and off the job—vestibule training, apprenticeship
training and internship training
Principles and Techniques
Unit 7: Directing
Unit 3: Management and Business Environment • Concept and Importance • Elements of Directing • Supervision:
• Business Environment— Concept and Importance • Dimensions Concept, Functions of a Supervisor • Motivation: Concept,
of Business Environment— Economic, Social, Technological, Political Maslow’s hierarchy of needs; Financial and Non-financial
and Legal; Demonetization - concept and features • Impact of Incentives • Leadership: Concept; Styles— authoritative,
Government Policy Changes on Business with special reference democratic and laissez-faire • Communication: Concept,
to Liberalisation, Privatisation and Globalisation in India. Formal and Informal Communication; Barriers to Effective
Communication, How to overcome the barriers
Unit 4: Planning Unit 8: Controlling
• Concept, Importance and Limitations • Planning Process • Concept and Importance • Relationship between Planning
Single use and Standing Plans—Objectives, Strategy, Policy, and Controlling • Steps in Process of Control
Procedure, Method, Rule, Budget and Programme

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Unit 1 Nature and Significance
of Management
1.1 Management: Concept, Objectives, Importance and Levels
Concept of Management 4. Management is a dynamic function and has to
Successful organisations do not achieve their goals by adapt itself to the changing environment.
chance but by following a deliberate process called
In order to be successful, an organisation must change itself
‘management’. and its goals according to the needs of the environment.
Management is defined as a process of getting things done
For instance, McDonalds, the fast food giant made major
with the aim of achieving goals effectively and efficiently.
changes in its menu to be able to survive in the Indian
• Management is the process of working with and through market , e.g. it offers Aloo Tikki burger.
others to effectively achieve organisational objectives by 5. Management is an intangible force that cannot
efficiently using limited resources in the changing environment. be seen but its presence can be felt in the way the
• Management is the process of designing and maintaining
organization functions – When targets are achieved and
an environment in which individuals work together in groups
and efficiently accomplish selected aims. there is orderliness instead of chaos.
6. Management is multidimensional/multi-
• Process in the definition means the primary functions faceted concept as it is a complex activity that has
or activities that management performs to get things three dimensions: Management of work, Management
done. These functions are planning, organising, staffing, of people, Management of operations.
directing and controlling.
• ‘Effectiveness’ in management is concerned with Management of work: All organisations exist for the
doing the right task, completing activities and achieving performance of some work, e.g. in a factory, a product is
goals. Thus, being effective basically means finishing manufactured, in a hospital a patient is treated. Management
the given task. translates this work in terms of goals to be achieved and
assigns the means to achieve it.
• Efficiency means doing the task correctly and with Management of people: Getting work done through people
minimum cost. Efficiency in increased if by using less is a major task for the manager. Managing people has
resources (i.e., the inputs) more benefits are derived (i.e., two dimensions: (i) dealing with employees as individuals
the outputs). with diverse needs and behaviour; and (ii) dealing with
For management, it is important to be both effective employees as a group of people.
and efficient, i.e. to achieve goals (effectiveness) with Management of operations: Management requires a
minimum resources (efficiency). production process of transforming input material and the
technology into the desired output for consumption.
Suppose a company’s target production is 10,000 units in
a year. To achieve this target the manager has to operate
on double shifts due to power failure most of the time. The 7. Management is a group activity which ensures
manager is able to produce 10,000 units but at a higher team work and coordination of individual effort in a
production cost. In this case, the manager was effective common direction.
but not so efficient, since for the same output, more inputs
(labour cost, electricity costs) were used. Objectives of Management
1. Organisational or Economic Objectives
Characteristics/Features of Management • Survival–An organisation must earn enough revenues
G2IP MCD for survival.
1. Management is a goal oriented process • Profit–Profit is essential to cover costs and risks of
which unites the efforts of different individuals in the the business.
organization towards achieving these goals. • Growth–Management must exploit fully the growth
2. Management is all pervasive as the activities potential of the organisation. Indicators of growth
involved in managing an enterprise are common to all are increase in sales turnover, capital investment and
organizations whether economic, social or political. number of products and employees.
2. Social Objectives: Social objectives of
A petrol pump needs to be managed as much as a hospital management involve the creation of benefits for the
or a school. What managers do in India, the USA, Germany society. This includes • using environmental friendly
or Japan is the same. How they do it may be quite different. methods of production, • providing basic amenities like
3. Management is a continuous process consisting schools and creches to employees, • giving employment
of continuous, composite, but separate functions opportunities to the disadvantaged sections of the
(planning, organising, staffing, directing and controlling). society, etc.
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3. Personal Objectives: Personal objectives which (ii) To be responsible for welfare and survival of the
aim to satisfy the needs of the employees working in organisation.
the organisation such as • financial needs by giving (iii) To analyse the business environment and its
them competitive salary and perks, • social needs implications for the survival of the firm.
such as peer recognition, and • higher level needs (iv) To formulate overall organisational goals and
such as personal growth and development. strategies for their achievement.
Importance of Management DPS EG (v) To be responsible for all the activities of the business
1. Management increases efficiency by reducing and for its impact on the society.
costs and increasing productivity through better 2. Middle Level Management consists of divisional/
planning, organising, directing and controlling the departmental heads, such as Production Manager,
activities of the organisation. Marketing Manager, Operations Manager, Plant
2. Management helps in the development of Superintendent, etc. Their functions are:
the society by providing good quality products, (i) To interpret the policies framed by the top
creating employment opportunities and adopting new management.
technology, etc. (ii) To ensure that their department has the necessary
3. Management helps in achieving group goals by personnel.
giving a common direction to individual effort. (iii) To assign necessary duties and responsibilities
4. Management creates a dynamic organisation to the employees of their respective departments for
by making the organisation adapt itself to the changing implementation of the plan.
environment. (iv) To motivate employees of their respective
5. Management helps in achieving personal departments to achieve the desired objectives.
objectives by motivating and leading in such a way (v) To cooperate with other departments for smooth
that both personal goals and organisational objectives functioning of the organisation.
are accomplished. 3. Operational or Supervisory Management consists
of Supervisors and Foremen. Their functions are:
Levels of Management (i) To oversee the efforts of the workforce.
1. Top Level Management consists of Chief Operating (ii) To interact with the actual workforce and pass on the
Officer, Chief Executive Officer (CEO), Chief Finance instructions of the middle management to the workers.
Officer, Director, Chairman, President, Vice-President, (iii) To ensure that the quality of output is maintained
etc. Their functions are: and wastage of material is minimized.
(i) To coordinate the activities of different departments (iv) To ensure safety standards are maintained.
according to the overall objectives of the organisation.

1.2 Nature of Management as Science, Art and Profession

Science is a systematised body of knowledge that explains 3. Universal validity: Principles of management like
certain general truths or the operation of general laws. principles of pure science provide managers with certain
Art is the skillful and personal application of existing standardised techniques that can be used in different
knowledge to achieve desired results. It can be acquired situations. However, since the principles of management
through study, observation and experience. have to be modified according to a given situation, their
Management is both art and science. The practice of application and use is not universal. So, this feature of
management is an art. However, managers can work better science is not fully present in management.
if their practice is based on the principles of management.
These principles constitute the science of management. Management as an Art
Management as an art and a science are therefore not Management is an art. Three features that establish it
mutually exclusive, but complementary to each other. as an art are:
1. Existence of theoretical knowledge: As in art, in
Management as a Science management too, there is a lot of literature available in
Management is a science but not an exact science various areas of management which the manager has
because of the following reasons: to specialise in.
1. Systematised body of knowledge: Like science, 2. Personalised application: Like in any art, in
management is a systematic body of knowledge with its management too, a manager applies his acquired
own theories and principles that have developed over a knowledge in a personalised and unique manner. This
period of time. So, this feature of science is present in gives rise to different styles of management.
management. 3. Based on practice and creativity: Management
2. Principles based on observation and satisfies this criteria as manager gains experience
experimentation: Like science, management through regular practice and becomes more effective.
principles are derived through observation and repeated
experimentation. However, since management deals Management as a Profession SWEEP
with human beings the outcome of these experiments Management is a profession but not a full-fledged
are not capable of being accurately predicted. So, this profession like legal, accounting or medical professions
feature of science is not fully present in management. because it does not meet the exact criteria of a
profession.
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1. Well-defined body of knowledge: All professions the activities of their members. There is, however, no
are based on a well-defined body of knowledge that compulsion for managers to be members of such an
can be acquired through instruction. Management too association. So, presently this feature of profession is
is based on a systematic body of knowledge comprising not present in management.
well-defined principles. This feature of profession is 4. Ethical code of conduct: Legal and medical
present in management. professions are bound by a code of conduct which
2. Restricted entry: The entry to the above stated guides the behaviour of its members. AIMA has devised
profession is restricted through a prescribed qualification. a code of conduct for Indian managers but there is
But there is no restriction on anyone being appointed no statutory backing for this code. So, presently this
as a manager in any business enterprise. So, presently feature of profession is not present in management.
this feature of profession is not present in management 5. Service motive: The motive of legal and medical
3. Professional association: Legal and medical profession is to serve their client’s interests by rendering
professions are affiliated to a professional association dedicated and committed service. The basic purpose
like bar council and medical council which regulates of management to help the organisation achieve its
entry, grants certificate of practice and formulates goals by providing good quality products at reasonable
and enforces a code of conduct. There are several prices, thereby serving the society is being increasingly
associations of practising managers in India, like the recognised. So, presently this feature of profession is
AIMA that has laid down a code of conduct to regulate not fully present in management.

1.3 Coordination: Concept and Importance

Concept of Coordination • Directing is required for execution of plans. • Controlling
Coordination is the process by which a manager corrects the deviation between standards and actual
synchronises the activities of different departments performance. Thus, like a thread in a garland coordination
towards the achievement of a common goal. is a part of all management functions.
• Coordination is the process whereby an executive (iv) It is a pervasive function as it is required at all
develops an orderly pattern of group efforts among his levels of management and in all departments.
subordinates and secures unity of action in the pursuit of
common purposes. • Coordination is balancing and keeping Coordination is required at all levels of management due to
together the team by ensuring suitable allocation of tasks the interdependent nature of activities of various departments.
to the various members and seeing that the tasks are In the absence of coordination there is overlapping and chaos
performed with harmony among the members themselves. instead of harmony and integration of activities.
• Coordination is the orderly synchronisation of efforts of
(v) It is the responsibility of all managers at the
subordinates to provide proper amount, timing and quality
of execution towards the achievement of a common goal. top, middle and lower level.
• The primary reason for coordination is that departments • Top level managers need to coordinate with their
and individuals in the organisation are interdependent, i.e. subordinates to ensure that the overall policies are duly
they depend on each other for information and resources to carried out. • Middle level management coordinates with
perform their respective activities. Thus, managers need to both the top level and first line managers. • Operational
reconcile differences in approach, timing, effort or interest.
level management coordinates the activities of its workers to
• Coordination is the common thread that runs through all
ensure that work proceeds according to plans.
activities such as purchase, production, sales, and finance
to ensure continuity in the working of the organisation. (vi) It is a deliberate function as every manager
• It is through the process of coordination that a manager has to coordinate the efforts of different people in a
ensures the orderly arrangement of individual and group efforts conscious and deliberate manner.
to ensure unity of action in the realisation of common objectives.
• Coordination provides the requisite amount, quality, Cooperation in the absence of coordination may lead to
timing and sequence of efforts which ensures that planned wasted effort and coordination without cooperation may lead
objectives are achieved with a minimum of conflict. to dissatisfaction among employees.

Nature/Characteristics/ Need and Importance of Coordination

Features of Coordination DU PCR I 1. Growth in size: As organisations grow in size, number
(i) Coordination integrates group efforts by unifying of people in the organisation also increases. Coordination
diverse interests thereby giving them a common focus to is needed to integrate their efforts and activities.
ensure that the performance is according to the plans. 2. Functional differentiation: In an organisation, there
(ii) It ensures unity of action by acting as a binding are different departments for production, marketing,
force between departments and ensuring that all action finance, etc. All departments have their own objectives,
is aimed at achieving the goals of the organisation. policies, strategies, etc. There may arise conflict among
(iii) It is a continuous process as it starts at the them. Coordination is needed to ensure unity of action
planning stage and continues till controlling. among them and to avoid inter-departmental conflicts.
3. Specialisation: In modern organisations, there is high
Coordination is not a separate function of management, degree of specialisation. Organisations, therefore, employ a
but the essence of management. • Top management number of specialists. They do not take advice or suggestions
plans for the entire organisation. • According to these from others. Coordination is needed to reconcile the
plans, the organisational structure is developed and staffed. differences in approach, interest or opinion of the specialists.
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 Application, HOTS, Evaluation and Multi-Disciplinary Questions
1. Identify the concepts of management highlighted in the highlighted above. (b) State the characteristic of management
following statements: the company is violating.
(a) This requires establishing an atmosphere that encourages Ans. (a) Coordination (b) Management is a group activity.
employees to do their best. (b) It means creating an 8. Company X is facing a lot of problems these days. It
environment that makes them want to work willingly and manufactures white goods like washing machines, microwave
enthusiastically. (c) It is influencing people to work willingly ovens, refrigerators and air conditioners. The company’s
to achieve organisational goals. (d) It is the management margins are under pressure and the profits and market share
function of monitoring organisational performance towards the are declining. The production department blames marketing
attainment of organisational goals. for not meeting sales targets and marketing blames production
Ans. (a) Directing (b) Motivation (c) Leadership department for producing goods, which are not of good quality
(d) Controlling meeting customers expectations. The finance department blames
2. Through __________ management helps individuals to both production and marketing for declining return on investment
develop team spirit, cooperation and commitment to group and bad marketing. What quality/concept of management do
success. you think the company is lacking? (NCERT)
Ans. Motivation and leadership. Ans. Coordination
3. Raheja Ltd. is diversifying its product lines. What 9. The management of Vrinda Ltd. strongly believes that the
organisational objective it is trying to achieve? members of an organisation should work towards fulfilling
Ans. Growth the common organisational goals. This requires team work
4. Policy formulation is the function of __________ and integration of efforts of all individuals, departments and
Ans. Top level managers specialists. This is because all the individuals and departments
5. Ritu is the manager of the northern division of a large depend on each other for information and resources to perform
corporate house. At what level of management does she work their respective activities. Managers need to reconcile differences
in the organisation? What is her main task? in approach, timing, effort or interest. At the same time it should
Ans. Middle level management. Her main task is to carry enable all its members to grow and develop. Thus, there is a
out the plans formulated by the top managers. need to harmonise individual goals and organisational goals.
6. In Flipmart Co. Ltd. the production and sales department Identify the concept of management discussed above.
have to coordinate their work, so that production takes place Ans. Coordination
according to the demand in the market. State the feature of 10. In which two functions of management do managers at
coordination highlighted above. the top level spend more time than managers at lower level of
Ans. Coordination ensures unity of action. the organisations?
7. In a company, the marketing department’s objective is Ans. Planning and Organising
to increase sales by 10 per cent by offering discounts. But, 11. Name the level of management which is a team consisting
the finance department does not approve of such discounts of managers from different functional levels, heading finance,
as it means loss of revenue. These kinds of conflict arise in marketing, etc, for example, chief finance officer, vice president
organisations because of the lack of one of the concepts (marketing).
of management. (a) Identify the concept of management Ans. Top level management

Unit 2 Principles of Management

2.1 Principles of Management: Concept and Significance
Concept of Principles of Management straitjacket solutions to all managerial problems since
Principles of management are broad and general real business situations are very complex and dynamic
guidelines for managerial decision making and behaviour. and are a result of many factors.
2. Formed by practice and experimentation: The
 Management principles are not as rigid as principles of principles of management are derived by observation,
pure science. They deal with human behaviour and, thus,
are to be applied creatively given the demands of the
experimentation and personal experience of managers.
situation.  Management principles have gained importance 3. Universal applicability: The principles of
with increasing professionalisation of management. management apply to all types of organisations, at all
levels and at all times.
Nature/Characteristics/Features of 4. Flexible: They are not rigid but are flexible and can be
modified by the manager when the situation so demands.
Principles of Management UGC2 F2B
1. General guidelines: The principles of management For example, the degree of concentration of authority
are guidelines to action but do not provide readymade, (centralisation) or its dispersal (decentralisation) will depend
upon the situations and circumstances of each enterprise.

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5. Contingent: The application of principles of 2. They help in optimum utilisation of resources as
management is contingent or dependent upon the the wastages associated with trial and error approach can
prevailing situation at a particular point of time. be overcome. They help in effective administration
For example, employees deserve fair and just remuneration.
as the decisions are free from personal bias.
But what is just and fair is determined by multiple factors 3. They help managers in taking scientific decisions
such as contribution of the employee, paying capacity of the as they are based on objective assessment of the
employer and also prevailing wage rate for the occupation situation and emphasise on logic rather than blind faith.
under consideration. 4. They help in meeting changing environment
6. Mainly behavioural: Management principles aim requirements as they can be modified according to
at influencing behaviour of human beings. the needs of the environment.
7. Cause and effect relationships: The principles of 5. They help in fulfilling social responsibility by
management establish cause and effect relationship so responding to the demands of the public.
that they can be used in similar situations in a large For example, the principle of “Remuneration of Employees”
number of cases. insists on payment of adequate salary to employees, which
should give them at least a reasonable standard of living.
The principles of management are less than perfect since
they mainly apply to human behaviour. In real life, situations 6. They are used as a basis for management
are not identical. So, accurate cause and effect relationships training, education and research by providing the
may be difficult to establish. basic groundwork for the development of management
Significance of Management Principles as a discipline.
TOP SMS New management techniques like Operations Research,
1. They provide the managers with useful Cost Accounting, Just in Time, Kaizen, Lean Manufacturing,
insights into reality. They add to their knowledge, Six Sigma, etc. have developed due to research on the
principles of management.
ability and understanding of managerial situations and
circumstances.

2.2 Fayol’s Principles of Management

1. Division of work:  The principle of Division of Example: Suppose management and labour union have entered
work states that work is divided into small tasks/jobs. into an agreement whereby workers have agreed to work
 A trained specialist who is competent is required to overtime without any additional payment to revive the company
perform each job.  Thus, division of work leads to out of loss. In return, the management has promised to increase
specialisation and results in efficient and effective output. wages when this mission is accomplished. Here, ‘discipline’
would mean that both workers and management honour their
For example, in a company there are separate departments commitments without any prejudice towards one another.
for finance, marketing, production and human resource. All
of them have specialised persons. Collectively they achieve 4. Unity of command:  The principle of unity of
production and sales targets of the company. command states that each employee in an organisation
2. Authority and Responsibility: There should be should receive orders from one superior only and he
a balance between authority and responsibility.  An should be responsible to only one superior.  It prevents
organisation should build safeguards against abuse of confusion regarding tasks to be done.  Fayol felt that
managerial power.  At the same time, the manager if this principle is violated “authority is undermined,
should have the necessary authority to carry out his discipline is in jeopardy, order disturbed and stability
responsibility.  The manager should have the right to threatened.” (This principle resembles military organisation.)
punish a subordinate for not obeying orders but only Aim: It prevents dual subordination.
after sufficient opportunity has been given to him/her Implications: It affects an individual employee.
for presenting his /her case. Example: Suppose a salesperson is asked to make a deal
with a buyer and is allowed to give 10% discount by the
For example, a manager enhances the production target
marketing manager. But the finance manager does not
from 500 units to 700 units per month but the authority to
permit him to offer more than 5% discount. In this case,
draw raw material was not given by him. The production
there is no unity of command. This can be avoided if there is
manager should not be blamed if he could not achieve the
coordination between the two departments.
revised production target. He should have the necessary
authority to carry out his responsibility. 5. Unity of Direction:  Unity of direction states
3. Discipline:  It is the obedience to organizational that all the units of an organisation should be moving
rules and employment agreement which are necessary towards the same objectives through coordinated and
for the working of the organization.  It requires focused efforts.  Each group of activities having the
good superiors at all levels, clear and fair agreement same objective must have one head and one plan. 
and judicious application of penalties.  Workers and This ensures unity of action and coordination.
management both should honour their commitments Aim: It prevents overlapping of activities.
towards one another without prejudice. Implications: It affects the entire organisation.

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 Example: If a company is manufacturing motorcycles as well communicate with M who A
as cars, then it should have two separate divisions for both is at the same level of
of them. Each division should have its own in-charge, plans authority, then he has to B L
and execution resources. The working of the two divisions transverse the route C-B- C M
should not overlap on any account. A-L-M due to the principle
6. Subordination of individual interest to general of scalar chain. However, if D Gang Plank N
interest:  The interests of an organisation should take there is an emergency, then
priority over the interests of any individual employee. C can directly contact M SCALAR CHAIN
 The larger interests of the workers and stakeholders through gang plank.
are more important than the interest of any one person. 10. Order:  It states that there should be a place for
everything and everyone in an organization and that
For example, interests of various stakeholders i.e., owners, thing or person should be found in its allotted place.
shareholders, creditors, debtors, financers, tax authorities,
 People and materials must be in suitable places at
customers and the society at large cannot be sacrificed for
one individual or a small group of individuals who want to exert appropriate time for maximum efficiency.  This will
pressure on the company. A manager can ensure this by lead to increased productivity and efficiency.
his exemplary behaviour. For example, he should not fall 11. Equity:  Equity states that there should be no
into temptation of misusing his powers for individual/ family discrimination against anyone on account of sex,
benefit at the cost of larger general interest of the workers/ religion, language, caste, belief, nationality etc.  It
company. This will raise his stature in the eyes of the workers emphasises kindliness and justice in the behaviour
and at the same time ensure same behaviour by them. of managers towards the workers.  This will ensure
7. Remuneration of employees:  It states that the loyalty and devotion.
remuneration of employees should be just and equitable. 12. Stability of personnel:  “Employee turnover
 Employees should be paid fair wages, which should should be minimized to maintain organizational efficiency”
give them at least a reasonable standard of living. At according to Fayol.  Personnel should be selected and
the same time it should be within the paying capacity of appointed after due and rigorous procedure. But once
the company.  This will ensure good relations between selected they should be kept at their post/position
workers and management. for a minimum fixed tenure.  They should be given
8. Centralisation and Decentralisation:  The reasonable time to show results.  Instability will create
concentration of decision-making authority by the insecurity among employees, so they will tend to leave
top management is called centralisation whereas its to organisation. Recruitment, selection and training cost
dispersal among more than one person is known as of new employees will be high.
decentralisation.  In general, large organisations have 13. Initiative:  Initiative means thinking out
more decentralisation than small organisations. and executing the plan within the prescribed limits
 According to Fayol, “There is a need to balance subordinate of authority.  It states that the workers should be
involvement through decentralisation with managers’ encouraged to develop and carry out their plans for
retention of final authority through centralisation.” improvement in the organisation.  A good company
9. Scalar chain:  It refers to chain of authority and should have an employee suggestion system whereby
communication that runs from top to bottom and should initiative/suggestions which result in substantial cost/
be followed by the managers and the subordinates. time reduction should be rewarded.
 It facilitates smooth flow of communication and 14. Esprit de Corps:  It states that management
unity of command in the organisation.  This chain should promote a team spirit of unity and harmony among
should not be violated in the normal course of formal employees to realise organisational objectives. Otherwise,
communication. However, in case of any emergency, a it will result in a loss of coordination.  A manager should
shorter route named ‘gang plank’ may be used to avoid replace ‘I’ with ‘We’ in all his conversations with workers
delay in communication. to foster team spirit.  This will give rise to a spirit of
For example: There is one head A who has two lines mutual trust and belongingness among team members.
of authority under him, B-C-D and L-M-N. If C has to  It will also minimise the need for using penalties.

2.3 Taylor’s Scientific Management: Principles and Techniques

Scientific management means knowing exactly what you management and the workers.  Management should
want men to do and seeing that they do it in the best and share gains of the company if any with the workers and
cheapest way. workers should work hard and be wiling to embrace
Principles of Scientific Management change for the good of the company.  This requires
1. Science not rule of thumb:  It states that there is ‘Mental revolution’ on the part of both management and
only one best method to maximise efficiency. workers. Both management and the workers should
 This method can be developed through scientific transform their thinking. Mental revolution involves a
study and analysis of each element of a job and should change in the attitude of workers and management
substitute ‘Rule of Thumb’. · This standard method then towards one another from competition to cooperation.
should be followed throughout the organisation. Both should realise that they require one another. Both
2. Harmony Not Discord:  The principle emphasises should aim to increase the size of surplus.
that there should be complete harmony between the
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3. Cooperation, not individualism:  There should The objectives of standardisation of work are:  To reduce
be complete cooperation between the management and a given line or product to fixed types, sizes and characteristics.
the workers instead of individualism.  This principle To establish standards of excellence and quality in
is an extension of principle of ‘Harmony, Not Discord’. materials. To establish standards of performance of
Competition should be replaced by cooperation.  men and machines.  To establish interchange ability of
According to Taylor, there should be an almost equal manufactured parts and products.
division of work and responsibility between workers and
Simplification of Work is a technique to eliminate
management. The management should work almost
superfluous varieties, sizes and dimensions of products.
side by side with the workers helping, encouraging
It leads to reduced inventories, fuller utilization of
and smoothing the way for them.  For all important
equipment and increased turnover to reduce costs.
decisions taken by the management, workers should
3. Method Study:  The objective of method study is
be taken into confidence. The management should
to find the one best way of doing the work.  It helps
be open to any constructive suggestions made by the
to minimize the cost of production, improve the quality
employees and suitably reward them.
and maximize satisfaction of the customer.  It includes
4. Development of each and every person to his/
all activities from procurement of raw materials till the
her greatest efficiency and prosperity:  This
final product is delivered to the customer.
principle is concerned with efficiency of employees
which could be built in right from the process of For example, for designing a car, the assembly line production
employee selection.  The work assigned to employees would entail deciding the sequence of operations, place
should suit their capabilities. They should be given the for men, machines and raw materials etc. All this is part of
required training to increase their efficiency.  Efficient method study.
employees would produce more and earn more. This 4. Motion Study:  It is a technique to study the
will ensure their greatest efficiency and prosperity for movements like lifting, putting objects, sitting &
both the company and the workers. changing positions etc. which are undertaken while
Techniques of Scientific Management doing a well defined job.  The movement could be
1. Functional Foremanship:  Functional productive, incidental and unproductive.  Motion study
foremanship is a technique which aims to improve the seeks to eliminate unnecessary and wasteful movements
quality of supervision at shop floor.  Taylor identified so that it takes less time to complete a job efficiently.
a list of qualities of a good foreman or a supervisor. Taylor used stopwatches and various symbols and colours
Since all the qualities could not be found in a single to identify different motions. Through motion studies, Taylor
person, Taylor proposed eight specialists.  In this was able to design suitable equipment and tools to educate
technique, planning is separated from execution.  workers on their use. In recent times, Videography can be
It is an extension of the principle of division of work used to identify different types of motions/movement.
and specilaisation.  Taylor suggested four foremen for 5. Time Study:  It is a technique to determine the
planning and four foremen for execution. standard time taken by a worker of reasonable skill and
FACTORY MANAGER efficiency to perform a well-defined job.  The objective
of time study is to determine the number of workers
PLANNING INCHARGE PRODUCTION INCHARGE to be employed, frame suitable incentive schemes and
determine labour costs.
Instruction Route Time & Discipli- Speed Gang Repairs Inspectors
Card Clerk Clerk Cost Clerk narian Boss Boss Boss Time measuring devices (e.g., stopwatch) are used for each
element of task. The standard time is fixed for the whole task
by taking several readings/observations. For example, on the
Workman basis of several observations, it is determined that standard
The four foremen for planning and their role: time taken by the worker to make one lunch box is 30
 Instruction card clerk: To draft instructions for minutes. So, in one hour he/she will make 2 boxes. Assuming
the workers.  Route clerk: To specify the route of that a worker works for 8 hours per day and deducting one
hour for rest and lunch, it is determined that in 7 hours a
production.  Time and cost clerk: To prepare time and worker makes 14 boxes @ 2 boxes per hour. Now this is the
cost sheet.  Disciplinarian: To ensure discipline. standard task a worker has to do. Wages can be decided
The four foremen for execution and their role: accordingly. The method of time study will depend upon: (i)
 Speed boss: To be responsible for timely and accurate volume and frequency of the task, (ii) the cycle time of the
completion of the job.  Gang boss: To keep machines operation and (iii) time measurement costs.
and tools ready for operation by the workers.  Repair 6. Fatigue study:  A person is bound to feel tired
boss: To ensure proper working conditions of machines
physically and mentally if he/she does not rest while
and tools.  Inspector: To checking the quality of work. working. The rest intervals will help one to regain
2. Standardisation and simplification of work: stamina and work again with the same capacity.  This
Standardisation is the process of setting standards for will result in increased productivity.  Fatigue study
every business activity. These standards are benchmarks seeks to determine the amount and frequency of rest
which must be adhered during production process. intervals in completing a task.
The standards were set for every business activity –
standardisation of process, raw material, time, etc.

8
 For example, normally in a plant, work takes place in three Fayol versus Taylor– A Comparison
shifts of eight hours each. Even in a single shift a worker Fayol’s and Taylor’s contributions are complementary
has to be given some rest interval to take her/his lunch etc. to each other. However, the differences between their
If the work involves heavy manual labour then small pauses contributions are:
have to be frequently given to the worker so that she/he can
recharge her/his energy level for optimum contribution. BASIS HENRI FAYOL F.W. TAYLOR
There can be many causes for fatigue like long working Perspective Top level of Shop floor level of
hours, doing unsuitable work, having uncordial relations with
the boss or bad working conditions etc. Such hindrances in
management a factory
good performance should be removed. Basis of Personal Observations and
7. Differential piece wage system:  It is a formation experience experimentation
technique which differentiates between efficient and Focus Improving overall Increasing
less efficient workers.  It rewards the efficient workers administration productivity
and motivates the less efficient ones to improve their
efficiency.  In this plan, there are two piece rates – one Unity of Fayol strongly Taylor did not feel
for those workers who produce the standard output or Command propounded unity that it is important
more, and the other for those who produce less than of command, as under functional
the standard output. i.e. dual foremanship a
Example: Standard output (per worker per day) = 100 units. subordination worker received
Wage rate I = `4 per unit (for output >= 100 units) should be orders from eight
Wage rate II = `3 per unit (for output < 100 units). avoided. specialists.
Worker A produced 101 units and Worker B 99 units. Applicability Applicable Applicable to
Total wages of Worker A = 101 × 4 = ` 404 and of universally specialised
Worker B = 99 × 3 = `297. situations
Difference in units produced = 2
Difference in wages = `107. Expression General Theory of Scientific
According to Taylor, this loss of ` 107 should be enough Administration Management
for the inefficient worker (worker B) to be motivated to Personality Practitioner Scientist
perform better.
Application, HOTS, Evaluation and Multi-Disciplinary Questions
1. The principles of management are significant because of benefit of all. In this institution work is worship. The institution
(a) Increase in efficiency (b) Initiative (c) Optimum utilisation is open to everybody who has faith in its basic concepts.
of resources (d) Adaptation to changing technology (NCERT) To what aspect of the significance of principles of management
Ans. (c) Optimum utilisation of resources would you attribute the endeavours of BHEL and Shri Mahila
2. Principles of management help in meeting changing Griha Udyog Lijjat Papad?
environment requirements. What nature of principles of Ans. Principles of management help in fulfilling social
management does this highlight? responsibility.
Ans. Principles of management are flexible. 4. In a company, a sales manager has to negotiate a deal with
3. The principle of ‘equity’ today does not apply to wages alone. a buyer. She finds that if she can offer credit period of 60 days
Value to the customer, care for the environment, dealings she is likely to clinch the deal which is supposed to fetch the
with business associates would all come under the purview of company net margin of say `50 crores. But the company gives
this principle. Today, we find that Public Sector Undertakings power to the manager to offer a credit period of only 40 days.
(PSUs) have developed entire townships as, for example, BHEL As a result, she could not negotiate the deal with the buyer.
has developed Ranipur in Hardwar (Uttaranchal). (a) Is the sales manager liable for this? (b) Should the sales
Similarly, Shri Mahila Griha Udyog Lijjat Papad is famous for its manager be given a power to offer a credit period of 100 days?
quality Papad throughout the world. The organisation which Ans. (a) No, the sales manager is not responsible if she
could not negotiate the deal with the buyer. She should be
started with a modest loan of `80 now has a turnover of over
granted authority of offering credit period of 60 days in the
`301 crores. Its exports exceed `10 [Link] company has interest of the company. Here, the principle of Authority
at least 61 [Link] company is synthesis of three core and Responsibility is violated. A manager should have
values(or concepts), namely the concept of business, the necessary authority to carry out his responsibility.
concept of family and the concept of devotion. All its dealings (b) No, the sales manager should not be given a power to
are carried out on a sound and pragmatic footing-production offer a credit period of 100 days because it is not required.
of quality goods and at reasonable [Link], its member- An organisation should build safeguards against abuse of
sisters donate collectively for good causes from time-to-time managerial power.
according to their capacity. All the affairs of the institution 5. In a formal organisation, a worker cannot directly contact
are dealt with in a manner similar to that of a family carrying the CEO of the company. If at all he has to, then all the formal
out its own daily household chores. For the member-sisters, levels, i.e. foreman, superintendent, manager, director, etc
employees and well-wishers, the institution is never merely have to know about the matter. However, in an emergency it
a place to earn one’s livelihood – it is a place of worship to can be possible that a worker can contact CEO directly.
devote one’s energy not for his or her own benefits but for the (a) Identify the principle of management highlighted above.

9
(b) Name the device that can be used when in an emergency schools. The Dabbawalas operate in a group of 25-30 people
a worker can contact CEO directly. along with a group leader. Each group teams up with other
Ans. (a) Scalar Chain (b) Gang Plank groups in order to deliver the tiffin on time. They are not
6. Zoya International Ltd. is a multinational company in which transferred on frequent basis as they have to remember the
addresses of their customers. They follow certain rules while
people of various nationalities work together with a team spirit of
doing trade- No alcohol during working hours; No leave
unity and harmony in a discrimination free environment. Equal
without permission; Wearing of white cap & carrying ID cards
opportunities are available for everyone in the company. The
during business hours. Identify the principles of management
pay and compensation of all the employees is just and equitable. given by Fayol. (CBSE SQP 2016)
(a) State the principles of management being followed by Zoya Ans. (i) Stability of Personnel (ii) Discipline (iii) Esprit de corps
International Ltd. (b) What benefits will Zoya International Ltd.
10. Rajat joined as a CEO of Bharat Ltd, a firm manufacturing
derive by following the principles identified in part (a).
Computer hardware. On the first day he addressed the
Ans. (a) The principles of management being followed by employees. He said that he believed that a good company
Zoya International Ltd. are: (i) Espirit de corps (ii) Equity (iii) should have an employee suggestion system and he wished
Remuneration of employees to minimise employee turnover to maintain organisational
(b) Benefits that Zoya International Ltd. will derive by following efficiency. He informed all employees that he would ensure
the above principles are: (explain) that all agreements were clear, fair and there was judicious
7. Zaika Ltd. is a company manufacturing garments under the application of penalties. However, he said that he believed
brand name ‘Amol’. The management of the company does that lazy personnel should be dealt with sternly to send the
not give the workers reasonable time to show results. Even message that everyone was equal in the eyes of management.
the management does not promote a team spirit of unity and Also that he would want to promote a team spirit of unity
harmony among the workers. The workers often have to work and harmony among employees, which would give rise to a
under two superiors at the same time. spirit of mutual trust and belongingness among team members
(a) Identify and state the principles of management overlooked in and eventually minimise need for using penalties. He told all
the above case. (b) State the consequences which Zaika Ltd. will present that the interests of the organisation should take
have to face by not following the principles identified in part (a). priority over the interests of any one individual employee.
Identify the principles of management given by Fayol, which Rajat
Ans. (a) The principles of management overlooked by the
highlighted in his address to the employees. (CBSE SQP 2018)
management of Zaika Ltd. are: (i) Stability of Personnel (ii)
Ans. Following are the principles of management highlighted by
Esprit De Corps (iii) Unity of Command
Rajat in his address to the employees: (i) Initiative (ii) Stability
(b) The consequences which Zaika Ltd. will have to face by not
of personnel (iii) Discipline (iv) Equity (v) Espirit de corps
following the above principles are: (explain)
(vi) Subordination of individual interest to general interest.
8. ‘F’ limited was engaged in the business of food processing and
selling its products under a popular brand. Lately the business 11. According to Taylor, there are various ways of doing the
was expanding due to good quality and reasonable prices. Also job. To determine the best way there are several parameters.
with more people working the market for processed food was Right from procurement of raw materials till the final product
increasing. New players were also coming to cash in on the is delivered to the customer every activity is part of it. For
new trend. In order to keep its market share in the short run designing a car, the assembly line production would entail
the company directed its existing workforce to work overtime. deciding the sequence of operations, place for men, machines
But this resulted in many problems. Due to increased pressure and raw materials etc. All this is part of this technique of
of work the efficiency of the workers declined. Sometimes the scientific management. Ford Motor Company used this concept
subordinates had to work for more than one superior resulting in very successfully. Even now auto companies are using it.
declining efficiency. The divisions that were previously working Taylor also demonstrated that productivity increased to about four
on one product were also made to work on two or more products. times by following his another technique. On close examination
This resulted in a lot of overlapping and wastage. The spirit of of body movements, it is possible to find out the productive,
teamwork, which had characterised the company, previously incidental and unproductive movements. He used stopwatches
was beginning to wane. The quality of the products was and various symbols and colours to identify different movements.
beginning to decline and market share was on the verge of
Through this technique, Taylor was able to design suitable
decrease. Actually the company had implemented changes
equipment and tools to educate workers on their use. Identify
without creating the required infrastructure.
the two techniques of scientific management highlighted above.
Identify the principles/technique of management given by
Fayol/Taylor that were violated by the company. Ans. (i) Method Study (ii)Motion Study
Ans. (i) Unity of command (ii) Unity of direction (iii) Espirit 12. Factory system of production implies that managers serve as
de corps (iv) Fatigue study a link between the owners and the workers. Since as managers
9. Nutan Tiffin Box service was started in Mumbai by Mumbai they had the mandate to ‘get work done’ from the workers,
Dabbawalas. The Dabbawalas who are the soul of entire there always exist the possibility of a kind of class-conflict, the
Mumbai aim to provide prompt and efficient services by managers versus workers. Taylor recognised that this conflict
providing tasty homemade tiffin to all office goers at right time helped none, the workers, the managers or the factory owners.
and place. The service is uninterrupted even on the days of Both should realise that each one is important. In such a
bad weather, political unrest and social disturbances. Recently situation even trade unions will not think of going on strike
they have started online booking system through their website etc. According to Taylor, ‘Scientific management has for its
‘[Link]’. Owing to their tremendous popularity foundation the firm conviction that the true interests of the two
amongst the happy and satisfied customers and members, the are one and the same; that prosperity of the business cannot
dabbawalas were invited as guest lecturers by top business exist for a long time unless it is accompanied by prosperity/well-

10
being of its workers.’ Japanese work culture is a classic example Ans. Cooperation, Not Individualism
of such a situation. In Japanese companies, paternalistic style 16. In the factory set-up / system ,Taylor concentrated on
of management is in practice. There is complete openness improving the performance of the managerial figure with
between the management and workers. If at all workers go whom the workers are in face-to-face contact on a daily basis.
to strike they wear a black badge but work more than normal He is the pivot around whom revolves the entire production
working hours to gain the sympathy of the management. planning, implementation and control. In fact, Taylor identified
(a) Identify the principle of scientific management highlighted a list of qualities of that person such as intelligence, education,
in the above paragraph. tact, grit, judgement, special knowledge, manual dexterity,
(b) To achieve a state like that of Japanese work culture, and energy, honesty and good health. Taylor found that no
Taylor called for an important concept. Identify that concept. single person could fit them all. This prompted him to suggest
Ans. (a) Harmony, Not Discord (b) Mental Revolution a technique of scientific management which is an extension
13. Taylor’s prescription for efficiency depends to a large extent of the principle of division of work and specialisation to the
on personnel competencies. To increase efficiency, workers shop floor. This concept was extended to the lowest level of
should be given the required training. Efficient employees the shop floor. Identify the technique of scientific management
will produce more and earn more. Efficiency also requires the discussed in the above paragraph.
search for one best method of doing the job. The best method Ans. Functional Foremanship
chosen must lead to the determination of a fair day’s work.
17. Mr. Karan, HR Manager of a company, selects each
There must be a compensation system that differentiates
person scientifically, assigns work to each employee according
those who are able to accomplish/exceed the fair day’s work.
to her/his physical, mental and intellectual capabilities. He also
This system must be based on the premise that efficiency is
gives them the required training so that they may produce
the result of the joint efforts of the managers and the workers.
Thus, rather than quarrelling over the share in the resultant more and earn more. This will ensure their prosperity for both
surplus, the workers and managers should work in harmony company and workers. Identify the principle of management
for maximising the output rather than restricting it. highlighted in the above case.
Identify the principles / techniques of scientific management Ans. Development of each and every person to his or her
as given by Taylor discussed above. greatest efficiency and prosperity.
Ans. The principles of scientific management as given 18. In order to set up standard target of performance for
by Taylor discussed above are: (i) Development of each workers, it was necessary for Shiv Ltd. to fix standard time
and every person to his or her greatest efficiency and for workers to perform a particular job. For this Mr. Ganesh,
prosperity (ii) Harmony, Not Discord the Production Manager of the company observed the workers
The techniques of scientific management as given by Taylor when they were performing the job. He used a stop watch
discussed above are: (i) Method study (ii) Differential Piece in hand and noted down the average time taken by workers
Wage System for completion of the job. He repeated the same observation
14. According to Taylor, scientific method should be used to for 100 times and then calculated average time for the
analyse methods of production prevalent under the rule of performance of the job. This was fixed as the standard time
thumb. The best practices can be kept and further refined on the basis of which efficient and inefficient workers were
to develop a standard which should be followed throughout distinguished. Identify technique of scientific management
the organisation. These are the benchmarks, which must be followed by Mr. Ganesh.
adhered to during production. Its objective is to reduce a given Ans. Time Study.
line or product to fixed types, sizes and characteristics; and to 19. According to Taylor, even a small production activity like
establish interchange ability of manufactured parts and products. loading pigs of iron into boxcars can be scientifically planned
Scientific management also aims at eliminating unnecessary and managed. This can result in tremendous saving of human
diversity of products. Most large companies like Nokia, Toyota energy as well as wastage of time and materials. The more
and Microsoft etc. have successfully implemented these sophisticated the processes, greater would be the savings. In the
technique of scientific management. This is evident from their present context, the use of internet has brought about dramatic
large share in their respective markets. Identify the technique improvements in internal efficiencies and customer satisfaction.
of scientific management highlighted in the above paragraph. Identify the principle of management highlighted above.
Ans. Standardisation and Simplification of Work Ans. Science not Rule of Thumb
15. According to Taylor, management should not close its 20. ‘She/he keeps machines, materials, tools etc., ready for
ears to any constructive suggestions made by the employees operations by concerned workers’. Whose work is described by
.They should be rewarded for their suggestions which results this sentence under functional foremanship?
in substantial reduction in costs. They should be part of (a) Instruction Card Clerk (b) Repair Boss
management and, if any important decisions are taken, workers (c) Gang Boss (d) Route Clerk (NCERT)
should be taken into confidence. At the same time workers Ans. (c) Gang Boss
should desist from going on strike and making unreasonable 21. Which of the following statements best describes ‘Mental
demands on the management. Both should realise that they Revolution’?
need each other. In fact, when there will be open communication (a) It implies change of attitude.
system and goodwill there will be no need for even a trade (b) The management and workers should not play the game
union. Paternalistic style of management, whereby the of one upmanship.
employer takes care of the needs of employees, would prevail (c) Both management and workers require each other.
as in the case of Japanese companies. Identify the principle (d) Workers should be paid more wages. (NCERT)
of scientific management highlighted in the above paragraph. Ans. (c) Both management and workers require each other.

11
22. Sitaram, the production manager of X Ltd., wants to increase result in substantial time or cost reduction should be rewarded.
the speed of packaging. In order to identify and eliminate Identify the principles of Taylor and Fayol referred in the
unnecessary and unproductive movements of workers in above para. (CBSE 2014)
packaging, he installed a CCTV camera in the factory. Which Ans. (i) Cooperation, not Individualism (ii) Initiative
technique of scientific management is adopted by Sitaram? 28. Gopal, a manager of A Ltd. believes that the degree of
Ans. Motion Study
concentration of authority or its dispersal will depend upon
23. Identify the techniques of scientific management, which the situations and circumstances of each enterprise.
are described by the statements given below. (a) What characteristic of nature of principles of management
(a) Each specialist is to be assigned work according to her/ is highlighted in the above case? (b) Which principle of
his qualities. For example, those with technical mastery,
management is highlighted here? Explain.
intelligence and grit may be given planning work. Those with
Ans. (a) Flexible (b) Centralisation and Decentralisation
energy and good health may be assigned execution work.
(b) Devising new varieties instead of the existing ones and 29. Fayol, in one of his principles, insists that employees
eliminating unnecessary diversity of products. deserve fair and just wages or salary. But what is just and fair
(c) Fixing the standard time taken to perform a well-defined is determined by multiple factors, such as contribution of the
job so as to determine the number of workers to be employed; employee, paying capacity of the employer and also prevailing
frame suitable incentive schemes and determine labour costs. wage rate for the occupation under consideration.
(d) Finding out one best way of doing the job to minimise the (a) Identify and state the feature of principles of management
cost of production and maximise the quality and satisfaction highlighted above. (b) Identify and explain the principle of
of the customer. Ans. (a) Functional foremanship (b) Fayol highlighted above.
Standardisation and simplification of work (c) Time study Ans. (a) Contingent (b) Remuneration of Employees
(d) Method study 30. In today’s dynamic business environment, companies
24. Ram Kishan is the owner of a shoe manufacturing factory. are specialising in their core competency and divesting non-
He follows the traditional practice of fixing standard time of core businesses. In this context, one may cite the decision of
work based on his own past experiences. He could not match Hindustan Unilever Limited in divesting non-core businesses
the supply with the demand for shoes produced in his factory. of chemicals and seeds. Some companies are outsourcing
His son, Shyam who has done MBA from FMS joined business their non-core activities like share-transfer management and
and suggested to fix the standard time by analysing the work
advertising to outside agencies. So much so, that even core
scientifically. The production increased and supply could match
processes such as R&D, manufacturing and marketing are
the demand. Which principle of scientific management of
being outsourced today. Thus, significance of ‘Business Process
Taylor is highlighted in above case?
Outsourcing’(BPO) and ‘Knowledge Process Outsourcing’
Ans. Science, not rule of thumb.
(KPO) has increased.
25. Raghav, a manager, expects his subordinates to adapt to (a) Identify the significance of principles of management
the new environs and working conditions without giving them highlighted above. (b) Identify the principle of management
time to settle down. Identify the principle of management followed by the companies which are outsourcing their non-
overlooked by the manager. core and core activities.
Ans. Stability of Personnel Ans. (a) Principles of management help in meeting
26. What light does the idea of ‘Gang Plank’ show about the changing environment requirements.
nature of principles of management? (b) Division of work and specialisation
Ans. Flexible 31. Taylor’s techniques of management are universally
27. Principles of Taylor and Fayol are mutually complementary. applicable. Do you agree? Give reasons.
One believed that management should not close its ears to Ans. No, they are applicable to specialised situations. For
constructive suggestions made by the employees, while example: (i) Functional foremanship is not applicable in the
the other suggested that a good company should have an organisations following the principle of unity of command.
employee suggestion system, whereby suggestions which (ii) Differential piece wage system is also not applicable in
the organisation following the principle of equity.

Unit 3 Business Environment

3.1 Business Environment: Concept, Dimensions and Importance
Meaning of Business Environment Dimensions/Components/Elements of
Business environment means the sum total of all individuals, Business Environment
institutions and other forces that are outside the control of 1. Economic Environment: It consists of  Change
a business enterprise but that may affect its performance. in disposable income  Inflation rate  Value of rupee 
Interest rates  Stock market indices.

12
 Components of Economic Environment: Rates of saving 5. Technological Environment: Technological
and investment, Volume of imports and exports, Balance Environment includes forces relating to:  scientific
of payments and changes in foreign exchange reserves, improvements and innovations which provide new ways
Money supply in the economy, etc. of producing goods and services and  new methods
and techniques of operating a business.
Examples of Economic Environment affecting the
functioning of a business enterprise: Examples: Airline companies have internet and www pages
(i) In case of construction companies and automobile where customers can look for flight times, destinations and
manufacturers, low longer-term interest rates are beneficial fares and book their tickets online.
Innovations in different scientific and engineering fields
because they result in increased spending by consumers for such as lasers, robotics, food preservatives, medicine,
buying homes and cars on borrowed money. telecommunication, etc. have provided numerous
(ii) High inflation rates generally result in constraints on opportunities and threats for many different enterprises.
business enterprises as they increase costs of raw materials
or machinery and payment of wages and salaries. Features/Characteristics of Business
2. Social Environment: Social Environment includes Environment TUSI C DR
social forces like:  customs and traditions  values  1. Business environment is totality of all external
social trends and  society’s expectation from business. forces affecting a business. Therefore, it is aggressive
in nature.
Components of Social Environment: Attitudes towards
2. It includes both specific and general forces.
product innovations, Concern with quality of life, Life
expectancy, Shifts in the presence of women in the Specific forces (e.g. investors, customers, competitors
workforce, Birth and death rates, Educational system and and suppliers) affect individual enterprises directly and
literacy rates,Consumption habits, Composition of family. immediately in their day-to-day working. General forces
(e.g. economic, social, political, legal and technological
Social trends present various opportunities and threats to conditions) have impact on all business enterprises and
business enterprises. For example, the health-and-fitness thus may affect an individual firm only indirectly.
trend has created a demand for diet soft drinks, bottled 3. Its elements are closely inter-related.
(mineral) water and food supplements but harmed tobacco
and liquor businesses. For example, increased life expectancy of people and
increased awareness for health care have increased the
Customs and traditions, e.g. celebration of Diwali, Eid, demand for many health products and services like diet Coke,
Christmas, and Guru Parv in India provides significant fat-free cooking oil.
financial opportunities for greetings card companies, sweets
or confectionery manufacturers, tailoring outlets, etc. 4. It is dynamic as it keeps on changing (in terms of
technological improvement, shifts in consumer preferences or
3. Political environment: Political environment new competition in the market).
includes  political conditions such as general stability 5. It is uncertain as it is difficult to predict future
and peace in the country and  specific attitudes that happenings (especially when environment changes are taking
elected government representatives hold towards place frequently as in the case of information technology or
business. Attitudes of the government officials may fashion industries).
have either positive or negative impact upon business. 6. It is complex as it comprises of numerous
Components of Political Environment: The Constitution of interrelated and dynamic conditions which arise from
the country, Political practices of the ruling party, etc. different sources.
It is relatively easier to understand business environment in
Example: Political stability builds up confidence among parts but difficult to grasp in its totality. For example, it may be
business people to invest in the long term projects. Political difficult to know the extent of the relative impact of the social,
instability can shake that confidence. economic, political, technological or legal.
4. Legal environment: Legal environment includes 7. It is a relative concept as it differs from region to
 various legislations passed by the Government, 
region.
administrative orders issued by government authorities,
 court judgments and  the decisions rendered by For example, political conditions in the USA differ from those
various commissions and agencies at every level of the in Japan or China. Similarly, demand for sarees may be fairly
high in India whereas it may be almost non-existent in France.
government— Centre, state or local.
It is imperative for the management of every enterprise Importance of Business Environment
to obey the law of the land. Non-Compliance of laws CPT TOP
can land the business enterprises into legal problems. 1. It helps to identify opportunities and getting the
For example, knowledge of Companies Act 2013; Consumer first mover advantage instead of losing them to the
Protection Act, 1986, etc. is important for doing business. competitors.
Examples of government regulations to protect consumer’s
interests: (i) Advertisements for packets of cigarettes must carry ‘Opportunities’ refer to the positive external trends and
the statutory warning– ‘Cigarette smoking is injurious to health’ changes that will help to improve a firm’s performance. For
(ii) Advertisement of alcoholic beverages is prohibited on example, Maruti Udyog became the leader in the small car
Doordarshan (iii) Advertisements of baby food must necessarily market because it was the first to recognise the need for
inform that mother’s milk is the best. small cars in India, where petroleum prices were rising and
there was a large middle-class population.

13
2. It helps to identify threats on time which can be the basis for deciding the future course of action
serves as an early warning signal.(‘Threats’ refer to the (planning) or training guidelines for decision-making (policy).)
negative external trends and changes that will hinder a firm’s 4. It helps in tapping useful resources so that it can
performance. For example, if an Indian firm finds that an MNC is convert them into output that the environment desires.
entering the Indian market with new substitutes, it can improve
5. It helps in coping with rapid changes in an
the quality of its products, reduce cost of production, etc.)
increasingly dynamic environment.
3. It helps in assisting in planning and policy 6. It helps in improving performance by continuously
formulation. (An understanding of business environment monitoring the environment and adopting suitable practices.

3.2 Government Policy Changes and their Impact on Business

Government Policy Changes economy. Cash transactions declined. Digital transactions
Liberalisation means removal of unnecessary controls using Rupay cards and Debit Cards, etc. increased.
and restrictions on business. (e.g. Abolishing licensing Impact on Business and Industry NRI - LM2 N
requirement, Freedom in deciding the scale of business,
1. Increasing competition: Competition has
Freedom in fixing the prices, Reduction in tax rates, Simplifying
procedures for imports and exports, Making it easier to attract increased for Indian firms due to the entry of foreign firms
foreign capital, etc.) especially in service industries like telecommunications,
Privatisation means giving greater role to the private airlines, banking, insurance, etc.
sector in the nation building process and a reduced role 2. More demanding customers: Customers have
to the public sector. (‘Disinvestments’ means transferring become more demanding as they have a wider choice.
the public sector enterprises to the private sector.) 3. Rapidly changing technological environment:
Globalisation means integrating the various Technological environment is rapidly changing creating
economies of the world leading towards the emergence tough challenges for smaller firms.
of a cohesive global economy. (e.g. Removal of quantitative 4. Necessity for change: It has become necessary
as well as tariff restrictions, Import liberalisation and export for enterprises to change and modify their operations
promotion through rationalisation of the tariff structure and to cope with the turbulent market forces.
foreign exchange reforms, etc.) 5. Need for developing human resource: There is a
Demonetisation is the act of the government to cancel need for developing human resource as the new market
the legal tender status of a currency unit in circulation. The conditions require people with higher competence and
aim of demonetisation was to curb corruption, especially greater commitment.
the accumulation of ‘black money’ generated by income 6. Market orientation: Enterprises are forced to
that has not been declared to the tax authorities. adopt a market orientation so that they could study the
Features of Demonetisation: market and produce goods accordingly.
1. Demonetisation is a tax administration measures. 7. Loss of budgetary support to the public sector:
People with black money had to declare their There is loss of budgetary support to the public sector
unaccounted wealth and pay tax at a penalty rate. as the government felt that the public sector needs
2. Demonetisation is a measure to improve tax compliance to be more efficient in order to survive and grow.
as tax collection increased because of increased desclosure.
Managerial Responses to Business Environment: (i) Use
3. Demonetisation led to channelizing more savings through of latest technology (ii) Customer focus (iii) Diversification
the formal financial system. Bank deposits increased. (iv) Brand building (v) Sharply improved compensation
4. Demonetisation aimed to create a less-cash or cash-lite levels

Application, HOTS, Evaluation and Multi-Disciplinary Questions

1. Lately many companies have planned for significant 2. Mr. Ajay after completing MBA from USA comes to India to
investment in organised retailing in India. Several factors have start a new business under the banner Ecom Creations Ltd.
prompted their decisions in this regard. Customer income is He launches a new product in e-learning for Senior Secondary
rising. People have developed a taste for better quality products School students in Commerce stream, which already has an
even though they may have to pay more. The aspiration established market in UK and USA but not in India. His business
levels have increased. The government has also liberalised starts flourishing in India. Now more Indian companies entered
its economic policies in this regard and permitted even cent into the market with other subjects also.
percent foreign direct investment in some sectors of retailing. Identify and quote the lines from above para which highlight the
Identify changes in business environment under different significance of understanding business environment.
heads that have facilitated the companies’ decisions to plan (CBSE SQP 2015)
significant investments in organised retailing. (NCERT) Ans: (a) “Comes to India to start a new business ... launches a
Ans. (i) Economic environment (”Customer income is rising.”) new product in e-learning for Senior secondary school students
(ii) Social environment (”People have developed a taste for in Commerce stream.” (i) It helps in assisting in planning
better quality products...”) and policy formulation. (ii) It helps the firm to identify
(iii) Political environment (”The government ... permitted even opportunities and get the first mover advantage.
cent percent foreign direct investment in some sectors of retailing.”) (b) “His business starts flourishing in India.” (iii) It helps in
improving performance.

14
(c) “Now more Indian companies entered into the market with be applicable to all the public sector undertakings for wages
different subjects also.” (iv) It helps the firm to identify threats disbursement using e-payment options. This is another
and early warning signals. milestone in the direction to further push to cashless economy.
3. Naman and Govind after finishing their graduation under Identify the dimensions of business environment which relate
vocational stream decided to start their own travel agency to the above mentioned case. (CBSE SQP 2018-19)
which will book Rail Tickets and Air Tickets on commission Ans. (a) Political Environment (b) Legal Environment (c)
basis. They also thought of providing tickets within ten minutes Technological Environment
through the use of internet. They discussed the idea with their 7. Which of the following is an example of social environment?
Professor Mr. Mehta who liked the idea and suggested them (a) Money supply in the economy (b) Consumer Protection Act
to first analyse the business environment which consists of (c) The Constitution of the country (d) Composition of family
investors, competitors and other forces like social, political Ans. (d) Composition of family
etc. that may affect their business directly or indirectly. He 8. The Reserve Bank of India (RBI) increased the Cash Reserve
further told them about the technological improvements and Ratio (CRR) by 0.25 Basis Points to overcome the inflationary
shifts in consumer preferences that were taking place and trends in the economy. Identify the dimension of business
hence they should be aware of the environmental trends and environment highlighted int the given statement.
changes which may hinder their business performance. He Ans. Economic environment.
emphasised on making plans keeping in mind the threat posed
9. It is the process by which government control over the
by the competitors, so that they can deal with the situation
industry is being loosened. Give the term to which this
effectively. This alignment of business operations with the
statement is trying to indicate.
business environment will result in better performance.
Ans. Liberalisation
(i) Identify the component of business environment highlighted
in the above Para. 10. Identify the following major concepts related to government
(ii) State any two features of business environment as policy changes:
discussed by Professor Mehta with Naman and Govind. (a) Ceasing the legal tender status of large denomination
(iii) Also state two points of importance of business environment currency notes.
as stated by Professor Mehta in the above situation. (b) The end of the licence-permit-quota raj.
(CBSE SQP 2017) (c) Transfer of ownership and management of the enterprise
Ans. (i) Technological Environment to the private sector.
(ii) (a) Specific and general forces (b) Dynamic nature (d) Import liberalisation and export promotion through
(iii) (a) It helps the firm to identify threats and early warning rationalisation of the tariff structure and foreign exchange
signals. (b) It helps in planning and policy formulation. reform.
4. Phillips, a company manufacturing light bulbs incurred Ans. (a) Demonetisation (b) Liberalisation (c) Privatisation
(d) Globalisation
heavy expenditure on scientific Research and Development
and discovered a technology that made it possible to produce 11. Identify the following major concepts related to government
an energy efficient light bulb that lasts at least twenty times as policy changes and one impact of each on business and industry:
long as a standard bulb. It resulted in growth and profitability (a) Removal of quantitative as well as tariff restrictions
of the company. (b) Diluation of stake of the government in the public sector
(a) Identify the dimension of business environment mentioned enterprises through ‘disinvestment’.
above. (b) State the point of importance of business Ans. (a) Globalisation, Impact: Increasing competition
(b) Privatisation, Impact: Loss of budgetary support to the
environment mentioned above by quoting the lines.
public sector
Ans. (a) Technological environment
(b) Business environment helps a firm to improve its 12. Identify the impact of the government policy changes of
performance. ‘It resulted in growth and profitability of the liberalisation and globalisation from the following statements:
company.’ (a) Earlier firms used to produce first and go to the market for
5. ‘Konark Ltd.’ is an electronic goods manufacturing enterprise sale later. In a fast changing world, the firms have to study and
situated in Shivpuri, Madhya Pradesh. It is earning a very analyse the market first and produce goods accordingly.
low revenue in comparison to a competing electronic goods (b) In a regulated environment of pre-1991 era, the firms
manufacturing enterprise, ‘Nova Ltd.’ situated in Mumbai. could have relatively stable policies and practices. After 1991,
Both Konark’s and Nova’s operations are affected directly by the market forces have become turbulent as a result of which
the investors, customers, competitors and suppliers, which the enterprises have to continuously modify their operations.
are unique to their respective locations. In addition to this, (c) Increased competition in the market gives the customers
individual firms of this field are affected indirectly by the wider choice in purchasing better quality of goods and services.
factors like the money supply in the economy, composition of Ans. (a) Market orientation (b) Necessity for change (c)
the families, the technological changes, etc. More demanding customers
Identify the feature of the concept discussed in the above 13. It is heartening that the implementation of compliance
paragraph. requirements of the Companies Act, 2013 has progressed
Ans. Specific and General Forces substantially with NIFTY 500 companies. Data shows a
6. The Government of India has recently come up with an significant increase in women’s participation in the top
amendment to Section 6 of the Payment of Wages Act 1936, to management of Indian Companies from 5% few years ago to
allow employers of certain industries to make payment through 13% now. Even companies which are not in NIFTY 500 have
various electronics modes of payments. The amendment will undertaken drives to increase women’s participation across
different areas of work. The government had also announced
that it would support such companies. Identify and explain the
15
dimensions of business environment discussed above which 2000 issued by Reserve Bank of India after the announcement.
brought about the change. (CBSE SQP 2018) Discuss ‘demonetisation’ in the light of the changes in business
Ans. (a) Legal environment (b) Political environment environment under various heads. (NCERT)
14. The Government of India announced ‘demonetisation’ of ` Ans. (a) Legal environment
500 and ` 1,000 currency notes with effect from the midnight “Government of India announced ‘demonetisation’ of `500 and
`1000 currency notes...”
of November 8, 2016. As a result, the existing ` 500 and
(b) Economic environment: “New currency notes of the
` 1000 currency notes ceased to be legal tender from that denomination of `500 and `2000 issued by Reserve Bank of
date. New currency notes of the denomination of ` 500 and ` India after the announcement.”

Unit 4 Planning
4.1 Planning: Concept, Process, Importance and Limitations
Concept of Planning [Link]
Planning is define as the process of:  setting objectives most feasible, profitable and with least negative consequences.
for a given time period,  formulating various courses Sometimes, a combination of plans may be selected instead of
of action to achieve them and then  selecting the best one best course. The manager will have to apply permutations
possible alternative from among the various courses of and combinations and select the best possible course of action.
action available. 6. Implementing the plan: It means putting the plan
Planning is concerned with both ends and means i.e., what into action.
is to be done and how it is to be done. This is the essence This is the step where other managerial functions also come
of planning. But before doing something, the manager must into the picture. This step would also involve organising for
formulate an idea of how to work on a particular task. Thus, labour and purchase of machinery.
planningiscloselyconnectedwithcreativityandinnovation.
7. Follow up action which involves seeing that activities
The plan that is developed must have a given time frame. If are performed according to plans. Monitoring the plans is
time factor is not taken into consideration, conditions in the equally important to ensure that objectives are achieved.
environment may change and the plan may go waste. Thus,
Features of Planning CM OP2D F
planning is a futile exercise if it is not implemented on time.
1. Planning focuses on achieving objectives as specific
Steps in Planning Process SD IES IF goals are set out in the plans along with activities to be
1. Setting objectives: The first and foremost step undertaken to achieve the goals. (Thus, planning is purposeful.)
is setting objectives. Objectives may be set for the 2. Planning is futuristic as it involves looking ahead and
entire organization and each department or unit within preparing for the future (based on forecasting which involves
the organization. Objectives or goals specify what the anticipating future events and drawing plans accordingly).
organization wants to achieve. Objectives should be 3. Planning involves decision making as it involves
stated clearly. evaluation of each alternative course of action and
2. Developing Premises: Planning premises are the choosing the most appropriate one.
assumptions made about the future on the basis of 4. Planning is a mental exercise. Planning is an
which the plans are drawn. (Assumptions are made in the intellectual activity of thinking rather than doing, because
form of forecasts about the demand for the product etc. Planning planning determines the action to be taken. (Planning
premises are base material upon which plans are to be drawn.) requires logical and systematic thinking, application of mind
3. Identifying alternative courses of action which involving foresight, intelligent imagination and sound judgement.)
may be used to achieve the set objectives. 5. Planning is the primary function of management as
4. Evaluating alternative courses of action: The next it lays down the basis for all other functions of management.
step is to weigh the pros and cons of each alternative. All other managerial functions are performed within the
The positive and negative aspects (i.e., feasibility and framework of the plans drawn. Thus, planning precedes other
consequences) of each proposal are evaluated. functions. This is also referred to as the ‘primacy of planning’.
For example, in financial plans, the risk-return trade-off is 6. Planning is pervasive as it is required in all
very common. The more risky the investment, the higher the organisations, at all levels and in all departments.
returns it is likely to give. To evaluate such proposals detailed
calculations of earnings, earnings per share, interest, taxes, Planning is not an exclusive function of top management.
dividends are made and decisions taken. Planning is what managers at all levels and in all departments
do.  Top management undertakes planning for the whole
5. Selecting the best alternative which involves organisation.  Middle management does the departmental
scrutinizing the feasibility and consequences of each planning.  At the lowest level, day-to-day operational
alternative before a choice is made. planning is done by supervisors.

16
7. Planning is continuous because a plan is framed is measured. (A comparison of actual performance with the
and implemented for a specific period of time and is standards helps to identify the deviations and to take corrective
followed by another plan and so on. action. Thus, planning is a prerequisite for controlling.)
Importance of Planning DR SODI Limitations of Planning RS DTC2
1. Provides direction: Planning provides directions by 1. Planning leads to rigidity because once a well
deciding in advance what action should be taken. defined plan is drawn, the managers may not be in a
Objectives/goals defined in a plan act as a guide for action position to change it with the changed circumstances.
of managers and employees. Departments and individuals 2. Planning may not work in a dynamic environment
are able to work in coordination.  If there was no planning, as the environment in which a business operates keeps
employees would be working in different directions and the on changing and planning may not foresee everything.
organisation would not be able to achieve its desired goals. 3. Planning reduces creativity as middle management
2. Reduces the risks of uncertainty: Planning and other decision makers are neither allowed to deviate
reduces the risks of uncertainty by anticipating changes from plans nor are they permitted to act on their own.
and developing managerial responses to them. (Thus, their initiative or creativity gets lost or reduced. Planning
Planning cannot eliminate changes/uncertainties but can in a way reduces creativity since people tend to think on the
predict them and prepare contingency plans to deal with them. same lines as others.)
3. Reduces overlapping and wasteful activities: 4. Huge costs are involved in formulating the plans
(e.g. expenses on boardroom meetings, discussions with
Planning reduces overlapping and wasteful activities
professional experts, etc.) and sometimes costs incurred
by coordinating the activities of different divisions,
departments and individuals. may not justify the benefit derived from the plan.
4. Promotes innovative ideas: Planning promotes 5. Planning is a time consuming process as checking
innovative ideas requiring application of mind and foresight. accuracy of facts may involve lot of time and sometimes
not much time is left for its implementation.
It is the most challenging activity for the management as it guides 6. Planning does not guarantee success as
all future actions leading to growth and prosperity of the business.
managers have a tendency to rely on previously tried
5. Facilitates decision making: Planning facilitates and tested successful plans which may create a false
decision making by making a choice from among the sense of security and lead to failure.
alternative courses of action.
6. Establishes standards for controlling: Planning The success of an enterprise is possible only when plans
are properly drawn up and implemented. Planning is
establishes standards against which actual performance meaningless unless it is translated into action.

4.2 Types of Plans

A single-use plan is developed for a one-time event or Rules are usually the simplest type of plans because there is
project, not repeated in future, e.g. budgets, programmes. no compromise or change unless a policy decision is taken.
A standing plan is used for activities that occur regularly
4. Method: Method is the prescribed way or manner
over a period of time, e.g. policies, procedures, methods and
rules. It enhances efficiency in routine decision-making. in which a task has to be performed taking into
consideration the objective of the organisation. It deals
1. Objectives: Objectives are the end points which are with a task comprising of one step of a procedure and
numerically expressed, that the management seeks to specifies how this step is to be performed. Selection
achieve within a given time period, e.g. increasing sales of right method saves time, money and effort and
by 10% in the next quarter. ( set by top management  focus increases efficiency. Example: For imparting training
on broad general issues  serve as a guide for overall planing) to higher level managers orientation programmes,
2. Strategy: A strategy provides broad contours of an lectures and seminars can be organised whereas on the
organsiation’s business and refers to future decisions job methods are appropriate at the lower level.
defining the organisation’s direction and scope in the 5. Policy: Policy is a general guideline that guides
long run. Example: Marketing strategy of an organisation thinking or channelises energies towards a particular
– which channel of distribution to use? what is the pricing direction. It defines the broad parameters within which
policy? and how to advertise the product? a manager may function. It brings uniformity in decision
A strategy is a comprehensive plan for accomplishing making and action for interpretation of strategy.
an organisation’s objectives taking competition and Example: Recruitment Policy, Purchase Policy, etc.
business environment into consideration. It includes three 6. Procedure: It consists of sequence of routine steps
dimensions: (i) determining long-term objectives of the performed in a chronological order to carry out activities
enterprise, (ii) adopting a particular course of action, and within a broad policy framework. It details the exact
(iii) allocating resources necessary to achieve the objectives.
manner in which any work is to be performed. Example:
3. Rule: A rule is a statement that specifies what is to be Procedure for reporting progress in production.
done or not to be done. It is a guide to behaviour. A rule 7. Budget: A budget is a statement of expected results
does not allow for any flexibility or discretion and prescribes for a given future period expressed in numerical terms.
a penalty for violation. Example: No smoking in office. Examples: Sales budget, Cash budget, etc.

17
 A budget is a statement of expenses, revenue and income for any course of action. Examples: Construction of a
a specified period. A budget is also a control device from which shopping mall, opening a new department, etc.
deviations can be taken care of. But making a budget involves Programmes will include the entire gamut of activities as
forecasting, therefore, it is a fundamental planning instrument. well as the organisation’s policy and how it will contribute to
8. Programme is a detailed statement about a project the overall business plan. The minutest details are worked
which outlines the objectives, policies, procedures, out i.e., procedures, rules, budgets, within the broad policy
rules, resources required and the budget to implement framework.

Application, HOTS, Evaluation and Multi-Disciplinary Questions

1. Suhasini a home science graduate from a reputed college localities of Ahmedabad for each month of the year to earn a
has recently done a cookery course. She wished to start her profit of 20% on Capital employed. He sets a sales target of
own venture with a goal to provide ‘health food’ at reasonable `2000000 in the current year with a 10% increase every year.
price. She discussed her idea with her teacher (mentor) who He then set the criteria for selecting suppliers from whom he
encouraged her. After analyzing various options for starting her would make purchases of raw material. The planning paid off
business venture, they shortlisted the option to sell readymade and the business was able to achieve its targets. Identify any
and ‘ready to make’ vegetable shakes and sattu milk shakes. two types of plans by quoting the lines from the above.
Then, they both weighed the pros and cons of both the Ans. (i) Objective – ‘He set a sales target of ` 2000000 in the
shortlisted options. Name the function of management being current year with a 10% increase every year.’
discussed above. (CBSE SQP 2016) (ii) Policy – ‘He then set the criteria for selecting suppliers
from whom he would make purchases of raw material.’
Ans. Planning.
6. Gunjan is the director of Zyesha Ltd., a ladies garments
2. Super Fine Rice Ltd. has the largest share of 55% in the
manufacturing company. In a Board’s meeting, she addresses
market. The company’s policy is to sell only for cash. In 2015,
certain questions such as What is the demand for the product?
for the first time company’s number one position in the industry Which channel of distribution to use? What is the pricing
has been threatened because other companies started selling policy? How do we advertise the product?
rice on credit also. But the managers of Super Fine Rice Ltd. Identify the type of plan highlighted above.
continued to rely on it s previously tried and tested successful Ans. Strategy
plans which didn’t work because the environment is not static. 7. Panorama Ltd. is a company selling LED television sets.
This led to decline in sales of Super Fine Rice Ltd. The above Shivek, a manager of the company, makes certain decisions
situation is indicating two limitations of planning which led to in the nature of manufacturing or buying decisions, should the
decline in it sales. Identify these limitations. (CBSE SQP 2017) company make or buy its requirements of packages, printing
Ans. (i) Planning does not guarantee success. of labels, selection of vendors for procuring supplies?
(ii) Planning may not work in dynamic environment. Identify the type of plan highlighted above.
3. Having transformed 2500 Kirana stores across eight cities Ans. Policy (The manager of Panorama Ltd. is making the
in to virtual super markets, the start up Quick Bizz further company’s Purchase Policy.)
decided in advance, to collaborate with 15000-20000 store 8. Identify the types of plan:
owners in top 30 cities of the country by the end of this year. (i) It may consist of identifying steps, procedures required for
The company has set its eye on digitizing over 100000 kirana opening a new department to deal with other minor work.
stores over next 18-24 months. Identify the step in the process (iii) It specifies the organisation’s response to a certain situation.
of one of the functions of management discussed above. (v) It provides the manner in which a task has to be performed.
(CBSE SQP 2018) (vii) It is a general plan prepared by top management outlining
Ans. Setting objectives resource allocation, priorities and takes into consideration the
business environment and competition.
4. Laxmi Chemicals Ltd., a soap manufacturing company
Ans. (i) Programme (iii) Policy (v) Method (vii) Strategy
wanted to increase its market share from 30% to 55% in
9. Ravi was working in a mobile company. It had an
the long run. A recent report submitted by the Research & assembling unit in Noida. In this assembling unit, standard
Development Department of the company had predicted a output of producing 12 units per day per worker had been
growing trend of herbal and organic products. On the basis of set. While assembling mobile phones, he realised that by
this report the company decided to diversify into new variety of simply reorganising the sequence of tasks more units can
soaps with natural ingredients having benefits and fragrances be assembled at a lower cost. He went to his supervisor and
of Jasmine, Rose, Lavendear, Mogra, Lemon Grass, Green informed him about his new discovery. The supervisor, on the
Apple, Strawberry etc. The Unique Selling Proposition (USP) contrary, instructed him to carry out work as per the method
was to promote eco-friendly living in the contemporary life and techniques decided earlier.
style. The company decided to allocate ` 30 crores to achieve Identify this limitation of one of the functions of management.
the objective. Identify the type of one of the functions of Ans. Planning reduces creativity.
management mentioned above which will help the company to 10. Mr. Mohan, Financial manager of ABC Ltd., has prepared
acquire dominant position in the market. (CBSE SQP 2016) the annual Statement of proposed expenditure to be presented
Ans. Strategy in the Annual General Meeting. Identify the type of plan
5. Vardan Patel started the business of preparation and formulated by the financial manager. (CBSE SQP 2018-19)
supplying sweets through home delivery at a production cum Ans. Budget
show-room ‘Express Sweets’ at Ahmedabad. He made a plan 11. Rahul decided to start a desert cooler manufacturing
forecasting the sales of different types of sweets in various business. He sets the target of earning 20% profit on sales in

18
the first year. He was very much concerned about the future Ans. (a) Planning (b) (i) Identifying alternative courses of
prospects of the business, which were uncertain. For this, he action. (ii) Evaluating alternative courses of action.
gathered information from the potential market and analyzed 12. An auto company C Ltd. is facing a problem of declining
that the demand for wall-mounted coolers is increasing day by market share due to increased competition from other new and
day. He used this information as the base for future planning. On existing players in the market. Its competitors are introducing
the basis of the gathered information, he called a meeting in the lower priced models for mass consumers who are price
following week to find new methods to achieve the objective. sensitive. C Ltd. sets its long-term objective to increase profits
(a) Identify the function of management involved in the above case. by 20% in the next year. For quality conscious consumers, the
(b) Enumerate the next two steps, which have been followed company is introducing new models with added features and
by Rahul that are related to the process of one of the functions new technological advancements. Identify the type of plan the
of management. (CBSE SQP 2018-19) company is preparing. (NCERT)
Ans. Strategy

Unit 5 Organising
5.1 Organising: Concept, Process and Importance
Organising as a Process 3. Assignment of duties to job positions: Jobs are
Organising is the process of defining and grouping the allocated to the members of each department according
activities of the enterprise and establishing authority to their skills and competencies for effective performance.
relationships among them. 4. Establishing reporting relationships: Authority-
 The ‘organising’ function is a means for translating plans responsibility relationships are clearly established so
into action. It involves organising resources needed , that each individual knows who he has to take orders
optimum utilisation of resources, translation of work into from and to whom he is accountable. This helps in
attainable tasks, empowering the workforce to accomplish coordination amongst various departments.
these tasks, etc.  The management function of organising
ensures that efforts are directed towards the attainment of Importance of Organising SAD-C-GOA
goals laid down in the planning function in such a manner 1. Specialisation: A systematic allocation of jobs
that resources are used optimally and people are able to enhances productivity and leads to specialisation
work collectively and effectively for a common purpose. 
Organising is the process of identifying and grouping the because of the repetitive performance of a particular task.
work to be performed, defining and delegating responsibility 2. Clarity in working relationships: Authority-
and authority, and establishing relationships for the purpose responsibility relationships are clearly established so
of accomplishing objectives.  Organising essentially implies that each individual knows who he has to take orders
a process which coordinates human efforts, assembles from and to whom he is accountable.
resources and integrates both into a unified whole to be 3. Effective administration: Clarity in working
utilised for achieving specified objectives.  Organising
relationships enables proper execution of work.
can be defined as a process that initiates implementation
of plans by clarifying jobs and working relationships and Management of an enterprise becomes easy and this
effectively deploying resources for attainment of identified brings effectiveness in administration.
and desired results (goals).  Organising is a process by 4. Optimum utilisation of resources by avoiding
which the manager brings order out of chaos, removes duplication of work and minimising wastage of resources
conflict among people over work or responsibility sharing and efforts.
and creates an environment suitable for teamwork. 5. Growth and expansion by allowing a business
Steps in the Process of Organising IDAE enterprise to add more job positions, departments and
1. Identification and division of work: Identifying product lines.
and dividing the work into manageable activities so that 6. Adaptation to change by allowing the organisation
duplication can be avoided. structure to be suitably modified according to the
2. Departmentalisation: Activities of a similar nature changes in business environment.
are grouped together. It facilitates specialisation. 7. Development of personnel by effective delegation
(Departments can be created on the basis of territory (north, of work to subordinates.
south, etc.) and products (garments, footwear etc).)

5.2 Organisation Structure: Functional and Divisional

Organising as a Structure gives shape to the organisational structure. Span of
Organisation structure is the outcome of the organising management refers to the number of subordinates that
process. The organisation structure of a firm is shown can be effectively managed by a superior. This determines
in an organisation chart. The span of management the levels of management in the organisation structure.

19
Organisation structure refers to the framework within Each division works as a profit center where the divisional
which managerical and operating tasks are performed. head is responsible for the profit or loss of his division.
 It specifies the relationship between people, work Each division is multi-functional because within each division
and resources.  It allows coordination among human, functions like production, marketing, finance, etc. are
physical and financial resources.  A proper organisation performed together to achieve a common goal.
structure is essential to ensure a smooth flow of MANAGING DIRECTOR

communication, better control over business operations

and achievement of organisational goals. Footwear Garments
The need for an adequate organisation structure is felt
when an enterprise grows in size or complexity because Human Resource Marketing Finance Production

coordination then, becomes difficult due to new functions

or increase in number of products. Human Resource Marketing Finance Production

Functional Structure Organisation Chart Showing Divisional Structure

Functional structure is an organisational structure formed Divisional structure is suitable for those business enterprises
by grouping of jobs of similar nature according to functions where a large variety of products are manufactured using
and organising these major functions as separate different productive resources.
departments. For example, a company manufacturing When an organisation grows and needs to add more
garments may have separate departments for employees, create more departments and introduce new levels
Production, Marketing, Finance, etc. of management, it will decide to adopt a divisional structure.
MANAGING DIRECTOR Advantages
1. Product Specialisation helps in the development of
varied skills in a divisional head and this prepares him
for higher positions.
Human Resource Marketing Finance Production

Organisation Chart Showing Functional Structure 2. Divisional heads are accountable for profits, as
Functional structure is suitable for those enterprises which revenues and costs related to different departments can
have only one category of products to offer. However, the size be easily identified and assigned to them.
of the organisation is large, it has diversified activities and 3. It promotes flexibility and initiative because each
operations require a high degree of specialisation. division functions as an autonomous unit which leads to
Advantages faster decision making.
1. It leads to occupational specialisation since emphasis 4. It facilitates expansion and growth as new divisions
is placed on specific functions. (This promotes efficiency can be added without interrupting existing operations
in utilisation of manpower as employees perform similar tasks by merely adding another divisional head and staff for
within a department and are able to improve performance.) the new product line.
2. It promotes control and coordination within a department Limitations
because of similarity in the tasks being performed. 1. Conflict may arise among different divisions with
3. It increases managerial and operational efficiency. reference to allocation of funds.
4. It lowers cost as it reduces duplication of effort. 2. It may lead to increase in costs since there may be a
5. It makes training of employees easier as it focuses on duplication of activities across products.
a limited range of skills. 3. Divisional interests may supersede organisational
6. It ensures that different functions get due attention. interests.
Disadvantages Functional Divisional Structure
Basis
1. It may lead to functional empires, i.e. pursuing own Structure SRCC FM
departmental interests at the cost of organisational interests. Formation Formation is based Formation is based on
2. Inter-departmental conflicts: A conflict of interests on functions product lines and is
may arise when the interests of two or more supported by functions
departments are not compatible. (For example, the sales
Specialisation Functional Product specialisation
department insisting on a customer friendly design may cause
difficulties in production.) specialisation
3. It may lead to problems in coordination as information Cost Functions are not Duplication of resources
has to be exchanged across functionally differentiated duplicated, hence in various departments;
departments. economical hence costly
4. It may lead to inflexibility as people with same skills Coordination Difficult for a multi- Easy; because all
and knowledge base may develop a narrow perspective product company functions related to a
and may not appreciate others’ point of view. particular product are
Functional heads do not get training for top management positions integrated in one division
because they are unable to gather experience in diverse areas. Responsibility Difficult to fix Easy to fix responsibility
Divisional Structure responsibility on a for performance
Divisional structure is an organisation structure particular department
comprising of separate business units or divisions Managerial Difficult; as each Easier; autonomy as well
created on the basis of different products, geographical Development functional manager as chance to perform
area, customer groups etc. has to report to the multiple functions help in
For example, a large company may have two divisions, top management managerial development.
say Footwear and Garments.
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 5.3 Formal and Informal Organisation
Formal Organisation 5. It has no definite structure or form (because it is a
Formal organisation refers to the organisation structure complex network of social relationships among members.)
which is designed by the management to accomplish its Advantages
objectives. The structure in a formal organisation can 1. It leads to faster spread of information as well a quick
be functional or divisional. feedback (since fixed lines of communication are not followed.)
 The formal organisation is a system of well-defined jobs, 2. It fulfills the social needs of the members. (This
each bearing a definite measure of authority, responsibility enhances their job satisfaction since it gives them a sense of
and accountability.  Formal organisation is a system of belongingness in the organisation.)
consciously coordinated activities of two or more person 3. It contributes towards fulfillment of organisational
towards a common objective. objectives by compensating for inadequacies in the formal
Features organisation. (For example, employees‘ reactions towards
1. It is deliberately designed by the top management to plans and policies can be tested through the informal network.)
facilitate smooth functioning of the organisation. Limitations
2. It specifies the relationships among various job 1. It may spread rumours which may work against the
positions. This clarifies who has to report to whom. interest of the formal organization. (Thus, it becomes a
3. It places more emphasis on work rather than destructive force.)
interpersonal relationships. 2. It may lead to resistance to change which may delay
4. It is a means to achieve the objectives as it lays down or restrict growth.
rules and procedures for their achievement. 3. It pressurizes members to conform to group norms
5. It coordinates the efforts of various departments.
or expectations which may be against organisational
Advantages
1. It is easier to fix responsibility since mutual interest.
relationships are clearly defined. Informal organisation cannot be altogether eliminated.
2. It avoids duplication of effort since there is no  It would be in the best interest of the organisation if the
ambiguity in the role that each member has to play. existence of such groups is recognised and the roles that their
3. It maintains unity of command through an established members play are identified.  The knowledge of such groups
chain of command can be used to gather their support and consequently lead
4. It leads to accomplishment of goals by providing a to improved organisational performance.  Such groups can
framework for the operations to be performed. also provide useful communication channels (i.e. grapevine).
5. It provides stability to the organisation because there Instead of confronting them, the management should skillfully
are specific rules to guide behaviour of employees. take advantage of both the formal and informal organisation
so that work continues smoothly.
Limitations
1. Procedural delays—delay in decision-making because
Basis Formal Informal Organisation
communication flows through scalar chain.
Organisation LOAN-FBM
2. Fails to recognise creative talent of employees since
it does not allow any deviations from rigidly laid down Meaning Structure Network of social
policies. of authority relationships arising out
3. Non-fulfilment of social needs of employees because relationships of interaction among
it places more emphasis on structure and work. created by the employees
Informal Organisation management
Informal organisation is a network of personal and
social relations within the formal organisation arising Origin Arises as a result Arises as a result of social
spontaneously as people associate with one another, e.g., of company rules interaction
managers and subordinates taking part in cricket matches. and policies

 Informal organisation is a network of personal and social Authority Arises by virtue Arises out of personal
relations not established by the formal organisation but of position in qualities
arising spontaneously as people associate with one another. management
 An informal organisation is an aggregate of inter-personal
relationships without any conscious purpose by which may Behaviour It is directed by There is no set behaviour
contribute to joint results. rules pattern
Features Leadership Managers are Leaders may or may not
1. It originates from within the formal organisation (as a leaders be managers. They are
result of personal interaction among employees.) chosen by the group
2. It emerges spontaneously and is not deliberately Flow of Communication Flow of communication
created by the management. communi- takes place is not through a planned
3. The standards of behaviour evolve from group norms. cation through the route. It can take place in
4. Independent channels of communication are scalar chain any direction.
developed by group members. (It does not have fixed lines of
communication. It has no written rules, is fluid in form and scope.) Nature Rigid Flexible

21
 5.4 Delegation and Decentralisation
Concept of Delegation Decentralisation has wide scope. “When we delegate
Delegation is the transfer of authority from superior to authority, we multiply it by two. When we decentralise
subordinate, entrustment of responsibility and creation of authority, we multiply it by many.” For example, consider
accountability for performance which helps a manager to an organisation where all leave applications are processed
extend his area of operations. by the General Manager. He feels over-burdened and
transfers this authority of leave processing to the Production
Delegation is the process a manager follows in dividing the
Manager. This is an example of Delegation of Authority. If the
work assigned to him so that he performs that part which
Production Manager also feels over-burdened and requests
only he because of his unique organisational placement, can
the General Manager to give him some relief, he may disperse
perform effectively and so that he can get others to help with
this authority to various heads throughout the organisation
what remains.
and instruct them to process the leave applications of their
Elements of Delegation respective [Link] is how delegated authority may
1. Authority: Meaning– It refers to the right of an be extended to decentralised authority.
individual to command his subordinates and to take
action within the scope of his position. Origin–It arises Centralisation and Decentralisation: The concentration
from formal position. Flow–Authority flows from top of decision-making authority by the top management is
to bottom, i.e. the superior has authority over the called centralisation whereas its dispersal among more
subordinate. Delegation– Can be delegated. than one person is known as decentralisation. Complete
2. Responsibility: Meaning–It is the obligation of a centralisation and complete decentralisation–both the
subordinate to perform the assigned duty. Origin–It scenarios are unrealistic. An organisation can never be
arises from delegated authority. Flow–It flows upwards, completely centralised or decentralised. As it grows in
i.e. a subordinate will always be responsible to his size and complexity, there is a tendency to move towards
superior. Delegation– Cannot be entirely delegated. decentralised decision-making. This is because in large
3. Accountability: Meaning–It implies being organisations those employees who are directly and
answerable for the final outcome. It cannot be closely involved with certain operations tend to have more
delegated. Origin–It arises from responsibility. Flow–It knowledge about them than the top management which may
flows upwards, i.e. a subordinate will be accountable only be indirectly associated with individual operations.
to a superior for satisfactory performance of work.
Delegation– Cannot be delegated at all. Basis Delegation Decentralisation
Delegation does not mean abdication NPFSS
Delegation helps a manager to extend his area of operation Nature Delegation is a Decentralisation is an
as without it his activities would be restricted to only compulsory act because optional policy decision.
what he himself can do. However, delegation does not no individual can It is done at the
mean abdication; the manger shall still be accountable perform all tasks. discretion of the top
for the assigned task. Accountability cannot be delegated management.
at all. Moreover, the authority granted to a subordinate
can be taken back and redelegated to another person. Purpose To lessen the burden of To increase the role of
the manager. the subordinates in the
Example: Suppose the directors of a company organisation by giving
manufacturing computers have asked their marketing
them more autonomy.
manager to achieve a target sale of 100 computers per
day. The marketing manager has delegated the task to his Freedom More control by Less control over
deputy sales managers working under him. The deputy of action superiors, hence less executives, hence
sales managers could not achieve the target. freedom to take own greater freedom of
In this case, the marketing manager shall still be accountable decisions. action.
to the directors. The process of delegation does not
relieve the marketing manager of his own accountability. Scope It has narrow scope as It has wide scope as
Accountability cannnot be delegated at all. it is limited to a superior it implies extension of
Concept of Decentralisation and his immediate delegation to the lowest
Decentralisation refers to systematic delegation of subordinate. level of management.
authority through all the levels of management and in all
Status It is a process followed It is the result of the
the departments except that which can be exercised only
to share tasks. policy decision of the
at central points.
top management.
Decentralisation implies selective dispersal of authority
and believes that people are competent, capable and
Importance of Delegation GEM – EMC
Delegation is a pre-requisite to the efficient functioning of
resourceful. It recognises the decision-maker’s need for
autonomy. The management, however, needs to carefully an organisation because of the following reasons:
select those decisions which will be pushed down to lower 1. Effective management: It helps in effective
levels (operational decisions) and those that will be retained management as the managers get more time to
for higher levels (major policy decisions). It can lead to concentrate on important matters.
organisational disintegration if the departments start to 2. Employee development: It helps in development
operate on their own guidelines which may be contrary to of employees as the employees get more opportunities
the interest of the organisation. to utilize their talent.
22
3. Motivation of employees: It helps to motivate 2. It develops initiative amongst subordinates by
employees as the employees feel encouraged and try to promoting self-reliance and confidence in them. This
improve their performance further. (Delegation involves is because when lower managerial levels are given
entrustment of responsibility. It is not merely the sharing of task freedom to take their own decisions, they learn to
but involves trust on the superior’s part and commitment on the depend on their own judgement.
part of the subordinate. Responsibility for work builds his self- 3. It develops managerial talent for the future by
esteem and improves his confidence.) creating a reservoir of qualified manpower to fill up
4. Facilitation of growth: It facilitates growth by challenging positions in future.
providing a ready workforce to take up leading positions 4. It facilitates growth by fostering competition
in new ventures. amongst the departments leading to increase in
5. Basis of management hierarchy: It establishes productivity. Consequently, the organisation is able to
a management hierarchy through clear superior generate more profits which can be used for growth
subordinate relationships. and expansion purposes.
6. Better coordination: It helps in better coordination 5. It helps in quick decision-making has there is
by avoiding overlapping of duties. no requirement for approval from many levels. There
Importance of Decentralisation TC–RIGD are also less chances of information getting distorted
1. It gives relief to the top management who can because it does not have to go through long channels.
now concentrate on important policy decisions, e.g. 6. It leads to better control by evaluating performance
develop new strategies, coordination and control, etc. at each level of management. The departments/divisions
can be individually held accountable for their results.

Application, HOTS, Evaluation and Multi-Disciplinary Questions

1. In a school fete, the whole activity is divided into task groups the most committed, capable and hard-working employees. As
each dealing with a specific area like the food committee, the a result of his abilities and seniority, he generally received the
decoration committee, the ticketing committee and so on. work assignments of his choice. Although there was no formal
These are under the overall supervision of the official in-charge designation of various „special projects assigned to Ramdas, he
of the event. Coordinating relationships are established among handled them as a matter of routine. A problem developed when
the various groups to enable smooth interaction and clarity an able and intelligent person Nagarjuna, aged 33, was appointed
about each group’s contribution towards the event. by Kanaputti. Nagarjun s previous three years experience in the
(a) Identify the function of management highlighted above. closely related work, made it possible for him to catch on to the
(b) State the steps involved in the function of management routine work of his new job more rapidly than was customary
identified in part (a) by quoting the lines from the above paragraph. for a new employee. On several occasions, Kanaputti noticed
Ans. (a) Organising the tension developing between the two employees. However,
(b) (i) Identification and division of work he didn’t want to get involved in their personal issues as long
“...the whole activity is divided into task groups...” as the work was completed effectively and efficiently by them.
(ii) Departmentalisation/Departmentation One day, the tension between them reached the boiling point
“...each dealing with a specific area...” and Ramdas complained to Kanaputti stating that his duties
(iii) Assignment of duties “... the food committee, the were being largely taken over by Nagarjun. Kanaputti issued the
decoration committee, the ticketing committee ... are under the order stating the clear allocation of the jobs and related duties
overall supervision of the official in-charge of the event.” between the two. He further clarified the working relationship
(iv) Establishing reporting relationships between them by specifying who was to report to whom. This
“... Coordinating relationships are established ... clarity about
helped in reducing the workload, enhancing productivity and
each group’s contribution towards the event.”
removing ambiguity.
2.  Rishu, Ashu and Ravi have decided to start a business (i) Identify the step of organising process which has not been
of manufacturing toys. They identified the following main carried out properly and contributed to this problem.
activities which they have to perform: (i) Purchase of raw (ii) State the two steps of the organising process which have
materials, (ii) Purchase of machinery, (iii) Production of toys, been taken by Kanaputti to respond to the complaint of Ramdas.
(iv) Arrangement of finance, (v) Sale of toys, (vi) Identifying the (iii) Also state three points of importance of organising as
areas where they can sell their toys (vii) Selection of employees. reflected in the above case. (CBSE SQP 2017)
In order to facilitate the work they thought that four managers Ans. (i) Assignment of duties
should be appointed to look after (a) Production, (b) Finance, (ii) (a) Assigning the duties (b) Establishing reporting
(c) Marketing, (d) Personnel. relationship
Identify the function of management involved in the above- (iii) (a) clarity in working relationship (b) Benefits of
mentioned para by quoting the lines. specialisation (c) Effective administration
Ans. Organising. ‘They identified the following main activities 4. Zamon Ltd. is manufacturer of electronics goods based in
which they have to perform.’ ‘In order to facilitate the work they Pune. On one hand it deals in items like books, music instrument,
thought that four managers should be appointed to look after. videotapes etc., and on the other hand it deals in laptops and
(a) Production, (b) Finance, (c) Marketing, (d) Personnel.’ mobile phones. The company had a functional structure with
3. Ramdas, aged 49 is working in an aviation company. He is separate heads for production, marketing and finance. All
the senior-most employee in his division. He is even senior to the functional heads were looking after the products, but at
the division manager, Kanaputti. Ramdas is considered one of times their activities overlapped. This led to problems related

23
to coordination and inter-departmental conflicts. To facilitate performance(iii)Avoidanceoftheemergenceofinformalorganisation
specialization Ramit, the CEO of the company decided to group which may obstruct the fulfilment of organisational goals.
books, music instrument, videotapes etc. under ‘Media’ and 10. Kiran Industries is a company manufacturing office
laptops and mobile phones under ‘consumer electronics’. While furniture. The company chose to diversify its operations to
doing so Ramit has performed a step in the process of one of improve its growth potential and increase market share. As
the functions of management. Identify the step. (CBSE 2018) the project was important many alternatives were generated
[Link] for the purpose and were thoroughly discussed amongst the
5. A company, which manufactures a popular brand of toys, members of the organisation. After evaluating the various
has been enjoying good market reputation. It has separate alternatives Sukhvinder, the Managing Director of the company
departments for Production, Marketing, Finance, Human decided that they should add ‘Home Interiors and Furnishings’
Resources and Research and Development. Lately to use its as a new line of business activity. Name the framework, which
brand name and also to cash on to new business opportunities the diversified organisation should adopt, to enable it to cope
it is thinking to diversify into manufacture of new range of with the emerging complexity? (CBSE SQP 2016)
electronic toys for which a new market is emerging. Ans. Divisional Structure
Identify the type of the organisational structure the company 11. A tall structure has a (a) Narrow span of management
should adopt with diversification. (b) Wide span of management (c) No span of management
Ans. Divisional structure (d) Less levels of management (NCERT)
6. Neha runs a factory wherein she manufactures shoes. The Ans. (a) Narrow span of management
business has been doing well and she intends to expand by 12. ABC Ltd. is manufacturing shoes. Their business has been
diversifying into leather bags as well as western formal wear doing well as their organisation specifies how much work should
thereby making her company a complete provider of corporate a worker do and in what manner. It follows a rigid structure which
wear. This will enable her to market her business unit as the has been deliberately planned and created by top management
one stop for working women. Which type of structure would for the coordination of activities. But inspite of all these, there
you recommend for her expanded organisation? are procedural delays. Identify the type of organisation.
Ans. Divisional structure Ans. Formal organisation
7. A truck manufacturing company has its registered office in 13. The directors of Gunjan Ltd., an organisation manufacturing
Delhi, manufacturing unit at Gurgaon and marketing department colour televisions, have asked their production manager to
is located at Faridabad. Which type of organisational structure achieve a target production of 150 televisions per day. The
should it adopt to achieve its target? production manager has asked his foreman to achieve this
Ans. Functional Structure target, but he did not give him the authority for the requisition
8. A company has been registered under the Companies of tools and materials from the stores department. The foreman
Act with an authorised share capital of ` 20000 crores. Its could not achieve the desired target. Can the directors blame the
registered office is situated in Delhi and manufacturing unit production manager, and can the production manager blame his
in a backward district of Rajasthan. Its marketing department foreman for not achieving the target? Explain in brief the relevant
is situated in Bhopal. The company is manufacturing Fast principles relating to this situation in support of your answer.
Moving Consumer Goods (FMCG). Which type of organisational [Link], the directors can blame the production manager,
structure would suit the requirements of the company? because delegation does not mean abdication. The
Ans. Divisional Structure production manager shall still be accountable for the
performance of the assigned tasks.
9. ‘Shan Spices Ltd. are the manufacturer of different food However, the production manager cannot blame his
specific spices like Rajmaa Masala, Cholley Masala, Aaloo foreman for not achieving the target because he did not
Parantha Masala etc. Mr. Raghav, the owner of the company give him the authority for the requisition of tools and
has created different departments for purchase, production, materials from the stores department. Responsibility
marketing, finance and human resource. There are thirty without authority will make the subordinate ineffective.
employees working in the organisation. Planning is of paramount 14. Shreya Ltd. has been awarded recently with the ‘Best
importance to the company as Mr. Raghav believes that effective Employer of the Year Award’. The company has believed in
planning leads to achievement of organisational objectives. So the ideas and suggestions of its employees. There is selective
in order to make employees focus on objectives, he issued dispersal of decision making authority at all levels. There is
instructions that during working hours only official matters will no delay in delivery of orders to customers due to prompt
be discussed. He made certain rules and code of conduct for decisions taken by employees.
the employees to follow, according to which employees are not Identify the concept of management followed by the company.
allowed to visit and talk to the employees of other departments [Link]
except for official work. He emphasised on work perfor-mance
15. A company manufacturing sewing machines set up in 1945
which resulted in smooth functioning of the organisation.
by the British promoters follows formal organisation culture in
(i) Identify and state the type of organisation mentioned in
totality. It is facing lot of problems in delays in decisionmaking.
the above para. (ii) State one feature of the concept identified
As the result it is not able to adapt to changing business
in part (i) as mentioned in the above para. (iii) What was the
environment. The work force is also not motivated since they
purpose behind the formulation of rules for the employees that
cannot vent their grievances except through formal channels,
restricted their personal communication with the employees of
which involve red tape. Employee turnover is high. Its market
other departments? (CBSE SQP 2017)
share is also declining due to changed circumstances and
Ans. (i) Formal organisation (ii) Focus on objective and work
business environment.

24
You are to advise the company with regard to change it should in the sector. With the result the market share of X limited
bring about in its organisation structure to overcome the has declined. The company had followed a very centralised
problems faced by it. (NCERT) business model with Directors and divisional heads making
Ans. Introduction of informal organisation even minor decisions. Before 1991 this business model had
16. A company X limited manufacturing cosmetics, which served the company very well as consumers had no choice.
has enjoyed a pre-eminent position in business, has grown But now the company is under pressure to reform.
in size. Its business was very good till 1991. But after that, What organisation structure changes should the company
new liberalised environment has seen entry of many MNC’s bring about in order to retain its market share? (NCERT)
Ans. Decentralisation

Unit 6 Staffing
6.1 Staffing: Concept, Importance and Process
Concept of Staffing Steps in Saffing Process ERSPTP2C
Staffing function of management is concerned with 1. Estimation of manpower requirement. It
obtaining, utilising and maintaining a satisfactory and involves determining the number and type of employees
satisfied work force. required. It would necessitate workload analysis and
 Staffing is the managerial function of filling and keeping workforce analysis.
filled the positions in the organisation structure. This is
 Workload Analysis would enable an assessment of
achieved by, first of all, identifying requirements of work
the number and types of human resources necessary for
force, followed by recruitment, selection, placement,
promotion, appraisal and development of personnel, to fill the performance of various jobs.  Workforce Analysis
the roles designed into the organisation structure. estimates the number and type of human resources available.
 In an existing enterprise, staffing is a continuous process 2. Recruitment is the process of searching for
because new jobs may be created and some of the existing prospective employees and stimulating them to apply
employees may leave the organisation. for jobs in the organisation.
 The staffing function has assumed greater importance these
days because of rapid advancement of technology, increasing Recruitment is a positive process because there is
size of organisation and complicated behaviour of human beings. no rejection. Aim/objective is to attract more and more
candidates for the vacant job.
Importance of Staffing SHO CM
Various activities involved with the process of
1. It helps in obtaining competent personnel for recruitment: (a) identification of the different sources of
various jobs. labour supply, (b) assessment of their validity, (c) choosing the
2. It ensures higher performance by putting right most suitable source or sources, and (d) inviting applications
person on the right job. from the prospective candidates, for the vacancies.
3. It ensures continuous survival and growth of
business through succession planning for managers. 3. Selection is the process of choosing from among
4. It ensures optimum utilisation of human resources the pool of the prospective candidates developed at the
stage of recruitment.
by indicating in advance surplus/shortage of personnel.
5. It improves job satisfaction and morale of Selection is a negative process because the candidates
employees through training and promotion. are required to take a series of employment tests and
Staffing as a Part of HRM PTM HARD2 interviews. At every stage, many are eliminated and a few
move on to the next stage until the right type is found.
Human Resource Management (HRM) includes many
specialised activities and duties which the human resource
The selection process serves two important purposes:
personnel must perform. These duties are: (i) It ensures that the organisation gets the best among the
1. Recruitment i.e. searching for qualified people. available, and (ii) It enhances the self-esteem and prestige
2. Analyzing job, collecting information about jobs to of those selected and conveys to them the seriousness
prepare job descriptions. with which the things are done in the organisation.
3. Developing compensation and incentives plans.
4. Placement and Orientation:  Orientation is
4. Training and development of employees for efficient introducing the selected employee to other employees and
performance and career growth. familiarizing him with the rules and policies of the organization.
5. Maintaining labour relations and union management  Placement refers to the employee occupying the position or
relations. post which the person has been selected.
6. Handling grievances and complaints. 5. Training and Development: Training is the process
7. Providing for social security and welfare of employees. of improving the skills and knowledge of employees to do the
8. Defending the company in law suits and avoiding current job.  It is to enable the employee to do the job
legal complications. better.  It is a job-oriented process.
25
Development means to acquire skills and competence for carrying higher responsibility, facilities, status and
handling higher jobs in future.  It is to enable the overall pay. Career planning includes all activities associated with
growth of the employee.  It is a career-oriented process. promotion of employees.
In today’s highly sophisticated and complex society,
8. Compensation refers to all forms of pay or rewards
jobs have become more complex. So, the importance of to employees.
employee training has increased. It may be in the form of direct financial payments like wages,
6. Performance Appraisal: Performance Appraisal salaries, incentives, commissions and bonuses and indirect
means evaluating an employee’s current and/or past payments like employer paid insurance and vacations.
performance as against certain predetermined standards. Direct financial payments are of two types: (a) Time
The performance appraisal process includes defining the based wage plan (b) Performance based wage plan
Factors which influence the design of any pay plan/
job, appraising performance, and providing feedback.
compensation plan: (i) Time devoted by the employee (ii)
7. Promotion and Career Planning: Promotion Performance of the employee (iii) Legal factors (labour laws)
means shifting/placing an employee to a higher position (iv) Labour union (v) Company policy (vi) ‘Equity’ principle.

6.2 Recruitment, Selection and Training

Factors influencing three main aspects of staffing — External Sources of Recruitment
Recruitment, Selection and Training: Supply and demand 1. Casual callers: It is an external source of
of specific skills in the labour market, Unemployment rate recruitment in which a list of job seekers is prepared
Labour market conditions, Legal and political considerations, and screened to fill the vacancies as they arise, from
Company’s image and policy, Human resource planning cost, the database of unsolicited applications kept in the
Technological developments, General economic environment. office. It reduces the cost of recruitment.
Internal sources of recruitment 2. Labour Contractors: It is an external source of
1. Transfers: Transfers involve shifting of an employee recruitment in which a Labour Contractor maintains
from one job to another, one department to another or close contacts with labourers and provides the required
from on shift to another, without a substantive change number of unskilled workers at short notice. Labour
in the responsibilities and status of the employee. It contractors who recruit the workers are employees of
may lead to changes in duties and responsibilities, the organisation who recruit the workers.
working condition etc., but not necessarily salary. 3. Direct recruitment: It is a source of external
2. Promotions: Promotions involve shifting an recruitment in which a notice is placed on the notice-
employee to a higher position, carrying higher board of the enterprise specifying the details of the
responsibilities, facilities, status and pay. This practice jobs available. Unskilled or semi-skilled job-seekers
helps to improve the motivation and increases loyalty assemble outside the premises of the organisation on
and satisfaction level of employees. the specified date and selection is done on the spot.
Merits of internal source of recruitment Such workers are called badli workers; payment on
1. Employees are motivated as promotion at a higher daily wage basis; suitable when there is rush of work or
level may lead to a chain of promotions at lower levels some permanent workers are absent.
in the organisation. 4. Advertisement: It is a source of external
2. Internal sources simplify the process of selection as recruitment in which vacancies are advertised in
the candidates are already known to the organisation. newspapers or trade and professional journals to search
3. People recruited from within the organisation do not for qualified and experienced personnel. It gives the
need induction training as the employees are already management a wider range of candidates from which
familiar with the organisation. to choose. Most of the senior positions in businesses are
4. These sources help in adjustment of surplus staff in filled by advertising by this method. Disadvantage: It may
those departments where there is shortage of staff. bring in a flood of response, and many times from quite
5. Filling of jobs internally is economical as compared to unsuitable candidates.
external sources of recruitment. 5. Campus recruitment: Recruitment of technical,
6. Transfer is a tool of training the employees to prepare professional and managerial jobs from educational
them for higher jobs. institutions (e.g. colleges and institutes of management and
Limitations of internal source of recruitment technology).
1. It is an incomplete source. No organisation can fill all 6. Placement agencies and Management
its vacancies from internal sources (because the existing consultants: Placement agencies compile bio-data of
staff may be insufficient or they may not fulfill the eligibility a large number of candidates and recommend suitable
criteria of the jobs to be filled.) names to their clients. They charge fee for their services.
2. The spirit of competition among the employees may They are useful where extensive screening is required. They
be hampered because employees are likely to expect can entice the needed top executives from other companies
automatic promotion by seniority. by making the right offers.
3. It reduces the scope of fresh talent.
4. A new enterprise cannot use internal sources of Management consultancy firms help the organisations
recruitment. to recruit technical, professional and managerial
5. There is limited choice of candidates. personnel. They specialise in middle level and top level
executive placements.

26
7. Recommendations of employees: Applicants 8. Contract of employment: After the job offer has
introduced by present employees, or their friends and been made and candidate accepts the offer, certain
relatives may prove to be a good source of recruitment. documents need to be executed by the employer and
the candidate–the attestation form and a contract of
Such applicants are likely to be good employees because their
background is sufficiently [Link] of preliminary screening
employment (regarding terms and conditions of employment,
pay, hours of work, leave rules, etc.)
takes place because the present employees know both the
company and the candidates and they would try to satisfy both. Types of Selection/Employment Tests PI2TA
1. Intelligence Test measures to level of intelligence
8. Employment exchanges: Employment exchanges [Link]’slearning
help to match personnel demand and supply by serving ability or the ability of make decisions and judgements.
as link between job-seekers and employers. They 2. Aptitude test is conducted to measure an
are suitable for unskilled and skilled operative jobs. individual’s potential for learning new skills. It indicates
Disadvantage: The records of employment exchanges
the person’s capacity to develop.
are often not up-to-date and many of the candidates 3. Personality Test provides clues to a person’s
referred by them may not be found suitable. emotions, reactions, maturity, value systems etc. These
9. Web publishing: Internet is becoming a common tests probe the overall personality. Hence, these are
source of recruitment, e.g., [Link] difficult to design and implement.
Merits of external sources of recruitment 4. Trade test: These tests measure the existing/
1. The management can attract qualified and trained actual skills possessed by the individual. They measure
people to apply for vacant jobs in the organisation. the level of knowledge and proficiency in the area of
2. Management has a wider choice while selecting the professions or technical training.
right candidates. 5. Interest tests are used to know the pattern of
3. External sources bring fresh talent in the organisation. interests or involvement of a person
4. Competitive spirit: If a company taps external sources, Importance of Training
the extisting staff will have to compete with the outsiders. Benefits of training to the organisation
They will work harder to show better performance. 1. It avoids wastage of efforts and money as training is
Limitations of external source of recruitment systematic learning, better than hit and trial methods.
1. It may lead to dissatisfaction among existing 2. It enhances employee productivity both in terms of
employees as they may feel that their chances of quantity and quality leading to higher profits.
promotion are reduced. 3. It equips the future manager to take over in an
2. It is a lengthy process as the vacancies have to be emergency.
notified and applications received before selection. 4. It reduces employee turnover as it increases
3. It is a costly process as a lot of money is spent on employee morale and reduces absenteeism.
advertisement and processing of applications. 5. It helps in obtaining effective response in a fast
Steps involved in the selection process changing environment.
PSER SMJ C Benefits to Employees
1. Preliminary Screening: Preliminary screening 1. It may lead to promotion and career growth of the
helps the manager eliminate unqualified or unfit job employees due to improved skills and knowledge.
seekers based on the information supplied in the 2. It helps employees to earn more due to improved
application forms. performance.
2. Selection Tests: An employment test is a 3. It reduces accidents as employees will be more
mechanism (either a paper and pencil test or an exercise) efficient to handle machines.
that attempts to measure certain characteristics of 4. It increases satisfaction and morale of the employees.
individuals, such as intelligence, aptitude, etc. Methods of Training
3. Employment Interview: Employment interview is a
formal, in-depth conversation conducted to evaluate the On-the-job training methods are used at the workplace. It
applicant’s suitability for the job. The role of the interviewer means ‘learning while doing’. E.g., Apprenticeship training.
is to seek information and that of the interviewee is Off-the-job training methods are used away from the work
to provide the same. Though, in present times, the place. It means ‘learning before doing’. E.g., Vestibule training.
interviewee also seeks information from interviewer. 1. Apprenticeship Training:  Apprenticeship
4. Reference and Background Checks for the purpose Training is a method of training in which the trainee is
of verifying the information and gaining additional kept under guidance of a master worker for a prescribed
information. Previous employers, known persons, period of time.  It is designed to acquire a higher level
teachers and university professors can act as references. of skill.  People who want to enter skilled trades e.g.
5. Selection Decision from among the candidates plumbers, electricians, iron workers, motor mechanic
who pass the tests, interviews and reference checks. etc. are often required to undergo such training.
(The views of the concerned manager will be generally 2. Internship Training:  Internship Training is a joint
considered in the final selection because it is he who is programme of training between education institutions
responsible for the performance of the new employee.) and business firms.  Besides carrying out regular
6. Medical Examination which includes a medical studies, the trainees also work in some factory or office
fitness test which the candidate is required to undergo. to acquire practical knowledge and skills.
(The job offer is given to the candidate being declared fit after 3. Vestibule training:  This training is given with
the medical examination.) the help of similar equipment and machine.  But the
7. Job offer: Job offer is made through a letter of training is conducted away from actual work place.  It
appointment, which contains the date by which the is used where the employees are required to handle
appointed candidate must report on duty. sophisticated machinery.
27
 Application, HOTS, Evaluation and Multi-Disciplinary Questions
1. Ms. Jayshree recently completed her Post Graduate ability to make decisions. Identify two types of tests that Mr.
Diploma in Human Resource Management. A large steel Murthy can use to meet his requirements.
manufacturing company which employs 800 persons Ans. (i) Personality Test (ii) Intelligence Test
appointed her as its human resource manager. Ms. Jayshree 6. Blue Heavens Ltd. purchased a new hi-tech machine from
has been given complete charge of the company’s Human Germany for manufacturing high quality auto components in a
Resource Department. The company has an expansion plan cost effective manner. But during the production process, the
in hand which may require another 200 persons for various manager observed that the quality of production was not as
types of additional requirements. (a) Identify the step of per standard. On investigation it was found that there was lack
one of the functions of management involved in the above of knowledge amongst the employees of using these hi-tech
case. (b) Identify the concept which will help in deciding the machines. So, frequent visit of engineers was required from
number of persons required. (c) Identify the next two steps in Germany. This resulted in high overhead charges.
the function of management identified in part (a) to fulfill the Suggest what can be done to develop the skills and abilities of
additional requirements of 200 persons. employees for producing high quality products by using these
Ans. (a) Estimating Manpower Requirements. (b) Workload hi-tech machines. (CBSE SQP 2015)
Analysis (c) (i) Recruitment (ii) Selection Ans. Training of employees (Vestibule Training)
2. The IT major GIPRA is terminating the employment of its 7. Nishant, the director of a garments company, is planning to
senior managers, if after evaluating their performance against manufacture bags for the utilisation of waste material from one
pre-determined standards if it is found lacking. With this of his garments units. He has decided that this manufacturing
disruption analysts say a large portion of the employees may unit will be set up in a rural area of Odisha where people
become irrelevant unless they learn new skills and apply the have very few job opportunities and labour is available at very
knowledge to work on emerging technologies. GIPRA is ready low rates. He has also thought of giving equal opportunities
to facilitate employee learning, through its in-house centers. of men and women. For this he wants four different heads
A. Name the function of management performed by GIPRA to for Sales, Accounts, Purchase and Production. He gives an
maintain a satisfactory work force. B. Identify the two steps in advertisement and shortlists ten candidates per post after
the process of the function of management discussed above. conducting different selection tests. Identify the next three
(CBSE SQP 2018) steps for choosing the best candidate out of the candidates
Ans. A. Staffing. B. (a) Training and development (b) short listed. (CBSE 2013)
Performance Appraisal Ans. (a) Employment interview (b) Reference and
3. Aakanksha, Nikita and Parishma are the owners of a background checks (c) Selection decision
handicraft unit in the urban area of Dibrugarh in Assam, which 8. After passing his secondary school examination, David left
is involved in the manufacturing and marketing of Sital Pati, the school at the age of 15 years and started getting training
traditional mats and Jappi (the traditional headgear). They under his father. His father, a renowned electrician, had worked
decided to shift this manufacturing unit to a rural area with an for many companies. He everyday started accompanying his
objective of reducing the cost and providing job opportunities father on work and watched him carefully while working.
to the locals. They followed the functional structure in this David was a good learner and learnt the techniques of work
organisation with a view to increasing managerial and quickly. Now his father started passing on the tricks of the
operational efficiency. They assessed and analysed the type trade to David. With the passage of time David acquired a high
and number of employees required, keeping in mind that they level skill and became a well-known electrician at Indore. Big
had to encourage the women, and the people with special business-houses started calling him for electrical -wiring.
needs belonging to the rural area. State the next three steps Name the method of training discussed in the above para.
that they will have to undertake, for obtaining a satisfied Ans. Apprenticeship Training
workforce for their handicraft unit. (CBSE SQP 2016) 9. There were two vacancies for the post of Assistant Manager
Ans. (i) Recruitment (ii) Selection (iii) Placement and in ‘Gyan Electrics Private Ltd.’ ‘Parth’ the Human Resources
orientation Manager identified one suitable candidate ‘Vishwas’ from
within the organization and promoted him to the post of
4. A company is manufacturing paper plates and bowls.
Assistant Manager. For another post, the Manager ‘Parth’ took
It produces 100000 plates and bowls per day. Due to local
help of a placement agency and selected ‘Saleem’. After six
festival there is a rush of work and some permanent workers
months, Parth observed that ‘Vishwas’s’ performance was
have gone to their villages. The company got an urgent order
much better than ‘Saleem’s’ performance though ‘Vishwas’
of extra 50,000 plates and bowls per day.
was less qualified than ‘Saleem’. Hence, ‘Parth’ decided that in
Advise how the company will fulfill its order and which method
future he will not make any appointment with the help of an
of recruitment would you suggest.
outside source. Explain any four reasons on the basis of which
Ans. To fulfill the urgent order of extra 50000 plates and
‘Parth’ would have taken the above decision.
bowls per day the company should follow the recruitment
Ans. (Explain any four advantages of internal sources of
step of the staffing process. The suitable method of
recruitment)
recruitment is ‘direct recruitment’ (an external source of
10. Identify the following aspects of staffing:
recruitment).
(a) Identifying and attracting prospective employees. (b)
5. Mr. Murthy is the Human Resource Manager of Jai Hind Assessment, evaluation and final match. (c) Acquainting and
Hospital in Vellore. He has to appoint nurses for the hospital. skill development.
Since patients in the hospital are of different types, he wants Ans. (a) Recruitment (b) Selection (c) Training
to find out the candidates’ maturity and emotions in dealing 11. “Some learning opportunities are designed and delivered
with the patients. He also wants to know about the candidates’ to improve skills and abilities of employees whereas some

28
others are designed to help in the growth of individuals in all Ans. (Explain the first six steps involved in the selection
respects.” Identify the two concepts. process of employees.)
Ans. Training: ‘Some learning opportunities are designed and 14. Name the methods of recruitment in the following cases:
delivered to improve skills and abilities of employees.’ (i) A company gets applications on and off even without
Development: ‘Some others are designed to help in the declaring any vacancy. However, as and when the vacancy
growth of individuals in all respects.’ arises, the company makes use of such applications.
12. What kind of tests will primarily be used while selecting (ii) Casual vacancies of unskilled or semi-skilled jobs when there
these people in an organisation? is a rush of order or when some permanent workers are absent.
(i) An interior decorator (ii) A computer operator (iii) A public (iii) Recruitment by which most of the senior positions of the
dealing officer (iv) A school teacher industry as well as commerce are filled.
Ans. (i) Interest test (ii) Trade test (iii) Personality test (iv) Ans. (i) Casual callers (ii) Direct recruitment
Intelligence test (iii) Advertisement
13. A public transport corporation has hired 2000 buses for 15. Name the methods of training:
the different routes for the passengers of metropolitan city. (i) The trainee learns under the guidance of a master worker.
In order to fill vacancies, it advertised in the newspaper and (ii) Trainees learn on the equipment they will be using, but
number of applicants applied for the same. The company has training is conducted away from the actual work floor.
to now undertake the process of selection to identify and select (iii) Trainees work in some factory or office to acquire practical
the best. Explain the first six steps involved in the process. knowledge and skills along with regular studies.
(CBSE SQP 2019) Ans. (i) Apprenticeship training (ii) Vestibule training
(iii) Internship training.

Unit 7 Directing
7.1 Directing: Concept, Importance and Elements
Concept of Directing 4. Directing facilitates introduction of needed
Directing means instructing, guiding, counseling, changes in the organisation by reducing resistance to
motivating and leading people in the organisation to change and developing cooperation.
achieve its objectives. 5. Directing brings stability and balance in
the organisation since it fosters cooperation and
Features/Characteristics of Directing
commitment among the people.
1. Directing initiates action. While other functions
prepare a setting for action, directing initiates action in Elements of Directing
the organisation. Thus, directing is an executive function. 1. Supervision means instructing, observing,
2. It takes place at every level of management, i.e., monitoring and guiding the efforts of the subordinates for
from top management to supervisory level. That is why it the achievement of work targets in the desired manner.
takes place wherever superior subordinate relation exists.
3. It flows from top to bottom. Every manager Supervision can also be understood as the function to
gives direction to his immediate subordinate and takes be performed by supervisor, a managerial position in the
instructions from his immediate boss. organisation hierarchy at the operative level, i.e. immediately
4. It is a continuous process. It takes place above the worker. The functions and performance of the
throughout the life of the organisation irrespective of supervisor are vital to any organisation because he is
people occupying managerial positions. directly related with workers whereas other mangers have
no direct touch with bottom level workers.
Importance of Directing PI2CS
1. Directing helps to initiate action in the 2. Motivation means stimulating people to action to
organization towards attainment of desired objectives. accomplish desired goals.
(For example, if a supervisor guides his subordinates and
clarifies their doubts in performing a task, it will help the worker Motivation means inducement to act or move. It means the
to achieve work targets given to him.) process of making subordinates to act in a desired manner
2. Directing integrates employees’ efforts in the to achieve certain organisational goals.
organization in such a way that every individual effort Motivation refers to the way in which urges, drives, desires,
aspirations, strivings or needs direct, control and explain the
contributes to the organisational performance. (Thus, it behaviour of human beings.
ensures that the individuals work for organisational goals.) Motivation is a complex force starting with keeping a person
3. Directing guides employees to realise their at work in an organisation. Motivation is something which
potential and capabilities by motivation and effective moves the person to action and continues in the course of
leadership. action already initiated.

29
 Motivation is a process which begins with a physiological or • Leadership is the art or process of influencing people so
psychological need or deficiency which triggers behaviour or that they will strive willingly and enthusiastically towards the
a drive that is aimed at a goal or incentive. achievement of group goals. • Leadership is the activity of
Motive is an inner state that energises and directs behaviour influencing people to strive willingly for group objectives.
towards goals. It arises out of the needs of people. • Leadership is a set of interpersonal behaviours designed to
Motivators are the techniques/incentives used to motivate influence employees to cooperate in the achievement of objectives.
people in an organisation, e.g., bonus, promotion, etc. • Leadership involves the use of non-coercive influence to direct
and coordinate the activities of the members of an organised
Motivation process is based on Unsatisfied group towards the accomplishment of group objectives.
human needs. An unsatisfied need of need

an individual creates tension which Features of Leadership: (i) It is a continuous process.

(ii) It indicates ability of an individual to influence
Tension
stimulates his or her drives. These drives
generate a search behaviour to satisfy Drives others. (iii) It tries to bring change in the behaviour of
such need. If such need is satisfied, others. (iv) It is exercised to achieve common goals of
the individual is relieved of tension. Search
behaviour the organisation. (v) It indicates inter-personal relations
For example, the need for food causes between leaders and followers.
hunger on account of which a person
Satisfied
need
4. Communication is the process of exchange of
searches for food. After taking a meal, he Reduction ideas and information among people to create common
feals that he has regained energy. of tension
Motivation Process understanding.
Features of motivation: • Communication is transfer of information from the sender
(i) It is an internal feeling. (The urge, drives, desires, to the receiver with the information being understood by
aspirations, striving or needs of human being, which are the receiver. • Communication is the sum of all things one
person does when he wants to create understanding in
internal, influence human behaviour.)
the mind of another. It involves systematic and continuous
(ii) It produces goal directed behaviour. (For example, if process of telling, listening and understanding.
the employee is interested in promotion, it helps to produce a
behaviour to improve performance.)
Elements in communication process:
(iii) It can be positive or negative. (Positive motivation (i) Sender–source of communication.
provides positive rewards like increase in pay, promotion, (ii) Message–information to be communicated.
recognition etc. Negative motivation uses negative means like (iii) Encoding–converting the message into communication
punishment, stopping increments, threatening etc. which also symbols such as words, pictures, gestures etc.
may induce a person to act in the desired way.) (iv) Media/channel–face to face, phone call, internet etc.
(iv) It is a complex process because any type of (v) Decoding–converting encoded symbols.
motivation may not have a uniform effect on all the (vi) Receiver of the communication.
members. (The individuals are heterogeneous in their (vii) Feedback–actions of receiver indicating that he has
expectations, perceptions and reactions.) received and understood message.
3. Leadership is the process of influencing people so (viii) Noise–obstruction or hindrance to communication, e.g.
that they strive willingly and enthusiastically towards a poor telephone connection, an inattentive receiver, faulty
the achievement of group goals. decoding, etc.

7.2 Supervision, Motivation, Leadership and Communication

Importance of Supervision/Functions of a 7. Supervisor builds high morale amongst the
Supervisor PTM FUL workers.
1. Supervisor maintains day-to-day contact and Maslow’s Need Hierarchy Theory of
maintains friendly relations with workers. (A good Motivation
supervisor acts as a guide, friend and philosopher to the Maslow’s theory of motivation was based on human
workers.) needs. He felt that within every human being, there
2. Supervisor acts as a link between management exists a hierarchy of five needs. These are:
and workers. He conveys management policies and 1. Basic Physiological Needs: Hunger, thirst, shelter
ideas to the workers and brings workers’ problems to and sleep are some examples of these needs. In the
the notice of management. (This role played by supervisor organisational context, basic salary helps to satisfy
helps to avoid misunderstandings and conflicts between these needs.
management and workers/ employees.) 2. Safety/Security Needs: These needs provide
3. Supervisor maintains group unity among workers security and protection from physical and emotional
by resolving their conflicts. harm. Examples: job security, stability of income,
4. Supervisor ensures performance of work Pension plans etc.,
according to the targets set. 3. Affiliation/Belonging Needs: These needs refer
5. Supervisor provides on-the-job training to the to affection, sense of belongingness, cordial relations
workers and employees. (A skilled and knowledgeable with colleagues, acceptance and friendship.
supervisor can build efficient team of workers.) 4. Esteem Needs: These include factors such as self-
6. Supervisor analyses the work performed and gives respect, autonomy status, recognition and attention,
feedback to the workers. (He suggests ways and job titles, etc.
means of developing work skills.)

30
5. Self Actualization Needs: It is the highest level of Non-financial Incentives to Motivate
need in the hierarchy. It refers to the drive to become Employees CSO J2P - ER
what one is capable of becoming. These needs include
growth, self-fulfillment and achievement of goals. All the needs of individuals are not satisfied by money
alone. Psychological, social and emotional factors also
Individual Example Organisational Example
play important role in providing motivation. Nonfinancial
incentives mainly focus on these needs. Some times,
Self-fulfillment
Self
Achievement of goals monetary aspect may be involved in non-financial incentives
actualisation as well. However, the emphasis is to provide psychological
Status
needs and emotional satisfaction rather than money driven
Job title
satisfaction. For example, if an individual gets promotion
Esteem needs
in the organisation, it satisfies him psychologically more as
Friendship Cordial relations with he gets a feeling of elevation, increase in status, increase
Affiliation/ colleagues
Belongingness needs in authority, challenge in the job etc. Though promotion
involves payment of extra money, non-monetary aspects
Stability of Income
Safety/Security needs Pension plan over-ride monetary aspects.
1. Job enrichment is concerned with designing jobs
Hunger Basic Physiological needs Basic Salary that include greater variety of work content and provide
the opportunity for personal growth and a meaningful
Maslow’s Need Hierarchy Theory of Motivation
work experience.
Assumptions: (i) People’s behaviour is based on 2. Employee recognition which means
their needs. Satisfaction of such needs influences their acknowledgement with a show of appreciation. (e.g.,
behaviour. (ii) People’s needs are in hierarchical order, rewarding an employee for giving valuable suggestions,
starting from basic needs to higher level needs. (iii) A congratulating and giving award for good performance,
satisfied need no longer can motivate a person; only Displaying on the notice board or in the company newsletter
next higher level need can motivate him. (iv) A person about the achievement of employee, distributing mementos,
moves to the next higher level need only when the complimentaries like T-shirts in recognition of employee
lower need is satisfied. services, etc.) When such appreciation is given to the
Importance: Maslow’s Theory focuses on the needs work performed by employees, they feel motivated to
as the basis for motivation. It helps managers to realise perform at higher level.
that need level of employee should be identified to 3. Employee participation which means involving
provide motivation to them. employees in decision making of issues related to them,
for example, making them a part of joint management
Financial incentives to motivate employees committees, work committees, canteen committees, etc.
P4C RB 4. Employee empowerment which means giving
Financial incentives are measurable in terms of money. more autonomy and powers to subordinates. (It motivates
To satisfy basic physiological needs of lower level them to use their skills and talents in the job performance.)
employees, financial incentives are important. 5. Job security which refers to providing stability to the
1. Productivity linked wage incentive involves employees about future income and work so that they do
linking payment of wages of employees to the increase not feel worried on these aspects and work with greater
in their productivity at individual or group level. zeal. (Negative aspect of job security: When people feel that
2. Bonus involves offering an amount of funds over they are not likely to lose their jobs, they may become complacent.)
and above the wages/ salary to the employees. 6. Career advancement opportunity/Promotion
3. Profit Sharing involves providing a share in the means providing an opportunity to employees to
profits of the organization to employees. (This motivates improve their skills to be promoted to higher level of
them to improve their performance and contributes to increase jobs. Appropriate skill development programmes and
in profits of the organisation.) sound promotion policy provide career advancement
4. Co-partnership/Stock option is an incentive opportunity to the employees.
under which the employees are offered company 7. Status: Status given to a manager is indicated by the
shares at a set price which is lower than market price. authority, responsibility, rewards, recognition, etc. given
(The allotment of shares at lower price creates a feeling of to him. Status given to a job satisfies psychological,
ownership to the employees and makes them to contribute for social and esteem needs of an individual.
the growth of the organisation.) 8. Organisational climate: It indicates the
5. Retirement Benefits include benefits such as characteristics which influence the behaviour of
provident fund, pension and gratuity that provide individuals in the organisation such as individual
financial security to employees after their retirement. autonomy, reward orientation, consideration to
(This acts as an incentive when they are in service in the
employees, risk taking, etc.
organisation.)
6. Perquisites include incentives such as car allowance, Leadership Styles
housing, medical aid and education to the children etc., 1. Autocratic or Authoritarian leadership:
which are offered over and above the salary. Autocratic style of leadership is one in which the leader
7. Pay and allowances – salary, dearness allowance, gives orders and insists that they are obeyed. He does
etc. Salary is the basic financial incentive. not give the subordinates any freedom to influence

31
his decision. He determines the policies for the group needs of employees to exchange their views, which cannot
without consulting them. He does not give information be done through formal channels. • Informal system of
about future plans but simply tells the group what communication is generally referred to as the ‘grapevine’
immediate steps they must take.  There is one way because it spreads throughout the organisation with its
communication only.  This leader is dogmatic i.e., does branches going out in all directions in utter disregard to
not wish to be contradicted.  His following is based on the levels of authority.
the assumption that reward or punishment both can be Two positive aspects of informal communication: (i) It
given depending upon the result.  It is like “bossing carries information rapidly and therefore may be useful
people around.” It is called Boss-Centred Leadership. to the manager at times. (ii) It is used by the manager
Benefits of Autocratic or Authoritarian leader: (a) This to transmit information so as to know the reaction of
leadership style is effective in getting productivity in his/ her subordinates.
many situations. (b) Quick decision-making is also Two negative aspects of informal communication: (i) The
facilitated by this style of leadership. grapevine/informal communication spreads rapidly and
2. Democratic or Participative leadership: sometimes gets distorted. (ii) It may lead to generate
Democratic style of leadership is one in which the rumours, or may hamper work environment.
leader develops action plans and makes decisions in Barriers to Communication
consultation with his subordinates. A democratic leader A. Semantic Barriers   BBS TUF
favours decision making by the group. This improves These are related to process of encoding and decoding
the attitude of the employees towards their jobs and the of message into words or impressions, use of wrong
organization thereby increasing their morale. Using this words, faulty translations, different interpretations, etc.
style is of mutual benefit – it allows them (subordinates) 1. Badly expressed message: Badly expressed
to become part of the team and helps leaders (seniors) message in which the intended meaning may not be
to make better decisions.  The leader respects the conveyed on account of inadequate vocabulary, usage
other’s opinion.  It is called Group-Centred Leadership of wrong words, omission of needed words etc.
3. Laissez Faire or Free –rein leadership: ‘Laissez 2. Symbols with different meanings: A word may
Faire’ style of leadership is one in which the leader gives have several meanings. For example, What is the value
complete freedom to the subordinates and depends of this ring? I value our friendship. What is the value of
largely upon the group to establish its own goals and learning computer skills?
work out its own problems.  The group members Wrong perception by the receiver about the word ‘value’
work on their own tasks resolving issues themselves. may lead to communication problems.
 Such a leader does not believe in the use of power 3. Faulty translations: If the communication drafted
unless it is absolutely essential.  The leader is there in one language (say, English) is not properly translated
only to support them and supply them the required in a language understandable to workers (say, Hindi),
information to complete the assigned task.  It is called communication becomes ineffective.
Subordinate-Centred Leadership. 4. Technical jargon: Specialists use technical
C
A language, e.g., tariff, quotas, etc. Therefore, workers
A
B C
may not understand them.
5. Unclarified assumptions create confusion and
B A D the loss of goodwill, e.g., instruction of a boss to his
subordinate “Take care of our foreigner guest” may
D E
mean care of transport, accommodation and food of
B C D E
the guest, but the subordinate may interpret that guest
should be taken to hotel with care.
Autocratic/Boss-Centred Democratic/Group-Centred Free-rein/Subordinate-
Leadership Leadership Centred Leadership
A is the leader and B, A is the leader and B, A is the leader and B, C, 6. Body language and gesture decoding becomes
a barrier when there is no match between what is said
C, D are subordinates. C, D, E are subordinates. D, E are subordinates.

and what is expressed in body movements.

Formal and Informal Communication
Formal Communication flows through official B. Psychological Barriers DPL2
channels designed in the organisation chart. Formal These are related to the state of mind of both sender
communication may take place from and receiver of communication, e.g. a worried sender
(i) a superior to subordinate (downward communication, or an angry receiver.
e.g. ordering subordinates to complete an assigned work), 1. Lack of attention: Non-listening of message due to
(ii) a subordinate to superior (upward communication, the preoccupied mind. (For example, an employee explains
e.g. submission of progress report) or about his problems to the boss who is pre-occupied with an
(iii) among same level of managers or employees important file before him. The boss does not listen attentively
(horizontal communication, e.g. the production manager and the employee is disappointed.)
of a company contacts the marketing manager to 2.  Distrust: The sender and the receiver of
discuss about schedule of product delivery, product communication do not believe each other; they can not
design, quality, etc.). understand each others message.
Formal communications may be oral or written but generally 3. Premature evaluation: Evaluating the meaning
recorded and filed in the office. of message before the sender completes; due to
Informal Communication takes place without pre-conceived notions or prejudices against the
following the formal lines of communication, e.g. communication.
workers chit chating in a canteen about the behaviour 4.  Loss by transmission and poor retention:
of the superior. • The informal communication arises out of Successive transmissions of oral message results in loss

32
of information, or transmission of inaccurate information. cultural gathering, transparency in operations etc. will
Poor retention of the information if not attentive or not encourage free flow of communication.
interested. 4. Organisational policy not supportive to free
C. Personal Barriers FULL flow of communication; may hamper effectiveness of
These are related to the personal factors of both sender communications, e.g. highly centralised pattern (i.e.,
and receiver of communication. concentration of decision-making authority by the top
1. Because of fear of challenge to authority, a management).
superior may withhold or suppress communication. 5. Status conscious manager may not allow his
2. Because of lack of confidence of superior on subordinates to express their feelings freely.
his subordinates, he may not seek their advice or Measures to improve communication
opinions. effectiveness/Measures to overcome
3. Unwillingness to communicate by a subordinate communication barriers
to his superior if it may adversely affect his interests. 1. Clarify the ideas before communication, i.e. purpose
4. Lack of incentives, i.e. no reward or appreciation of the message should be clear to the sender himself
for a good suggestion; the subordinates may not be before conveying to the receivers.
willing to offer useful suggestions. 2. Communicate according to the needs of the receiver,
D. Organisational Barriers CO2RS education and understanding levels of subordinates,
Organisational barrier which arises from organisational avoiding technical jargon.
structure, authority relationships, rules and regulations etc. 3. Be aware of the language, tone and content of the
1. Rigid rules and regulations may be a hurdle to message to make it understandable to the receiver. The
communication; communications through scalar chain language should not offend the sentiments of listeners.
may result in delays. 4. Ensure proper feedback to improve the communication
2. Complexity in organisation structure i.e. large process and make it more responsive. Communication
number of levels of management, so communication is complete only when the sender gets a feedback.
gets delayed and distorted as number of filtering points 5. Follow up communications and review the instructions
are more. given to subordinates.
3. Lack of organisational facilities like frequent 6. Be a good listener. Manager should be an attentive
meetings, suggestion box, complaint box, social and listener. Patient and attentive listening solves half of the
problems.
Application, HOTS, Evaluation and Multi-Disciplinary Questions
1. Is directing required at planning stage? Give reason to supplies without any confrontation with workers. Personnel
support your answer. Manager replied, “I just used a carrot with no sticks approach”.
Ans. No, directing is not required at planning stage By quoting the lines from above paragraph identify any two
since it is an executive function. It initiates action in the elements of directing. (CBSE SQP 2017)
organisation. Ans. Supervision ‘it employs 10 operating managers …….
2. Identify the elements of directing mentioned below: support to the workers.’
(i) Mr. Pramod Aggarwal, a manager explains a worker about Motivation ‘to pay double wages for working overtime and
operations to be carried out by him on a hi-tech machine. triple wages for working on holidays.’
(ii) Mr. Rajinder Tyagi, a mining engineer explains about safety 4. Name the concept of management which stimulates people
precautions to be followed while working in a coal mine. to take up work voluntarily.
(iii) Mr. Anil Sarraf, a managing director declares share in Ans. Motivation
the profits to the managers for their contribution to enhance 5. Name the element of directing function under which:
profits of the company. (i) the superiors oversee the activities of their subordinates.
(iv) Mr. Rajiv Asopa, a manager inspires his employees by (ii) the superiors assure the subordinates that their needs will
playing a lead role in performing a work. be taken care of.
Ans. (i) Supervision (ii) Communication (iii) Motivation (iii) the superior attempts to influence the behaviour of people
(iv) Leadership at work towards the realisation of specified goals.
3. M/s Beta Ltd. deals in consumer goods. It employs 100 (iv) the superiors share information with the subordinates in
workers and 10 operative managers who give guidance and order to reach common understanding.
support to the workers while operating the machinery. The Ans. (i) Supervision (ii) Motivation (iii) Leadership
company has a policy of granting leave as per the requirement (iv) Communication.
of the workers. Workers are generally granted leave on 6. Name the element of directing which can be understood
festivals and special occasions. Recently on Puja festival, it as the process of guiding the efforts of employees and other
received a big order. Workers are keen to take Puja holidays resources to accomplish the desired objectives.
while management is pressing hard for overtime. This matter Ans. Supervision
was placed before the Personnel Manager who called the 7. Name the element of directing in which a manager maintains
meeting of operative managers and workers to inform them good inter-personal relations with his subordinates and motivate
about the changes in the incentive plan which states payment them to contribute to achieve organisational objectives.
of double wages for working overtime and triple wages for Ans. Leadership
working on holidays. Workers without any pressure volun- 8. State the element of directing which helps in implementing
tarily took limited holidays and were able to increase their the principle of ‘scalar chain’.
earning by working overtime and on holidays. During Board Ans. Communication
of Directors’ meeting, Personnel Manager was asked to update 9. At which level of management directing takes place?
the management for achieving higher output, meeting timely Ans. Directing takes place at every level of management,
i.e., from top management to supervisory level.

33
10. Mrs. Rajlaxmi is working as the Human Resource Identify the type of leadership style followed by the manager in
Consultant in a firm manufacturing cosmetic, which is facing a the above situation. (CBSE SQP 2018-19)
problem of high employee turnover. The CEO of the company Ans. Autocratic style of leadership
has invited suggestions from her for retaining the talented 16. Kavita recently joined as the human resource director of
employees and reducing the employee turnover. Mrs. Rajlaxmi Arjun Vidyamandir School, a senior secondary educational
recommends that the good employees be rewarded in a way institute. She observed that the school had an experienced
that it creates a feeling of ownership among the employees medical team on its payroll. They regularly offered useful
and at the same time makes them contribute towards the suggestions which were neither appreciated nor rewarded
growth of the organization. by the school authorities. Instead the school outsourced the
Identify the incentive and its type, which has been suggested task of maintenance of health records of the students and
by Mrs. Rajlaxmi to the CEO of the company. (CBSE SQP 2016) paid them a good compensation for their services. Because of
Ans. Financial incentive; Co -Partnership/ Stock Option this, the existing medical team felt disheartened and stopped
11. In an organisation all the employees take things easy and giving useful suggestions. (a) Identify the communication
are free to approach anyone for minor queries and problems. barrier discussed above. (b) Identify the category of this
This has resulted in everyone talking to each other and thus communication barrier. (CBSE SQP 2018-19)
resulting in inefficiency in the office. It has also resulted in loss Ans. (i) Lack of proper incentives. (ii) Personal barrier.
of secrecy and confidential information being leaked out. 17. Ayushi worked in a call center. Her team manager did
(a) Identify the type of communication discussed above. not wish to be contradicted and gave rewards depending on
(b) State any two negative aspects of the type of communication the result. State one benefit of the style of leadership being
identified in part (a). followed by Ayushi’s team manager. (CBSE SQP 2018)
(c) What system of communication do you think the manager Ans. This leadership style is effective in getting
should adopt to improve communication? productivity in many situations.
Ans. (a) Informal communication 18. Sanjana Ltd. assured their employees that in spite of
(b) Give two negative aspects of informal communication. recession no worker will be retrenched from the job. Name the
(c) Formal communication system. type of incentive offered to the employees. (CBSE 2010)
12. Rahim was working in an enterprise on daily wages basis. Ans. Job security (Non-financial incentive)
It was difficult for him to fulfill the basic needs of his family. His 19. Rajat a Sales Manager, achieved his sales target one
daughter fell ill. He had no money for his daughter’s treatment. month in advance. This achievement was displayed on
To meet the expenses of her treatment, he participated in the notice board and the CEO of the Company awarded a
a cycle race and won the prize money. The cycle company certificate for the best performance to him. Name the incentive
offered him a permanent pensionable job which he happily provided to Rajat.
accepted. Ans. Employee recognition programmes
(i) By quoting the lines from the above para identify the needs 20. Prachi is working in an MNC. She has been given an option
of Rahim that are satisfied by the offer of the cycle company. to buy the shares of the company at an amount less than the
(ii) Also, identify two other needs of Rahim followed by above market price because of her performance as an incentive.
that are still to be satisfied. (CBSE 2014) Identify which incentive is being given to her.
Ans. (i) Physiological and Safety/Security needs. ‘The cycle Ans. Co-partnership/Stock option
company offered him a permanent pensionable job’. 21. Mohan and Sohan are friends working in Surya Ltd. as
(ii) (a) Affiliation/Belongingness needs (b) Esteem needs Production Manager and Sales Manager respectively. In an
13. Sadaf is the Chief Executive Officer of a reputed company. interdepartmental meeting, Sohan informed Mohan about a
She introduced appropriate skill development programmes and change in the marketing policy of the company. Identify the
a sound promotion policy for the employees of her company. type of communication used in the above example.
to motivate and retain the best talent in the company, she Ans. Formal Communication
designed the jobs of the managers to include greater variety of 22. Radha and Meera are working in the same organisation
work content. Identify the two incentives introduced by Sadaf but in different departments. One day at lunch time Meera
to motivate the employees of her company. (CBSE 2017) informs Radha that due to computerisation many people are
Ans. (i) Career Advancement Opportunity (ii) Job going to be retrenched soon from the organisation. Which type
Enrichment of communication is this?
14. Lakhan, an expert in the area of Financial Management, Ans. Informal Communication
sent an e-mail to his subordinate Thomas about a new project 23. Rakesh is working under his superior Neeraj. He always
for a client in France. Though, the mail was in English, a communicates useful ideas and suggestions to his superior
language known to Thomas, he was not able to understand the regarding reduction of cost, improvement in the product, etc.
actual meaning of many words used in the mail. He was also Neeraj implements his suggestions and has always found
not a specialist in the field of Financial Management. Not only favourable results, but he never appreciates Rakesh for his
this, some portions of the mail were translated from French to suggestions. Now Rakesh decided not to communicate any
English in such a manner that many mistakes crept in, causing suggestion or idea to Neeraj. Identify the factor which acts as
different meaning to the message. (a) Identify two specific a communication barrier.
barriers to communication in Lakhan’s e-mail. (b) State any Ans. Lack of proper incentives (Personal Barriers to
two measures which can be taken by Lakhan to overcome Communication)
the barriers identified in part (a)above to improve in future the 24. ‘KPM Ltd.’ is manufacturing breads and biscuits for many
effectiveness of his communication. years. It has approximately 150 employees and most of
[Link] specific barriers to communication in Lakhan’s them are not happy with the working environment. Because
e-mail were: (i) Faulty translations (ii) Technical jargon of this, the labour turnover rate is very high. Therefore
Measures to overcome communication barriers: the company appoints a new Human Resource Manager,
(i)Lakhan should communicate according to the needs, Naveen, to analyse the situation. Naveen finds that there is
education and understanding levels of subordinates. (ii)  He no free flow of communication and there is no suggestion box
should be aware of languages, tone and content of the for the employees to voice their suggestions or grievances.
message to make it understandable to the receiver. The company rarely organises a social or cultural gathering,
15. In an organization, employees always feel that they are the employees just come, finish their work and leave the
under enormous unnecessary stress, as the manager does organisation.
not provide any information about future plans but simply Identify the communication barrier discussed above and the
instructs them what to do. He also does not listen to any of the category of this communication barrier.
suggestions given by the subordinates. Ans. Organisational Facilities (Organisation Barrier)

34
Unit 8 Controlling
Controlling: Meaning and Process  Critical Point Control helps in controlling process
Controlling means the measurement of accomplishment by focusing on key result areas which are critical to
against the standards and the correction of deviations to the success of an organisation. It emphasizes that
assure attainment of objectives according to plans. deviations in the key result areas need to be attended
Steps in Controlling Process more urgently as compared to deviations in certain
1. Setting performance standards. Standards are insignificant areas since it is neither economical nor
the criteria against which actual performance would be easy to keep a check on each and every activity of the
measured. Standards can be set in both quantitative organisation. (For example, in a manufacturing organization,
terms (cost to be incurred, revenue to be earned, product an increase of 5 percent in the labour cost may be more
units to be produced and sold, time to be spent in performing troublesome than a 15 percent increase in postal charges. It
a task) as well as qualitative terms (improving goodwill and focuses managerial attention on important areas. Thus, there
motivation level of employees). is better utilisation of managerial talent.)
2. Measurement of actual performance. Actual
Advantages of Critical Point Control (CPC): (i) It focuses
performance is measured in an objective and managerial attention on important areas. Thus, there is
reliable manner. • There are several techniques for better utilisation of managerial talent. (ii) It identifies critical
measurement of performance—personal observation, problems which need timely action to keep the organisation
sample checking, performance reports, etc. • As far as in right track.
possible, performance should be measured in the same
units in which standards are set as this would make 5. Taking corrective action. Corrective action is
their comparison easier. taken if deviations go beyond the acceptable limits.
3. Comparing actual performance with standards. • However, no corrective action is required when
Actual performance is compared with the standards the deviations are within acceptable limits. • If the
to find out the deviation between actual and desired deviations cannot be corrected through managerial
results. • Comparison becomes easier when standards action, the standards may have to be revised.
are set in quantitative terms. Corrective actions include: (i) Change the quality
4. Analysing deviations. Some deviation in specification for the materials used (ii) Repair the existing
performance can be expected in all activities. It is, machine or replace the machine if it cannot be repaired
therefore, important to determine the acceptable (iii) Undertake technological upgradation of machinery
range of deviations (Management by Exception). Also, (iv) Modify the existing process (v) Improve the physical
deviations in key areas of business need to be attended conditions of work.
more urgently as compared to deviations in certain
insignificant areas (Critical Point Control). After identifying Importance of Controlling Function of
significant deviations in key result areas, these Management SR G OM
deviations need to be analysed for their causes. 1. Controlling helps in accomplishing organisational
goals by bringing to light, deviations if any and indicating
Causes of deviations may be: (i) Defective materials corrective action. (Thus, it guides the organisation and keeps it
(ii)  Defective machinery (iii) Obsolete machinery (iv) on the right track so that organisational goals might be achieved.)
Defective process (v) Defective physical conditions of work. 2. Controlling helps in making efficient use of
 Management by Exception helps in the controlling resources by ensuring that each activity is performed
process by identifying only significant deviations which in accordance with pre-determined standards. (By
go beyond the permissible limit and bringing them exercising control, a manager seeks to reduce wastage and
to the notice of the management. It is based on the spoilage of resources. This ensures that resources are used in
belief that an attempt to control everything results in the most effective and efficient manner.)
controlling nothing. (For example, if the plans lay down 3. Controlling ensures order and discipline: It helps to
2 per cent increase in labour cost as an acceptable range minimise dishonest behaviour on the part of the employees
of deviation, then only increase in labour cost beyond 2 per by keeping a close check on their activities. (For example,
cent (say, 5 per cent) should be brought to the notice of the a company may track dishonest employees by using computer
management. It saves the time and efforts of managers as monitoring (through CCTV) as a part of their control system.)
they deal with only significant deviations.) 4. Controlling improves employee motivation as
the employees know well in advance the standards of
Advantages of Management by Exception (MBE): (i) The
routine problems are left to the subordinates. Management by
performance on the basis of which they will be appraised.
exception, thus, facilitates delegation of authority and increases 5. Controlling helps in judging accuracy of standards
morale of the employees. (ii) It saves the time and efforts of in the light of changes taking place in the organisation
managers as they deal with only significant deviations. and in the environment.

35
6. Controlling facilitates coordination in action as each 5. Planning and controlling are both looking back
employee and department is governed by pre-determined because, while planning is guided by past experiences,
standards which are well coordinated with one another. controlling compares the actual performance with the
standards, set in the past.
Relationship between Planing and
Controlling Nature/Features of Controlling
1. Controlling takes place on the basis of standards 1. Controlling is a goal-oriented function as it
developed by planning because if the standards are ensures that an organisation’s resources are being
not set in advance, managers have nothing to control. used effectively and efficiently for the achievement of
(In other words, when there is no plan, there is no basis of predetermined goals.
controlling. Controlling is blind without planning.) 2. Controlling is a pervasive function as it is
2. Planning without controlling is meaningless required in all types of organisations and at all levels of
because once a plan becomes operational, controlling management—top, middle and lower.
ensures that events conform to the plans. 3. Controlling is a continuous function as it
3. Planning is prescriptive whereas controlling involves a constant review of actual performance to
is evaluative because planning prescribes an ensure that activities in the organisation are performed
appropriate course of action for achieving objectives. as per the plans. Controlling is not the last function of
while controlling evaluates whether decisions have management. It brings back the management cycle back to
the planning function. It helps in formulation of future plans in
been translated into desired actions. the light of the problems identified in the past and, thus, helps
4. Planning and controlling both are forward in better planning in the future periods.
looking because while plans are prepared for the future, 4. Controlling is both looking back and forward
controlling seeks to improve the future performance on looking.
the basis of the past experience.

Application, HOTS, Evaluation and Multi-Disciplinary Questions

1. D&D Ltd. is a large manufacturing unit. Recently, the in finding out that the actual production of a worker is less
company has conducted the ‘time’ and ‘motion’ studies and than the set target. (b) To complete the process of the function
concluded that on an average a worker could produce 120 identified and to ensure the performance as per set targets,
units per day. However, it has been noticed that average daily what further steps a manager has to take.
production of a worker is in the range of 80-90 units. Ans. (a) Controlling–“Comparing actual performance with
Which function of management is needed to ensure that the standards.” (b) (i) Analysing deviations (ii) Taking corrective action
actual performance is in accordance with the performance as 3. Rudrakshi Ltd. is engaged in manufacturing high end luxury
per ‘time’ and ‘motion’ studies? pens. The target production is 700 units daily. The company
Ans. Controlling had been successfully attaining this target until three months
2. Babita Ltd. is engaged in manufacturing machine ago. Over the last few month, it has been observed that daily
components. The target production is 250 units per day per productions varies between 600-650 units. (i) Identify the
worker. The company had been successfully attaining this function of management, which has been highlighted in the
target until two months ago. Over the last two months it has above context. (ii) Discuss the first four steps involved in the
been observed that daily production varies between 200–210 process of the function identified above. (CBSE SQP 2018-19)
units per worker. (a) Name the function of management and Ans. (i) Controlling (ii) Explain the first four steps involved in
identify the step in the process of this function which helped the controlling process

36
 Part-B
Business Finance and
Marketing
Unit Name of the Unit Marks
9. Financial Management
10. Financial Markets
11. Marketing Management
12. Consumer Protection

Unit 9 : Financial Management • Marketing Management Philosophies

• Concept, Role and Objectives of Financial Management • Marketing Mix– Concept and Elements
• Financial Decisions—Investment, Financing and Dividend; • Product: Branding, Labelling and Packaging – Concept
Meaning and Factors affecting • Price: Concept, Factors determining price
• Financial Planning—Concept and Importance • Physical distribution: Concept and Components, Channels of
• Capital Structure—Concept Distribution—Types, Choice of Channels
• Fixed and Working Capital—Concept and Factors affecting • Promotion: Concept and Elements
their requirements Advertising—concept, role, objections against advertising
Personal Selling—concept and qualities of a good salesman
Unit 10: Financial Markets Sales promotion—concept and techniques
• Financial Markets: Concept, Functions and Types
Public Relations—concept and role
• Money Market and its Instruments
• Capital Market and its Types (Primary and Secondary), Unit 12: Consumer Protection
methods of floatation in the primary market • Concept and Importance of Consumer Protection
• Stock Exchange—Functions and Trading Procedure. • Consumer Protection Act, 1986:
• Securities and Exchange Board of India (SEBI)— Objectives Meaning of Consumer
and Functions Rights and Responsibilities of Consumers
Who can file a complaint and against whom?
Unit 11: Marketing Management
Redressal machinery
• Selling and Marketing—Concept
Remedies available
• Marketing management—Concept
• Consumer Awareness—Role of consumer organisations and
• Marketing functions
NGOs.

37
Unit 9 Financial Management
9.1 Financial Management and Financial Planning
Concept and Decisions of Financial to maximise shareholders’ wealth, which means to
Management maximise the current market price of equity shares of the
Financial Management refers to management of flow of company. The market price of equity shares increases,
funds and involves decisions relating to procurement of if the benefit from a financial decision exceeds the cost
funds , investment of funds and distribution of earnings involved, so that some value addition takes place. For
to the owners. example, when a decision is taken about investment in
Financial Decisions a new machine, the aim of financial management is to
1. Investment Decision: Investment decision ensure that benefits from the investment exceed the
involves deciding about how the funds are invested in cost so that some value addition takes place.
different assets so that they are able to earn the highest Maximising shareholders’ wealth is only possible by:
possible return for their investors. Investment decision (i) Ensuring availability of sufficient funds at reasonable
can be long-term or short-term. cost. (ii) Ensuring effective utilisation of funds.
Long-term investment decision/Capital Budgeting (iii)  Ensuring safety of funds procured by creating
Decision involves allocation of firm’s capital to reserves, reinvesting profits.
different projects or assets with long-term implications
for the business. Role of Financial Management: (i) Financial Management
is concerned with optimal procurement as well as the usage
Examples of capital budgeting decisions: • Acquiring a of finance. (ii) Good financial management aims at procuring
new fixed asset such as land, building, plant and machinery, funds at a lower cost and achieving effective deployment of
etc. • Opening a new branch • Expenditure on acquisition, such funds in most productive activities. (iii) It also aims at
expansion, modernisation and their replacement • Launching ensuring availability of enough funds whenever required as
a new product line • Investing in advanced techniques of well as avoiding idle finance. (iv) The financial statements,
production • Major expenditures on advertising campaign or such as Balance Sheet and Statement of Profit and Loss
research and development programme Account, of a business are largely determined by financial
management decisions taken earlier.
Reasons that make capital budgeting decision to be Factors affecting Investment Decision/
made carefully: (a) These decisions have a bearing on the
long term growth. (b) These decisions result in a substantial
Capital Budgeting Decision
portion of capital funds being blocked in long-term project.
1. Cash flows of the project: The amount of cash
(c) These decisions influence the overall business risk flows should be carefully analyzed before considering
complexion of the firm. (d) These decisions once taken, are the decision.
not reversible without incurring heavy losses. 2. Rate of return of the project: The rate of return of
the project based on expected return and assessment of
Short-term investment decisions (also called the risk involved from each proposal should be analyzed.
working capital decisions) are concerned with 3. Investment criteria: The decision to invest in a
the decisions about the levels of cash, inventory and particular project involves a number of calculations
receivables. regarding the amount of investment, interest rate, cash
These decisions affect the day-to-day working of a business. flows and rate of return.
Efficient cash management, inventory management and There are different techniques, such as Pay Back Period,
receivables management are essential ingredients of sound Net Present Value(NPV), Internal Rate of Return(IRR), etc.
working capital management. to evaluate investment proposals which are known as capital
2. Financing Decision: It relates to the quantum of budgeting techniques. These techniques are applied to each
finance to be raised from various long term sources— proposal before selecting a particular project.
Shareholders’ funds (or Equity) and Borrowed funds Factors affecting Financing Decision FORC3
(or Debt). Financing decision determines the overall cost of 1. Cost: The cheapest source of finance should be
capital and the financial risk of the enterprise. selected, i.e., debt. Cost of debt is lower than cost of equity
3. Dividend Decision: It relates to how much of the because the lender’s risk is lower than the equity shareholder’s
profit earned by the company (after paying tax) is to risk. Since the lenders earn an assured return and
be distributed to the shareholders as dividend and repayment of capital on maturity, therefore, they should
how much of it should be retained in the business. The require a lower rate of return. Moreover, interest paid
decision regarding dividend should be taken keeping in view on debt is a deductible expense for computation of tax
the overall objective of maximising shareholder’s wealth. liability whereas dividends are paid out of after-tax
Objectives of Financial Management profits. Therefore, increased use of debt is likely to lower the
The primary objective of financial management is overall cost of capital of the firm.

38
2. Risk: The less risky source of finance should be 10. Legal constraints: Certain provisions of the Companies
preferred, i.e., equity. Debt is cheaper, but is more risky Act, 2013 place restrictions on pay outs as dividend.
for a business because the payment of interest and 11. Contractual constraints: While granting loans to a
the return of principal is obligatory for the business. company, sometimes banks/financial institutions may impose
Any default in meeting these commitments may force certain restrictions on the payment of dividends in future.
the business to go into liquidation. There is no such
compulsion in case of equity, which is therefore, Financial Planning
considered riskless for the business. Therefore, increased The process of estimating the funds requirements
use of debt increases the financial risk. Financial risk is the of a business and specifying the sources of
chance that a firm would fail to meet its payment obligations, funds is called financial planning. OR Financial
i.e., interest and principal amount. Thus, overall financial planning is the preparation of a financial blueprint
risk depends upon proportion of ‘Debt’ in the total capital. of an organisation’s future operations. It takes into
3. Floatation costs: Cost of raising funds is called consideration the growth, performance, investments and
floatation cost, e.g. costs of advertising, printing requirement of funds for a given period.
prospectus, etc. Issue of equity involves floatation cost Objectives: (i) To ensure availability of funds
while debt (e.g., loan from banks) does not involve whenever required: It involves estimation of the funds
floatation costs. required, the time at which these funds are to be made
4. Cash flow position: Debt financing is better than available and the sources of these funds.
funding through equity if cash flow position is strong. (ii) To see that the firm does not raise resources
5. Control: Debt normally does not cause a dilution unnecessarily as it will increase the costs and the
of control while issue of equity shares may reduce resources will remain idle.
management control over the business. (Therefore, Importance: PCS LC W
companies afraid of a takeover bid would prefer debt to equity.) 1. It helps the company to prepare for the future
6. Level of fixed operating costs: If a business has by forecasting what may happen in the future under
high fixed operating costs, i.e. high business risk (e.g., different business situations.
building rent, insurance premium, salaries, etc.), lower debt 2. It helps in avoiding business shocks and surprises.
financing is better. 3. It helps in co-ordinating various business
7. State of the capital market: During the period when functions, e.g. sales and production functions by
stock market is rising (i.e., a bullish phase), equity shares are providing clear policies and procedures.
more easily sold even at a higher price. However, during a 4. It helps in reducing waste, duplication of efforts,
bearish phase a company may opt for debt. gaps in planning and confusion.
Factors affecting Dividend Decision SAS ECG 5. It provides a link between investment and
1. Amount of earnings: Dividends are paid out of financing decisions.
current and past earning. Therefore, earnings is a 6. It serves as a control technique as it makes
major determinant of the dividend decision. evaluation of actual performance easier.
2. Stability of earnings: A company having stable 7. It links the present with the future.
earnings is in a position to declare higher dividends. Types of Financial Planning: (i) Long-term financial
3. Stability of Dividends: Companies generally follow planning relates to long term growth and investment. It focuses
a policy of stable dividend per share. The increase in on capital expenditure programmes. (ii) Short-term financial
dividends is made only when the earning potential planning covers short-term financial plan called budget.
increases and not just the earnings of the current year.
4. Cash Flow position: A good cash flow position is Financial Planning Process: (i) Preparation of a sales
necessary for declaration of dividend. forecast: Suppose a company is making a financial plan
5. Growth opportunities: If a company has good for the next five years. Financial planning usually begins
growth opportunities, it pays out less dividend and with the preparation of a sales forecast. (ii) Preparation of
retain more profits to invest in new projects. financial statements: Based on sales forecast, the financial
6. Shareholders’ preference: Shareholder’s statements are prepared keeping in mind the requirement of
preference is kept in mind by the management before funds for investment in the fixed capital and working capital.
declaring dividends. (iii) Estimation of expected profits: Then the expected
7. Access to capital market: Large companies can profits during the period are estimated so that an idea can
raise funds easily from the capital market to invest in be made of how much of the fund requirements can be met
new projects. So, they can pay higher dividend. internally i.e., through retained earnings. (iv) Estimation
8. Stock market reaction: Increase in dividend of sources of external funds: The sources from which
increases the market price of shares in the stock market. the external funds requirement can be met are identified.
9. Taxation policy: A dividend distribution tax is levied (v) Preparation of cash budget: Cash budgets are made
on companies. So, if tax rate on dividend is higher, it incorporating the above factors.
would be better for a company to pay less dividend.

9.2 Capital Structure: Concept and Factors Affecting

Concept of Capital Structure operations of a business.
Capital structure refers to the mix between owners It can be calculated as debt-equity ratio, i.e., Debt/
funds and borrowed funds. OR, Capital structure means Equity or as the proportion of debt in the total capital,
the proportion of debt and equity used for financing the i.e., Debt/Debt + Equity.

39
The proportion of debt in the total capital is also EBIT-EPS Analysis
called financial leverage. As the financial leverage Situation I Situation II Situation III
increases, the cost of funds declines because of
EBIT `400000 `400000 `400000
increased use of cheaper debt, but the financial risk
increases. When ROI is higher than cost of debt, Less: Interest NIL `100000 `200000
financial leverage is favourable. When ROI is less EBT (Earnings Before Tax) `400000 `300000 `200000
than cost of debt, financial leverage is unfavourable. Less: Tax @ 30% `1,20,000 `90,000 `60000
Capital structure of a business affects both the profitability and EAT (Earnings After Tax) `280000 `210000 `140000
the financial risk. Ideally, a company must choose that
No. of shares of `10 300000 200000 1,00,000
risk-return combination which maximises shareholders’
wealth. The debt-equity mix that achieves it, is the EPS (EAT/No. of Shares) `0.93 `1.05 `1.40
optimum capital structure. The Company X Ltd. earns `0.93 per share if it is
Factors affecting the Choice of Capital unlevered. With debt of `10 lakh its EPS is
Structure FDI RCT `1.05. With a still higher debt of `20 lakh, EPS rises
1. Risk consideration: (Already explained as factor to `1.40. It is because the cost of debt (i.e. rate of
affecting financing decision) interest) is lower than the company’s Return On
2. Cost of debt: More debt can be used if debt can be Investment (ROI), which is calculated as: (EBIT/Capital
raised at a lower rate. Employed) × 100.
3. Tax rate: Since interest on debt is a tax deductible ROI of company X Ltd. = (`400000/`3000000) × 100 =
expense, a higher tax rate makes debt relatively 13.33%, which is higher than 10% interest rate on debt.
cheaper and hence, more debt can be used. Example: 9. Cost of equity: ‘Cost of equity’ means the desired rate of
Borrowing @ 10% and the tax rate 30%, means that return on equity capital for assuming risk. When a company
the after-tax cost of debt is only 7%. increases debt, the financial risk faced by the equity holders
4. Return on Investment (RoI): When the RoI of also increases. So, cost of equity increases. Therefore, a
the company is higher than cost of debt, it can choose
company cannot use debt beyond a point because share
to use trading on equity. Trading on Equity refers to
the increase in profit earned by the equity shareholders
price may decrease in spite of increased EPS.
due to presence of fixed financial charges like interest. 10. Flexibility: If a firm uses its debt potential to the
Shareholders are likely to gain due to debt/loan component full, it loses flexibility to issue further debt. To maintain
in the total capital employed. How—With a higher debt EPS flexibility, it must maintain some borrowing power to
rises. Why—It is because RoI is higher than cost of debt. take care of unforeseen circumstances.
Example: Company X Ltd. has total capital employed 11. Interest Coverage Ratio (ICR): The higher the
of `30 lakh. Tax rate is 30%. Rate of interest on debt ratio, the lower shall be the risk of company failing to
is 10% p.a., EBIT = `4 lakh. Three situations are meet its interest payment obligations.
considered: Situation-I: There is no debt (i.e., unlevered 12. Debt Service Coverage Ratio (DSCR): A higher
firm). Situation-II: There is debt of `10 lakh. Situation-III: DSCR indicates better ability to meet cash commitments.
There is debt of `20 lakh. It raises the company’s potential to increase debt
5. Cash flow position of the company component in its capital structure.
6. Floatation costs
13. Capital structure of other companies: Debt equity
7. Control considerations
ratios of other companies in the same industry is a useful
8. Stock market conditions guideline for planning the capital structure. However, it
should not follow the industry norms blindly.

9.3 Fixed and Working Capital

Fixed Capital DTC CNG higher fixed capital to purchase such assets.
Fixed capital refer to investment in fixed assets (e.g., 5. Growth prospects: Higher growth prospects
plant and machinery, land and building, etc.). require higher investment in fixed assets to meet
Factors Affecting Fixed Capital Requirements anticipated demand quicker.
1. Nature of business: A trading concern needs 6. Financing alternatives: Availability of leasing
a lower investment in fixed assets as compared to a facilities requires lower investment in fixed assets and
manufacturing concern since it doesn’t require to hence requires less fixed capital. (Such a strategy is
purchase plant and machinery. specially suitable in high risk lines of business.)
2. Scale of operations: A larger organisation 7. Collaboration: Collaboration reduces the level of
operating at a higher scale needs bigger plant and more investment in fixed assets for each firm. Therefore, fixed
space and hence higher investment in fixed assets. capital requirement is lower. (For example, a bank may use
3. Choice of technique: A capital intensive another’s ATM or some of them may jointly establish a particular
facility. This is feasible if the scale of operations of each one of
organisation requires higher investment in plant and
them is not sufficient to make full use of the facility.)
machinery and thus requires higher fixed capital than a
8. Diversification: With diversification, the fixed
labour intensive organisation.
capital requirements will increase as the investment in
4. Technology upgradation: Industries where assets
fixed capital will increase.
become obsolete (e.g. computers) sooner require

40
Working Capital PNB GIC 4. Operating efficiency: Operating efficiency reduces
Working capital refers to investment in current assets the levels of inventories and debtors. So working capital
such as cash, bills receivables, prepaid expenses, requirements will decrease.
inventories, etc. Net working capital is the excess of
Efficiency in managing raw materials is reflected in higher
current assets over current liabilities.
inventory turnover ratio. Reducing the amount tied up
This investment facilitates smooth day-to-day operations of in debtors and receivables is reflected in higher trade
the business. Current assets are expected to get converted receivables turnover ratio.
into cash or cash equivalents within a period of one year. 5. Availability of raw materials: Easy and continuous
Examples of current assets (in order of their liquidity) are cash
in hand/cash at bank, marketable securities, bills receivable, availability of raw materials enables the firms to keep
debtors, finished goods inventory, work-in-progress, raw lesser stock and hence work with smaller working
materials and prepaid expenses. Current assets are capital. (In addition, the time lag between the placement
more liquid but less profitable than fixed assets. Thus, of order and actual receipt of the material (called lead time)
working capital decisions affect the liquidity as well as is also relevant. Larger the lead time, larger the quantity of
profitability of a business. Current liabilities are those material to be stored and larger shall be the amount of working
payment obligations which are due for payment within one capital required.)
year; such as bills payable, creditors, outstanding expenses 6. Growth prospects: Higher growth prospects will
and advances received from customers, etc. Some part of
current assets is financed through short-term sources, i.e.
require larger amounts of working capital so that the
current liabilities. The rest is financed through long-term firm is able to meet higher production and sales targets
sources and is called ‘Net Working Capital’. 7. Level of competition: Higher competition requires
larger stocks to meet urgent orders from customers and
Factors affecting working capital requirements: thus higher working capital. (Competition may also force
1. Nature of business: A trading business needs the firm to extend liberal credit terms.)
less working capital because there is no processing. A 8. Inflation: With rising prices larger amounts are
manufacturing business requires more working capital required to maintain a constant volume of production
since raw material is converted into finished goods. and sales. Thus working capital requirement of a
Service industries (e.g., transport, banking, insurance, business will be high.
warehousing, advertising etc.) require less working 9. Seasonal factors: Peak season requires higher working
capital since they do not maintain inventory. capital than lean season due to higher level of activity.
2. Business cycle: In case of boom, larger working 10. Credit allowed affects the amount of debtors and
capital is required as the sales and production are more. consequently the working capital requirement of a firm.
During depression, working capital requirement will be 11. Credit availed: To the extent the firm avails
lower since production and sales will be low. credit on purchases, the working capital requirement
3. Production cycle: It is the time span between is reduced.
the receipt of raw materials and their conversion into 12. Scale of operations: A large-scale organisation
finished goods. Working capital requirement is higher requires larger amount of working capital as compared
in firms with longer production cycle because funds are to a small-scale organisation because the quantum of
blocked in raw materials and semi-finished goods. inventory, debtors and cash required is generally high.

Application, HOTS, Evaluation and Multi-Disciplinary Questions

1. S Ltd. is manufacturing steel at its plant in India. It is (ii) Growth prospects: Since the growth potential S Ltd. is
enjoying a buoyant demand for its products as economic higher, it will require larger amount of working capital to meet
growth is about 7%-8% and the demand for steel is growing. higher production and sales target.
The company has decided to set up a new steel plant to cash (c) Explanation of any four factors affecting the capital
on the increased demand. It is estimated that it will require structure.
about `2000 crore to set up and about `500 crore of working (d) Since this is a capital budgeting decision, the operations
capital to start the new plant. are likely to be at a higher scale. The amount of expenses and
(a) Identify the decision taken by the finance manager in the revenues are likely to increase. Financial planning process
above case. (b) Explain any two factors affecting the fixed and tries to forecast all the items which are likely to undergo
working capital requirements of S Ltd. (c) Explain any four changes. It enables the management to foresee the fund
factors affecting the capital structure of S Ltd. (d) Explain the requirements both the quantum as well as the timing.
importance of having a financial plan for this company. Likely shortage and surpluses are forecast so that necessary
Ans. (a) Investment decision/Capital Budgeting decision activities are taken in advance to meet those situations.
(b) Factors affecting fixed capital requirements of S Ltd.: 2. ‘A business that doesn’t grow dies’, says Mr. Shah, the
(i) Nature of business: Since it is a steel manufacturing owner of Shah Marble Ltd. with glorious 36 months of its grand
company, it needs higher investment in fixed assets such success having a capital base of `80 crore. Within a short span
as plant and machinery, etc. Therefore, its fixed capital of time, the company could generate cash flow which not
requirement will be larger. only covered fixed cash payment obligations but also create
(ii) Scale of operations: Since it is a large scale organisation, sufficient buffer. The company is on the growth path and a
its fixed capital requirement is more as it needs bigger plant, new breed of consumers is eager to buy the Italian marble
more space, etc. sold by Shah Marble Ltd. To meet the increasing demand, Mr.
Factors affecting working capital requirements of S Ltd.: Shah decided to expand his business by acquiring a mine. This
(i) Business cycle: It case of a boom, the sales as well as required an investment of `120 crore. To seek advice in this
production of steel are likely to be larger, therefore larger matter, he called his financial advisor Mr. Seth who advised him
amount of working capital is required. about the judicious mix of equity (40%) and Debt (60%). Mr.

41
 manufactured in different seasons. So, the inventory required
Seth also suggested him to take loan from a financial institution is more. (g)  Industrial chemicals: Large—These chemicals
as the cost of raising funds from financial institutions is low. are produced on a large scale and sold mostly on credit basis.
Though this will increase the financial risk but will also raise the Liberal credit terms are to be allowed.
return to equity shareholders. He also apprised him that issue 7. Aarohan Ltd. an automobile manufacturer was diversifying
of debt will not dilute the control of equity shareholders. At the into manufacturing two-wheelers. They knew that India is
same time, the interest on loan is a tax deductible expense on a growth path and a new breed of consumer is eager for
for computation of tax liability. After due deliberations with Mr. a first vehicle. The market responded very well to the new
Seth, Mr. Shah decided to raise funds from a financial institution. product. The company did not have to allow credit, as it had
(a) Identify the concept of Financial Management as advised by advance orders from four to six months with deposits paid.
Mr. Seth in the above situation. (b) Name the factors affecting Also, due to efficiency in managing their operations as soon as
the concept as identified in part (a) above which have been a vehicle was off the assembly line, it was out to the dealers.
discussed between Mr. Shah and Mr. Seth. (CBSE SQP 2017) Give any two reasons discussed above which helped the firm
Ans. (a) Capital structure (b) 1. Cash flow position 2. in managing its working capital efficiently. (CBSE SQP 2018)
Floatation cost 3. Risk consideration 4. Tax rate 5. Control Ans. (a) Credit Allowed (b) Operating Efficiency
3. The directors of a manufacturing company are thinking of 8. Shyam wanted to start a business of selling handicrafts
issuing v20 crores worth additional debentures for expansion by getting in touch with the craftsmen in the rural areas of
of their production capacity. This will lead to an increase in Bengal. He wants to make a low investment in fixed Capital.
debt equity ratio from 2 : 1 to 3 : 1. What are the risks involved Advise him in taking suitable decisions regarding the Nature
in it? State any four factors other than risk do you think the of Business, Scale of operations and Financing Alternatives (in
directors should keep in view. a developed financial market) that he needs to take for the
[Link] risk (Explain) purpose. (CBSE SQP 2018)
Explanation of any four other factors affecting capital Ans. (a) Nature of Business: Instead of setting up a
structure manufacturing unit, Shyam should start a trading concern
4. Name the concept which increases the return on equity of buying handicrafts from the craftsmen and selling them.
shares with a change in the capital structure of a company. (b) Scale of operations: Shyam should keep the scale of his
Ans. Trading on Equity organization small. (c) Financing alternatives: A developed
5. Pinnacle Ltd. deals in the sale of stationery and office financial market may provide for leasing facilities. So instead
furniture. They source the finished products from reputed of making outright purchase of assets, for example of office
brands who give them four to six months credit. Seeing the space, Shyam should take them on lease and reduce his
demand for electronic items, they are also planning to market requirement of fixed capital.
these items by opening outlets throughout India. For this, they 9. A fixed asset should be financed through:
have decided to join hands with a japanese electronic goods (a) a long-term liability (b) a short-term liability (c) a mix of
manufacturer. Identify any two factors that would affect the long and short-term liabilities
fixed capital requirement of Pinnacle Ltd. as discussed above. Ans. (a) a long-term liability
Ans. (i) Diversification (ii) Level of collaboration 10. Mr. Rohit is into transport business. His buses are hired
6. Explain whether the following manufacturing concerns by schools for transportation of students. He is willing to
require large or small working capital: (a) Bread, (b) Sugar, (c) expand and diversify his business to inter-state transportation
Coolers, (d) Furniture manufacturing against orders, (e) Motor purposes. Enumerate any six factors that will affect his fixed
car/Scooters, (f) Clothes, (g) Industrial chemicals. capital requirements. (CBSE SQP 2018-19)
Ans. (a) Bread: Small—No need to maintain inventory and Ans. Factors affecting fixed capital requirements are: (any six)
production cycle is short. (b) Sugar: Large—Availability of 11. Amit is running an ‘Advertising agency’ and earning a lot
raw material (sugarcane) is seasonal. (c) Coolers: Large— by providing this service to big industries. State whether the
It is a seasonal product. Therefore, it requires large amount working capital requirement of the firm will be ‘less’ or ‘more’.
of working capital to store the output during the non-season Give reason in support of your answer. (CBSE SQP 2015)
period. (d) Furniture manufacturing against orders: Ans. Less working capital is required as service industries
Small—It is quickly converted into cash sales, advance from which usually do not have to maintain inventory require
customers is also available and it does not require to maintain less working capital.
inventory. (e) Motor car/ Scooters: Large—The production 12. Current assets of a business firm should be financed
cycle is long and these are costly items and are manufactured through: (a) current liability only (b) long-term liability only
in large scale. So, funds are blocked up for a long period. (c)  both types (i.e. long and short term liabilities)
(f)  Clothes: Large—The ratio of cost of raw materials to Ans. (c) both types (i.e. long and short term liabilities)
total cost is high. Moreover, different kinds of clothes are

Unit 10 Financial Markets

10.1 Financial Markets: Concept, Functions and Types
The process of allocation of funds into their most (i)  The rate of return offered to the households would
productive investment opportunity by financial market be higher.
is called financial intermediation. When the allocative (ii) Scarce resources are allocated to those firms which
function is performed well, two consequences follow: have the highest productivity for the economy.

42
Banks and financial markets are competing intermediaries Money market Instruments
in financial system. Households can deposit their surplus 1. Commercial Paper: It is a short-term unsecured,
funds with banks or they can buy the shares and negotiable promissory note with a fixed maturity period
debentures offered by a business using financial markets. of 15 days to one year, which is issued by large and
Functions of Financial Markets PCM L creditworthy companies to raise short term funds at
Financial Market is a market for the creation and exchange lower rates of interest than the market rates. • The
of financial assets. It performs four main functions: issue of commercial paper is an alternative to bank
1. Financial markets mobilise savings and borrowing • It is used to provide short term funds for
channelize them into the most productive uses. seasonal and working capital needs of the business. • It
2. It facilitates price determination/discovery of a is used to meet to floatation cost of new issue of shares
financial asset through interaction between supply and
(i.e. bridge financing).
demand of funds.
3. Financial markets provide liquidity to financial 2. Treasury bill: It is an instrument (in the form of
assets, so that they can be easily converted into cash a promissory note) issued by Reserve Bank of India
whenever required. on behalf of the Central government to meet its short
4. Financial markets provide valuable information about term requirements of funds. It is highly liquid, has an
securities being traded in the market and thereby, help assured yield and negligible risk of default. Treasury
to reduce cost of transactions in terms of time, Bills can be issued for a minimum amount of `25000
effort and money. and its multiples thereof. (Treasury Bills are also known
Types of Financial Markets as Zero Coupon Bonds because they are issued at a price
which is lower than their face value and repaid at par. The
Money Market: The money market is a market for
difference between the redemption value and the issue price is
short term funds which deals in monetary assets whose
the interest receivable and is called discount.)
period of maturity is up to one year. Money market
instruments are close substitutes for money. 3. Call money is the method by which banks borrow
Capital Market: Capital market refers to facilities and from each other to be able to maintain the cash reserve
institutional arrangements through which medium and long- ratio. It is repayable on demand, with a maturity period
term funds, both debt and equity are raised and invested. of one day to 15 days. (The interest rate paid on call money
loans is known as the call rate. It is a highly volatile rate that
Basis Money Market Capital Market
varies from day-to-day and sometimes even from hour-to-hour.)
IPL SIDE
Participants The participants are RBI, The participants are
4. Certificate of deposit: It is a short-term, unsecured,
financial institutions, banks, financial institutions,
negotiable instrument issued by commercial banks
corporates. banks, corporates,
or development financial institutions to individuals,
foreign investors and
corporations and companies. It is issued during periods
retail investors.
of tight liquidity when the deposit growth of banks is
Instruments Instruments traded are Instruments traded low but the demand for credit is high.
treasury bill, commercial are shares, debentures 5. Commercial bill: It is a bill of exchange used to
paper, certificates of deposit, and bonds. finance the working capital requirements of business
call money, etc. firms. It is a short-term, negotiable, self-liquidating
Investment Money market securities Capital market instrument. It is used to finance the credit sales of
outlay have a large investment securities have small firms. (When a trade bill is discounted with a commercial
outlay. investment outlay. bank, it is known as a commercial bill.)
Duration Money market deals in short Capital market deals in Types of Capital Market
term securities whose period medium term and long Primary Market (New Issues Market): It deals with new
of maturity is up to one year. term securities with securities being issued for the first time. Secondary
period of maturity of Market (Stock Market or Stock Exchange): It is a
more than one year. market for the purchase and sale of existing securities.
Liquidity Money market instruments Capital market
enjoy higher degree of securities are Primary Market Secondary Market SC2 BPL
liquidity (The Discount considered liquid but
There is sale of securities by There is trading of existing
Finance House of India) less liquid than money
new companies or further new securities only.
market securities.
issues of securities by existing
Safety Money market instruments Capital market
companies to investors.
are comparatively safer than instrument are riskier
capital market securities with than money market Only buying of securities takes Both the buying and the selling
a minimum risk of default instruments. place in the primary market, of securities can take place on
due to the shorter duration securities cannot be sold the stock exchange.
of investment and financial there.
soundness of the issuers. Securities are sold by the Ownership of existing
Expected Money market securities yield Generally yield a higher
company to the investors securities is exchanged
return comparatively less return due return than money
directly (or through an between investors. The
to shorter duration. market instruments
intermediary). company is not involved at all.
due to longer duration.

43
 The flow of funds is from Enhances encashability 5. e-IPO: • Issuing securities through the on-line
savers to investors, i.e. the (liquidity) of securities, i.e. the system of stock exchange. • A company has to enter
primary market directly secondary market indirectly into an agreement with the stock exchange.
promotes capital formation. promotes capital formation. Stock Exchange
Prices of securities are Prices are determined by Stock Exchange is an institution which provides a
determined and decided by the demand and supply of the platform for purchase and sale of existing securities.
management of the company. securities. Functions LPS EGS
1. Provides liquidity and marketability of existing
There is no fixed geographical Located at specified places. securities because the main function of a stock
location. exchange is to provide a ready and continuous market
Methods of floating new issues in the for the sale and purchase of existing securities.
2. Pricing of securities: Share prices on a stock exchange
primary market RO2PE
are determined by the forces of demand and supply.
1. Offer through prospectus: • Most popular 3. Safety of transactions because • the membership
method of raising funds by public companies. •  Inviting of a stock exchange is well-regulated and • securities
subscriptions from the public through issue of are traded, cleared and settled within the regulatory
prospectus, through an advertisement in newspapers framework prescribed by SEBI.
and magazines. 4. Contributes to economic growth: Savings get
2. Offer for sale: • Securities are not issued directly channelised into their most productive investment
to the public but through intermediaries like Issuing opportunity. This leads to capital formation and
Houses or Stock Brokers. • A company sells securities economic growth.
en-bloc at an agreed price to brokers who, in turn, 5. Spreading of equity cult: The stock exchanges
resell them to the investing public. play a vital role in ensuring wider share ownership by
3. Private placement: • Allotment of securities to regulating new issues, better trading practices and
institutional investors and some selected individuals. taking effective steps in educating the public about
•  Advantages: (i) raise capital more quickly than a public investments.
issue (ii) Cheaper than public issue. 6. Provides scope for speculation in a restricted
4. Rights issue: It is the right/privilege given to and controlled manner. A certain degree of healthy
existing shareholders to subscribe to new issue to speculation is necessary to ensure liquidity and price
purchase new shares in proportion to the number of continuity in the stock market.
shares they already hold.
10.2 Trading Procedure in a Stock Exchange and SEBI
Trading in securities is now executed through an on-line, share certificates or debentures held in physical form
screen-based electronic trading system. A stock exchange like (a) theft (b) fake/forged transfers (c) transfer delays
has its main computer system with many terminals spread and (d) paper work relating to share certificates, transfer,
across the country. Trading in securities is done through forms, etc. These demat securities can even be pledged
brokers who are members of the stock exchange. Every or hypothecated to get loans. All transactions are settled
broker has to have access to a computer terminal that with greater speed, transparency and efficiency.
is connected to the main stock exchange. Business is
transacted during business hours of the stock exchange, Depositories
i.e. between 9:55 am and 3:30 pm, Indian Standard Time, Just like a bank keeps money in safe custody for
Monday to Friday. It follows rolling settlement system on a customers, a depository also is like a bank and keeps
T+2 basis, i.e. transactions in securities are settled within 2 securities in electronic form on behalf of the investor. In
days after the trade date. India, there are two depositories: (i) National Securities
Advantages of electronic trading system: 1. It ensures Depositories Limited (NSDL) and (ii) The Central
transparency as participants can see the prices of all Depository Services Limited (CDSL).
securities in the market. 2. It increases efficiency of Both depositories interact with the investors through
information as the computer screens display information on
prices. 3. It increases the efficiency of operations since there
intermediaries, called ‘Depository Participants’ (DPs),
is reduction in time, cost and risk of error. 4. It improves the e.g. stock brokers, banks, financial institutions, non-
liquidity of the market as people from all over the world can banking finance corporations and clearing corporations.
buy or sell securities through brokers. DPs maintain the accounts of dematerialised shares
of the investors and intimate them the status of their
Dematerialisation holding from time to time.
Dematerialisation is a process where securities held Steps involved in screen-based trading for
by the investor in the physical form are cancelled and buying and selling of securities
the investor is given an electronic entry or number so 1. The investor has to approach a registered broker
that she/he can hold it as an electronic balance in an or sub-broker and sign a broker-client agreement and
account. • For this, the investor has to open a ‘Demat a client registration form before placing an order to
account’ with an organisation called a depository. •  This buy or sell securities. He has to provide certain other
is mainly done to eliminate problems associated with details and information like • PAN (Permanent Account
44
Number) (This is mandatory), • Bank account details, • 3. To prevent trading malpractices and achieve a balance
Depository account details, etc. between self regulation by the securities industry and
2. The investor has to open a ‘Demat’ account or its statutory regulation.
‘Beneficial Owner’ (BO) account with a depository 4. To regulate and develop a code of conduct and
participant (DP) for holding and transferring securities fair practices by intermediaries like brokers, merchant
in the demat form. bankers etc., with a view to making them competitive
3. The investor then places an order with the broker to and professional.
buy or sell shares giving instructions about the number Functions of SEBI
of shares and the price. The broker will then go ahead Protective functions
with the deal and issue an order confirmation slip to 1. Prohibition of fraudulent and unfair trade practices
the investor. like making misleading statements, manipulations,
4. The broker then will go on-line and connect to the price rigging etc.
main stock exchange and match the share and best 2. Controlling insider trading and imposing penalties for
price available. such practices. (Insider trading—Directors/ Promoters
5. When the shares can be bought or sold at the price using inside information, e.g. bonus issue to make
mentioned, the broker will issue a trade confirmation personal profits.)
slip to the investor. 3. Undertaking steps for investor protection.
6. After the execution of trade, within 24 hours the 4. Promotion of fair practices and code of conduct in
broker will issue a Contract Note (a Unique Order securities market.
Code number is printed on it), containing details of the Development functions
number of shares bought or sold, the price, the date 1. Training of intermediaries of the securities market.
and time of deal, and the brokerage charges. Contract 2. Conducting research and publishing information
Note is a legal document as it helps to settle disputes/ useful to all market participants.
claims between the investor and the broker. 3. Undertaking measures to develop the capital markets
7. Now, the investor has to deliver the shares sold or by adapting a flexible approach.
pay cash for the shares bought to the broker. Regulatory functions
8. Cash is paid or securities are delivered to the stock 1. Registration of brokers and sub-brokers and other
exchange by the broker on pay-in day, which is before players in the market.
the T+2 day. 2. Registration of collective investment schemes and
9. On the T+2 day, the stock exchange will deliver the Mutual Funds.
shares or make payment to the other broker. This is 3. Regulation of stock brokers, portfolio exchanges,
called the pay-out day. The other broker makes payment underwriters and merchant bankers and the business in
to the investor within 24 hours of the payout day. stock exchanges and any other securities market.
10. The broker will make delivery of shares in demat 4. Regulation of takeover bids by companies.
form directly to the investor’s Demat account. 5. Calling for information by undertaking inspection,
Objectives of SEBI conducting enquiries and audits of stock exchanges and
1. To regulate stock exchanges and the securities intermediaries.
industry to promote their orderly functioning. 6. Levying fee or other charges for carrying out the
2. To protect the rights and interests of investors, purposes of the Act.
particularly individual investors and to guide and 7. Performing and exercising such power under
educate them. Securities Contracts (Regulation) Act 1956, as may be
delegated by the Government of India.
Application, HOTS, Evaluation and Multi-Disciplinary Questions
1. With the explosive growth of its subscriber base, to fuel its 3. Supriya’s grandmother who was unwell, called her and gave
expansion plan Airo Telecom Co. Ltd. wants to raise `500 crore her a gift packet. Supriya opened the packet and saw many
by issuing equity shares. Identify the market Airo Telecom Co. crumpled share certificates inside. Her grandmother told her
Ltd. will look for to raise funds worth `500 crore to fuel its that they had been left behind by her late grandfather. As no
expansion plan. trading is now done in physical form, Supriya wants to know
Ans. Primary market the process by adopting which she is in a position to deal with
2. Shreya Ltd. is a large credit-worthy company manufacturing these certificates. (a) Identify the process. (b) Also give two
automobiles for the Indian market. It now wants to cater to reasons to Supriya why dealing with shares in physical form
the other market and decided to invest in new machines. For had been stopped. (CBSE SQP 2015)
this, it requires long-term finance. It decides to raise funds by Ans. (a) Dematerialisation
issuing equity shares. The issue of equity shares involves huge (b) (i) Theft (ii) Fake/forged transfers
floatation cost. To meet the expenses of floatation cost the
4. Mr. Sanjay Nehra was the Chairman of ‘Taran Bank’. The
company decides to tap the money market.
(a) Name the money market instrument the company can use bank was earning good profits. Shareholders were happy as
for the above purpose. the bank was paying regular dividends. The market price of
(b) What is the duration for which the company can get funds their shares was also steadily rising. The bank was about
through this instrument? to announce taking over of ‘Vena Bank’. Mr. Sanjay Nehra
(c) State any other purpose for which this instrument can be knew that the share price of ‘Taran Bank’ would rise on this
used. (CBSE SQP 2018-19) announcement. Being a part of the bank, he was not allowed
Ans.(a) Commercial paper (b) 15 days to one year (c) to buy shares of the bank. He called one of his rich friends
It is used to provide short term funds for seasonal and Sudhir and asked him to invest `5 crores in shares of his bank
working capital needs of the business. promising him the capital gains. As expected the share prices

45
went up by 40% and the market price of Sudhir’s shares was (a) Identify the step of trading procedure in a stock exchange
now ` 7 crores. He earned a profit of ` 2 crores. He gave ` 1 which has not been followed by ‘Unicon Securities Pvt. Ltd.
crore to Mr. Sanjay Nehra and kept ` 1 crore with himself. On (b) Name the Apex statutory body of capital market to whom
regular inspection and by conducting enquiries of the brokers customer can complain to redress their grievances.
involved, Securities and Exchange Board of India (SEBI) was (CBSE QP 2017)
able to detect this irregularity. The SEBI imposed a heavy Ans. (a) Delivery of shares in Demat form directly to
penalty on Mr. Sanjay Nehra. By quoting the lines from the investors Demat Account by the broker.
above para identify and state any two functions that were (b) The Securities and Exchange Board of India (SEBI)
performed by SEBI in the above case. (CBSE 2016) 6. ABC Ltd. issued prospectus for the subscription of its shares
Ans. Regulatory function—calling for information by for ` 500 crores in 2008. The issue was oversubscribed by
undertaking inspection, conducting enquires and audits of 20 times. The company issued shares to all the applicants
stock exchanges and intermediaries. on pro-rata basis. Later SEBI inspected the prospectus and
Protective function—Controlling insider trading and imposing found some misleading statement about the management of
penalties for such practices. the company in it. SEBI imposed a penalty of ` 5 crores and
5. ‘Unicon Securities Pvt. Ltd.’ was established to deal in
banned its three executive directors for dealing in securities
securities. It was registered as a stock broker with National
market for three years. Identify the function and its type
Stock Exchange (NSE) and Bombay Stock Exchange (BSE)
to trade in securities listed at these exchanges. It is also a performed by SEBI in the above case. (CBSE SQP 2017)
depository participant with CDSL and NSDL. In the first three Ans. Protective function—Prohibition of fraudulent and unfair
years, it developed its business successfully. After that the trade practices
composition of Board of Directors changed. Some customers 7. The directors of a company want to modernise its plant
complained to the customer care centre of the company that and machinery by making a public issue of shares. They wish
shares purchased by them and for which the payment has to approach the stock exchange, while the finance manager
been duly made, were not transferred to their Demat Accounts prefers to approach a consultant for the new public issue of
by Unicon securities Pvt. Ltd. The executive of customer care shares. Advise the directors whether to approach the stock
centre promised the aggrieved customers that their shares will exchange or a consultant for new public issue of shares.
be transferred to their respective Demat Accounts very soon. Ans. The directors should approach a consultant for new
But the company delayed the matter and didn’t transfer the public issue of shares. The stock exchanges deal with
shares of the customers to their Demat Accounts. This eroded sale and purchase of existing securities only, not in new
investors’ confidence and multiplied their grievances. issue of securities.

Unit 11 Marketing Management

11.1 Marketing Management: Concept and Philosophies
Concept of Marketing given features like size, quality, taste, etc. at a certain
Marketing is a process whereby people exchange goods price; available at a given outlet or location and so on.
and services for money or for something of value to them. A good product is developed after analysing needs and
wants of the potential buyers.
 Marketing is a social process by which individual groups
obtain what they need and want through creating offerings and 3. Customer value: The buyers will purchase a product
freely exchange products and services of value with others. only if it is perceived to be giving greatest benefit or
 Marketing is concerned with exchange of goods and value for the money. The purpose of marketing is to
services from producers to consumers or users in such a generate customer value at a profit.
way that maximises the satisfaction of customer needs. 4. Exchange mechanism: The process of marketing
 Marketing is not merely a post-production activity. involves exchange of goods and services for money or
It includes many activities that are performed even before for something of value to them.
goods are actually produced, and continue even after the
goods have been sold. For example, activities such as Exchange is referred to as the essence of marketing. For
identification of customer needs, collection of information any exchange to take place, it is important that the following
for developing the product, designing suitable product conditions are satisfied: (i) Involvement of at least two
package and giving it a brand name are performed before parties viz. the buyer and the seller. (ii) Each party should
commencement of the actual production. be capable of offering something of value to the other.
Features EVON (iii) Each party should have the ability to communicate and
deliver the product or service. No exchange can take place
1. Needs and wants: Marketing involves satisfying
if the buyers and sellers are not able to communicate with
customer needs and wants better than the competitors. each other or if they can not deliver something of value to
A marketer’s job in an organisation is to identify needs the other. (iv) Each party should have freedom to accept
and wants of the target customers and develop products or reject the other party’s offer. (v) The parties should be
and services that satisfy such needs and wants. willing to enter into transactions with each other. Thus, the
2. Creating a market offering: Market offering refers acceptance or rejection of the offer takes place on voluntary
to a complete offer for a product or service, having basis rather than on the bases of any compulsion.

46
Functions of Marketing SG MPC Concept of Marketing Management
1. Gathering and analysing market information: Marketing management refers to planning, organising,
This is necessary to identify the needs of the customers directing and control of the activities which facilitate
and take various decisions for the successful marketing exchange of goods and services between producers and
of goods and services. This is important in deciding consumers or users of products and services.
what opportunities can best be pursued by it. Features/Process
2. Marketing planning: Marketing planning includes (i) Choosing a target market, say a manufacturer may
the plan for increasing the level of production, promotion choose to make readymade garments for children up to
of products, etc. Marketing planning is necessary to the age of 5 years;
achieve the marketing objectives of the organisation. (ii) Getting, keeping as well as growing the customers.
3. Product designing and development: It helps That means, to create demand for products, customer
to make the product attractive to the target customers. satisfaction and attract more customers.
A good design can improve performance of a product (iii) Creating, developing and communicating superior
and also give it a competitive advantage in the market. values for the customers. The primary job of a
4. Standardisation and Grading: Standardisation marketing manager is to create superior values so that
refers to producing goods of predetermined specifications the customers are attracted to the products.
which help in achieving uniformity and consistency in Marketing Management Philosophies
the output. (Standardisation ensures the buyers that goods 1. Production Concept: Starting point: The marketing
conform to the predetermined standards of quality, price and
packaging and reduces the need for inspection, testing and
efforts start after the product is produced in the factory;
Focus: Quantity of product; Means: Product should be
evaluation of the products.)
widely available at an affordable price; Ends/Objective:
Grading is the process of classification of products into Its objective is to earn profits through large volume of
different groups on the basis of quality, size, etc. Grading production. (Greater emphasis was placed on improving the
ensures that goods belong to a particular quality and production and distribution efficiency.)
helps in realising higher prices for high quality output. 2. Product Concept: Starting point: The marketing
5. Customer support services such as after-sales efforts start after the product is produced in the factory;
services, handling customer complaints, maintenance Focus: Quality of product—product should be of high
services, etc. All these services aim at providing quality; Means: Continuous improvement in the quality
maximum satisfaction to the customers, which in turn of product; Ends/Objective: Its objective is to earn
helps in repeat sales and developing brand loyalty. profits through product quality improvements.
6. Packaging and labelling 7. Branding 8. Pricing of products 3. Selling Concept: Starting point: The marketing
9. Promotion 10. Physical distribution 11. Transportation efforts start after the product is produced in the factory;
12. Storage or Warehousing Focus: It involves pushing the sale of existing products;
Means: It uses aggressive selling and promotional
Marketing and Selling
techniques like advertising, personal selling and sales
Basis Selling Marketing D2PS TP promotion to achieve the objective; Ends/Objective: Its
Part of the Selling is only a Marketing is much wider objective is to earn profits through increased volume
process vs part of the process term; selling is merely a of sales. (Greater importance to attracting and persuading
Wider term of marketing. part of marketing. customers to buy the product.)
Transfer of title Main focus of Main focus of marketing 4. Marketing Concept: Starting point: The marketing
vs Satisfying selling is on is on satisfying customer’s efforts start from the identification of needs of the target
customer needs affecting transfer needs. market; Focus: Its focus is on satisfaction of customers’
of title. needs; Means: It uses integrated marketing (in respect
Profit through Selling aims at Marketing aims at profit
of product, price, promotion and physical distribution)
maximising profit maximisation maximisation through
as a means to achieve the objective; Ends/Objective:
sales vs through customer satisfaction.
Its objective is to earn profits by satisfying needs of the
Customer maximisation of
target market better than the competitors.
satisfaction sales.
Start and End Selling activities Marketing activities start Customer’s satisfaction become the focal point of all
of Activities start after the much before the product decision making in the organisation. The basic role of a firm
product has been is produced and continue is to ‘identify a need and fill it’. Pillars of the Marketing
developed. even after the product has Concept: (i) Identification of market or customer who are
been sold. chosen as the target of marketing effort. (ii) Understanding
Difference in Bending the Develop the product and
needs and wants of customers in the target market.
(iii) Development of products or services for satisfying needs
the Emphasis customer according other strategies as per the
of the target market. (iv) Satisfying needs of target market
to the product. customer needs. better than the competitors. (v) Doing all this at a profit.
Difference in Selling involves Integrated marketing
the Strategies efforts like efforts involving strategies
5. Societal Marketing Concept: Starting point: The
promotion and in respect of product,
marketing efforts start from the identification of needs
persuasion. promotion, pricing and
of the target market and the society; Focus: Customer
physical distribution.
needs and society’s well-being. It takes care of long
term well being of the consumers as well as the society;
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Means: It uses integrated marketing as a means to achieve the objective; Ends/Objective: Its objective is to earn
profits through customer satisfaction and social welfare. (Apart from the customer satisfaction, it pays attention to the
social, ethical and ecological aspects of marketing.)

11.2 Marketing Mix: Concept and Elements

Marketing Mix and Elements Status symbol because of quality. (iii) Branding ensures
Marketing mix is the combination of variables chosen by quality of product.
a firm to prepare its market offering. Characteristics of a good brand name
Marketing Mix is described as the set of marketing tools 1. The brand name should be short, easy to pronounce, spell,
that a firm uses to pursue its marketing objectives in a recognise and remember e.g., Ponds, VIP, Rin, Vim, etc.
target market. 2. A brand should suggest the product’s benefits and
Elements: 4Ps qualities. It should be appropriate to the product’s function.
(i) PRODUCT: Product means goods and services or e.g., Rasika, Genteel, Promise, My Fair Lady and Boost.
‘anything of value’, which is offered to the market for 3. A brand name should be distinctive e.g., Liril, Sprit,
exchange. Product mix is the combination of all products Safari, Zodiac.
offered for exchange by a company. It relates to decisions 4. The brand name should be adaptable to packaging
regarding planning, designing and developing the right or labelling requirements, to different advertising media
type of products and services for the consumers. It and to different languages.
includes branding, labelling and packaging. 5. The brand name should be sufficiently versatile to
(ii) PRICE: ‘Price’ means the amount of money paid accommodate new products, which are added to the
by a buyer in consideration of a product or a service. product line. e.g. Maggie, Colgate.
Price affects the revenue and profits of the firm. The 6. Chosen name should have staying power i.e., it
marketers have to take several pricing decisions such should not get out of date
as: (i) Setting the pricing objectives, (ii) Determining Packaging
the pricing strategies, (iii) Determing the factors Packaging refers to the act of designing and producing
affecting price, (iv) Fixing a price for the firm’s products. the container or wrapper of a product.
(iii) PLACE/PHYSICAL DISTRIBUTION: It is Levels of packaging
concerned with making the goods and services available 1. Primary Packaging: e.g. The ointment tube. The
at the right place, in right quantity and at the right time. primary package refers to the product’s immediate
There are two important decisions relating to this container. It is kept till the consumer is ready to use
aspect: (i) The decision regarding physical movement the product or it may be kept throughout the entire life
of goods from producers to consumers or users. It of the product.
includes four major activities, viz. managing inventory, 2. Secondary Packaging: e.g. The Cardboard box. The
order processing, warehousing and transportation. secondary package refers to the additional layers
(ii) The decision regarding the channels or using of protection. When the consumer starts using the
intermediaries in the distribution process, such as product, the secondary packing is disposed off.
retailers, wholesalers, agents, etc. 3. Transportation Packaging: e.g. The Corrugated box.
(iv) PROMOTION: Promotion of goods and services The transportation package refers to the package
involves informing potential customers about the firm’s necessary for storage, identification or transportation.
product and persuading them to buy it. ‘Promotion mix’ Functions of packaging
refers to combination of promotional tools (or elements) used 1. Product Identification: Packaging greatly helps in
by an organisation to achieve its marketing objectives— identification of the products. For example, Colgate in
(i) Advertising, (ii) Personal selling, (iii) Sales promotion, red colour, or Ponds cream jar can be easily identified
(iv) Public relations. by its package.
Branding 2. Product Protection: Packaging protects the contents of
It is the process of giving a name or a sign or a symbol, a product from spoilage, breakage, leakage, pilferage,
etc. to a product damage, climatic effect, etc. This kind of protection is
Brand–A brand is a name, term, sign, symbol, design or required during storing, distribution and transportation
some combination of them, used to identify the products of the product.
of one firm and to differentiate them from those of the 3. Facilitating Use of the Product: The size and shape of the
competitors. e.g., Mercedes, Parker, Nike, Woodland. package should be such that it should be convenient to open,
Brand name–That part of a brand which can be spoken, handle and use for the consumers. Cosmetics, medicines
e.g., Asian paints, Maggie and Uncle Chips. and tubes of toothpastes are good examples of this.
Brand mark–That part of a brand which can be recognised 4. Product Promotion: Packaging is also used for promotion
only but cannot be spoken, e.g., ‘Devil’ of Onida, etc. purposes. A startling colour scheme, photograph or
Trade mark–A brand that is given legal protection typeface may be used to attract attention of the people
against its use by other firms. at the point of purchase. Sometimes it may work even
Advantages of Branding better than advertising. In self-service stores, this role of
To marketers: (i) Enables making product differentiation. packaging becomes all the more important.
(ii) Ease in introduction of new product. (iii) Firm Importance of packaging
can charge higher price for its product. (iv) Helps in 1. Rising Standards of Health and Sanitation as the
advertising and display programmes. chances of adulteration in such goods are minimised.
To customers: (i) Helps in product identification. (ii) 2. In Self Service Outlets­, packaging plays the role of a
silent salesman.
48
3. Packaging is a means of creating Product inelastic, a firm can fix higher price. However, when the
Differentiation. demand is elastic, lower price should be fixed.
4. As a result of Innovational Opportunity (e.g., milk can 5. Government and legal regulations: Government
now be stored for 4 to 5 days without refrigeration), fixes the price of essential commodities, e.g., medicines.
the scope for the marketing of products has increased. The Government does not allow the firms to charge a
Labelling higher price of the medicine.
It refers to designing the label to be put on the package. 6. Marketing methods used: Price determination
Functions is also affected by the distribution system, quality of
1. It describes the product and specifies its contents, i.e., salesmen employed, quality of advertising, the type of
ingredients, net weight when packed, etc. packaging, etc.
2. It helps in identification of the product or brand. Activities/ Components of Physical
3. It helps in grading of products into different Distribution WOTI
categories, e.g., Brook Bond Red Label, Yellow Label, 1. Order processing: A good physical distribution system
Green Label, etc. should provide for an accurate and speedy processing of
4. It helps in promotion of products by attracting orders, in the absence of which goods would reach the
attention, e.g., “Baalon Mein Dum, Life Mein Fun”. customers late or in wrong quantity or specifications.
5. It provides information required by law, e.g., date 2. Transportation: It is the means of carrying the
of manufacture, date of expiry, etc. For example, the goods and raw materials from the point of production
statutory warning on the package of Cigarette or Pan to the point of sale. It is important because unless the
Masala, ‘Smoking is Injurious to Health’ or ‘Chewing goods are physically made available, the sale cannot be
Tobacco is Injurious to Health’. completed. Thus, it creates place utility.
3. Warehousing: It refers to the act of storing
Label for apple juice in tetra pack of 200 mililitres products in order to create time utility in them. The
Name of the product : Appice need for warehousing arises because there is a time lag
Name of the manufacturer : Fine Juice Ltd. between the production of goods and their sale (or use).
Address of the manufacturer : 54, Chandni Chowk,
4. Inventory Control: Higher the level of inventory,
Delhi-110006
Net weight when packed : 200 ml
higher will be the level of service to customers but the
Manufacturing date : 20th Feb.2019 cost of carrying the inventory will also be high because
Expiry date : 20th July 2019 lot of capital would be tied up in the stock. Thus, a
Maximum retail price (MRP) : ` 20 balance is to be maintained in respect of the cost and
Batch number : D 4567 customer satisfaction.
Directions for use : To be consumed within
The major factors determining inventory levels include:
3 days of opening.
(a) Firm’s policy regarding the level of customer service to
Contents : Juice concentrate, sugar,
be offered. (b) Cost of inventory, which includes holding
preservatives.
cost such as cost of warehousing, tied up capital, etc and
Factors Determining Fixation of Price the manufacturing cost. (c) Degree of accuracy of the sales
GM DOC2 forecasts. In case more accurate estimates are available,
1. Pricing objectives:  If the objective of a firm the need for keeping very high level of inventory can be
is profit maximisation in the short run, it will charge minimised. (d) Responsiveness of the distribution system. In
maximum price for its products but for long run profit case the lead time is high, there is a need to maintain higher
maximisation, it will charge lower per unit price so that inventory.
it can capture large market share.  Similarly, if the Channels of distribution
objective is to attain product quality leadership, the firm Channels of Distribution are set of firms and
charges higher price for providing high quality products. individuals that take title, or assist in transferring
 While if the pricing objective is to obtain market share title, to particular goods or services as it
leadership, a firm will charge the lower price so that moves from the producers to the consumers.
greater number of people are attracted to purchase 1. Direct channels of distribution—It means
the products.  To survive in a competitive market, a making goods available to consumers directly by the
firm may resort to discounting its products or run a manufacturers, e.g., selling goods through own retail
promotion campaign to liquidate its stock. outlets (e.g. Bata), Door to door selling, mail order
2. Product cost: The cost sets the minimum level or selling, Internet selling.
the floor price at which the product can be sold. Price 2. Indirect channels of distribution—It means
should recover total costs (fixed costs as well as variable making goods available to consumers by employing one
costs) plus a profit margin. or more intermediaries.
3. Competition: When a firm does not face any  One level channel (Manufacturer – Retailer –
competition (under monopoly situation), it can enjoy Customer): Only one intermediary i.e., retailers is used,
complete freedom in fixing its price. But when there is e.g., Maruti Udyog sells its cars and vans through
intense competition, a firm should fix lower price of its company approved retailers; cover a wide area of
products. Competitors’ prices and their anticipated reactions market while retaining control over the Channels.
must be considered before fixing the price of a product.  Two level channels (Manufacturer – Wholesaler –
4. Utility and demand: The utility provided by the Retailer – Customer): used for most consumer goods
product and the intensity of demand of the buyer like soaps, oils, clothes, rice, sugar and pulses; cover a
sets the upper limit of price, which a buyer would be larger market area.
prepared to pay. When the demand of the product is

49
 Three level channels (Manufacturer – Agent – by long network of channels. (ii) Perishable products like
Wholesaler – Retailer – Customer): Used when the fruits, dairy products are sold through short channels
manufacturer carries a limited product line and has to while non-perishable products like soap, toothpaste,
cover a wide market. An agent in each major area is tea, etc. require longer channels. (iii) Unit value of
appointed, who in turn contact the wholesalers. product low — long channels; high value products—
Factors Determining Choice of Channels of shorter channels.
Distribution MPC2E 3. Company Characteristics: (i) Financial strength
1. Market Factors: (i) Size of market: Number of of the company: Direct selling involves huge funds for
buyers small, like for most industrial products, short starting own retail outlets; Indirect selling through
channels are used; number of buyers large, as in the intermediaries does not involve huge funds. Thus,
case of most consumer products, large number of if the firm has plenty of funds, it may go for direct
intermediaries are used. (ii) Geographical concentration distribution. (ii) Degree of control: If the management
of potential buyers: If buyers concentrated in a small wants greater control on the channel members, short
place, shorter channels; if buyers are widely dispersed, channels are used.
longer channels. (iii) Size of order: Small size of order 4. Competitive Factors: The choice is also affected
(as in case of most consumer products), large number by the channel selected by competitors in the same
of intermediaries; if size of order large, direct channels. industry. A firm may adopt the similar channel or may
2. Product Related Factors: (i) Industrial products avoid the channels used by competitors.
(complex products) purchased by few buyers require 5. Environmental Factors such as economic condition
direct channel or involving few middlemen; consumer and legal constraints. For example, in a depressed
products (non-complex products) — better distributed economy marketers use shorter channels to distribute
their goods in an economical way.

11.3 Promotion Mix: Concept and Elements

Concept and Elements of Promotion Mix Companies use sales promotion tools specifically
Promotion mix refers to combination of promotional tools designed to promote to: 1. Customers (e.g., free samples,
used by an organisation to achieve its communication discounts, and contests) [Link] or middlemen
objectives. Various tools of communication are used by the (e.g., cooperative advertising, dealer discounts and dealer
marketers to inform and persuade customers about their incentives and contests) 3. Salespersons (e.g., bonus,
firm’s products. These include: (i) Advertising, (ii) Personal salesmen contests, special offers).
Selling, (iii) Sales Promotion, and (iv) Public Relations. 4. Public Relations: It becomes imperative to manage
What combination of these elements is used by a firm public opinion and the company’s relation with the
will depend upon various factors such as: (a) nature of public on a regular basis.
market, (b) nature product, (c) the promotions budget,  The voice or opinion of the general public is equally

(d) objectives of promotion, etc. important as they may be interested in the company
1. Advertising: Advertising is an impersonal form of and its product and have an impact on the business
communication, which is paid for by the marketers ability to achieve its objectives.
 Consumer activist groups need to be satisfied because
(sponsors) to promote some goods or service.
they can impose restriction on the sales of the firm’s
Features of Advertising
products directly by urging customers to refrain from
(i) Paid Form: Advertising is a paid form of communication.
buying them or through the imposition of laws.
(ii) Impersonal method of promotion: There is no direct  Public relations management can be performed by:
face-to-face contact between the prospect and the (i) the marketing department; or (ii) a separate
advertiser. department to manage public relations, known as
(iii) Identified Sponsor: Advertising is undertaken by the public relations department. Their main task is to
some identified individual or company, who makes the disseminate information and build goodwill about the business.
advertising efforts and also bears the cost of it. Public relations involve a variety of programmes designed
2. Personal Selling: Personal selling involves oral to promote or protect a company’s image and its
presentation of message in the form of conversation individual products in the eyes of the public. For example,
with one or more prospective customers for the purpose sponsoring sports and cultural events, contributing
of making sales. money and time to certain causes like environment,
Features of Personal Selling wildlife, children’s rights, education, etc. They are
(i) Personal Form: In personal selling a direct face-to-face especially useful when there is negative publicity about
dialogue takes place between the seller and the buyer. the company or its products to ensure that negative
(ii) Development of Relationship: Personal selling allows a publicity does not take place at all.
salesperson to develop personal relationships with the Role of Advertising
prospective customers, which may become important 1. It creates demand by making people aware of products.
in making sale. 2. It educates customers by providing useful information
3. Sales Promotion: Sales promotion refers to short- about how products can be used for better satisfaction.
term incentives, which are designed to encourage the 3. It enhances consumer confidence as they feel
buyers to make immediate purchase of a product or more comfortable and assured about the quality of
service, e.g. free gift offers, free sample distribution, etc. advertised product.

50
4. It helps in introduction of new products by 4. Quantity gift (extra quantity of the product is
communicating the positive features of new products. offered to increase sales), e.g., Buy three get one free’
5. It helps in creating customer loyalty through offer, A Hotel’s offer of “Take a 2 Nights 3 Days Package
repeated communication. at the Hotel and Get an Extra Night Stay at Just ` 500”.
6. It creates better organisational image as 5. Sampling (free sample of a product is offered on
through advertising, message may reach people about launching a new product), e.g., Surf Excel samples.
how the organisation stands for serving the society. 6. Financing (easy financing schemes are offered),
Objections to Advertising ACUSE e.g., “Full finance @ 0%, 12 easy instalments, 4 down
The opponents of advertising consider expenditure on payment and 8 post-dated cheques.”
advertising as a social waste on the following grounds: 7. Instant draw and assigned gifts (assured gifts
1. Advertising adds to cost which is ultimately passed are given to the customers instantly by participating in
on to the buyers in the form of high prices. (However, a draw, on purchase of a product), e.g., scratch a card
the increased demand due to advertising leads to higher or burst a cracker and win a car, refrigerator etc. on
production, which brings with it the economies of scale. As a purchase of TV.
result, the per unit cost of production comes down) 8. Lucky draw (it refers to taking out a draw on
2. It undermines social values as it promotes purchase of a product and giving gift to the winner),
materialism. It encourages people to buy new and latest e.g., a lucky draw coupon for free petrol on purchase of
products discarding old but still functional products. certain quantity of petrol.
(However, advertisements only inform the consumers, the 9. Refunds (a part of price paid by customer is returned
final choice of buying or not lies with the customers only). back on presenting some proof of purchase), e.g., on
3. It confuses the buyers rather than helps. Too return of empty foils or wrapper, get a refund of ` 5.
many advertisements of the same product of different 10. Contests (competitive events involving application
companies confuse the buyers to make the right choice. of skills or luck are held), e.g., slogan writing competition.
(However, advertisements give wide choice to customers 11. Usable benefit, e.g., ‘Purchase goods worth
and today’s customer is smart enough to know and select `50,000 and get a holiday package worth ` 10,000 free’,
the most suitable brand for him). Get a Discount Voucher of ` 500 on Apparel Purchase of
4. It encourages sale of inferior products as ` 4,000 and above.
its purpose is to promote sale of goods. It does not Role of Public Relations PPC LC
differentiate between good and bad quality products. The public relations department performs five functions:
(However, what is inferior and what is superior depends 1. Press relations: The public relations departments
upon the economic status and preference of the customer). is in contact with the media to present true facts and a
5. Some advertisements are in bad taste. They are correct picture about the company.
not based on ethics and values. Objectionable words 2. Product publicity: The public relations department
and scenes have an undesirable effect on the society, advises the top management that the company can
e.g. women dancing when not required. draw attention to new products by sponsoring sports
Conclusion: Most of the criticisms against advertising and cultural events like news conferences, seminars
are not entirely true. In fact, advertising is an important and exhibitions.
tool of marketing which helps a firm in effectively 3. Corporate communication: The company’s
communicating with its target market and increase the image can be promoted through communication
demand for the products. Thus, it is not a social waste, with the public. This is usually done with the help of
rather it ads value to the social cause by giving a boost annual reports, brochures, speeches by the company’s
to production and generating employment. executives, interviews with TV channels, etc.
Qualities of a Good Salesman PG SH TC 4. Lobbying: Public relations professionals help
1. Physical qualities: A salesman should have a good the company to maintain a healthy relationship with
personality, sound health and stamina. government officials and ministers.
2. Psychological qualities: A good salesman should 5. Counselling: The public relations department
have good behaviour and should be sweet natured. advises the top management that the company can
3. Technical qualities: A good salesman should have build goodwill by contributing money and time to
full technical knowledge about the product. certain causes like environment, wild life, children’s
4. Good communication skills: He should be able to rights, education, etc.
answer questions. He should be a good listener.
5. Honesty: He must be honest and sincere in In addition, maintaining good public relations also helps
in achieving the following marketing objectives:
performing his duty.
(i) Building awareness: Public relations department can
6. Courtesy: He must be very polite, cooperative and place stories and dramatise the product in the media to build
helpful. awareness about the product before it is launched. It creates
Sales Promotion Techniques DR SUFI QP a favourable impression on the target customers.
1. Rebate (products are offered at special prices to (ii) Building credibility: If news about the company’s product
clear off inventory), e.g., WagonR car at ` 30,000 less comes in the media whether print or electronic, it builds the
during December. credibility of the product in the eyes of the public.
2. Discount (offering products at less than list price), (iii) Stimulates sales force: It becomes easier for the sales
e.g., offer of 50 + 20% discount on Peter England Shirts. force to deal with the retailers and convince dealers if they have
3. Product combination (offering another product as already heard about the product in the news before it is launched.
gift along with the purchase of a product), e.g., 2 GB (iv) Lowers promotion costs: Maintaining good public
memory card free with a Nokia cell-phone. relations costs much less than advertising and direct mail.

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 Application, HOTS, Evaluation and Multi-Disciplinary Questions
1. The process of marketing involves creating a market offering (b) Name the most commonly used non-personal tool of
and to satisfy the needs and wants of the present and potential promotion which is paid for by the marketer.
buyers. The real question is how to create a market offering. (c) Which tool of promotion will primarily be used for the following?
Suppose, after gathering and analysing market information, a (i) To promote or protect a company’s image or its individual
profitable business opportunity is seen by some firm in the field products. (ii) An existing product meant for mass usage by
of producing soft drinks. To develop and market a new brand literate people. (iii) To introduce a new product to a particular
of soft drinks, the firm takes a number of important decisions, class of people through door-to-door visits. (iv) To attract
for example whether to go for any collaboration with a foreign attention of the people by using incentives.
manufacturer of soft drinks; whether to produce for the local Ans. (a) The companies use all tools at the same time
market or for a wider market; what will be the features of the because of the nature of market, nature of product,
new product so that it is attractive to the target customers; promotion budget and objectives of promotion being
whether the drink will be packed in glass bottles or plastic different at different times.
cans; what will be the name (brand name) of the drink; at (b) Advertising
what price it will be sold, (at par with the price at which other (c) (i) Public Relations (ii) Advertisements (iii) Personal Selling
competitive brands are sold or below it or above it); and so on. (iv) Sales Promotion
(a) Identify the two features of marketing discussed above. 8. ‘Coconut Joy Ltd.’ are the manufacturer of vegetarian frozen
(b) Identify the functions of marketing discussed above. dessert food products made with coconut milk, agave syrup
Ans. (a) (i) Needs and wants (ii) Creating a market offering and other certified ingredients. The founders of the company
(b) (i) Gathering and analysing market information (ii) Lovely and Lalita originally developed this treat to meet their
Marketing planning (iii) Product designing and development own needs but found that their friends and families around were
(iv) Packaging (v) Branding (vi) Pricing of product also keen to use the products. It was not only the vegetarians,
2. Identify the Marketing Management philosophy adopted in but also those who could not get enough environment friendly
the following cases: sustainable food, that appreciated the product. It did not take
(i) Mansi, a shoe manufacturer for school students, decided to long for Lovely and Lalita to recognise the potential of their
maximise her profit by producing and distributing at large scale little venture. In the beginning they started from their home
and thereby reducing the average cost of production. with the product being sold through local family parties that
(ii) Nisha, a school bag manufacturer decided to improve the enabled guests to personally meet the owner. This helped to
product for profit maximisation and thus added a waterbottle establish strong connections with the prospective buyers and
holder to the existing design. the company could put the product on shelves of natural food
(iii) Jasdeep, a dealer in school uniforms, decided to maximise store. The company used all marketing activities to grow and
his profit by using different aggressive promotional efforts. expand. The company began sponsoring booths at festivals,
(iv) Amar is engaged in manufacturing of refrigerators. drawing attention to its newly created vegetarian products.
He surveyed the market and found that customers need a It also disseminated relevant information to media about its
refrigerator with a separate provision of water cooler in it. He products and the people who helped in building the company’s
decided to launch the same refrigerator in the market. reputation. Lovely and Lalita were invited for an interview with
Ans. (i) Production concept (ii) Product concept (iii) Selling one of the leading TV channels in which they talked about
concept (iv) Marketing concept their environment friendly vegetarian products. To show its
3. Good Living Ltd. manufactures mosquito repellent tablets. gratitude to customers, local business and government officials
These tablets are packed in strips of 12 tablets each. Each of who supported the company from the beginning, „Coconut
these strips are packed in a cardboard box, 48 such boxes are Joy Ltd. hosted a gala event and involved all of them to raise
then placed in a big corrugated box and delivered to various funds for a few local NGOs. The company also asked its fans
retailers for sale. State the purpose of packaging the tablets in and customers to send songs and poetry conveying their
a corrugated box. (CBSE SQP 2016) impression about ‘Coconut Joy s Ltd.’ products.
Ans. Storage, identification and transportation. Identify the communication tool used by ‘Coconut Joy Ltd.’
4. ‘My Bakery’, a biscuit manufacturing company, launched (CBSE SQP 2017)
biscuits with different flavours based on quality and features Ans. Public Relation
like ‘Crunchy biscuits’, ‘Sweet potato’, ‘Coffee Jolly’ etc. The 9. Sara was pursuing her graduation. Everyday she saw her
labels on the package of the biscuits are with pictures and mother working tirelessly at home after coming back from her
different colours indicating and specifying the flavours of work-place. She decided to start a tiffin service to increase her
the biscuits and their contents. Identify the two functions of family income. To begin with she started supplying tiffin only
labelling discussed above. in the neighbourhood. Everyday she detailed out the menu
Ans. (i) Describes the product and specifies its contents. after consulting her mother. For informing the people about
(ii) Helps in grading of products. her service she designed a beautiful informative pamphlet,
5. Name the element of marketing mix which affects the got it printed and started distributing it through the daily
revenue and profits of a firm. newspapers. She also appointed two delivery boys to deliver
Ans. Price tiffins. The business was slow to begin with but picked-up
6. Malaysian budget airline group Sky Europe announced well afterwards. She was able to earn a profit of 20% of the
discounted fares, starting as low as ` 1,099 for domestic revenue in the first month.
destinations operated by its Indian Joint Venture carrier and Identify the promotional tool used by Sara to communicate to
` 2,099 for international flights operated by other group the customers about her tiffin service. (CBSE 2018)
airlines under a limited period offer. Identify the medium of Ans. Advertising
communication which can be used by the firm to inform a large 10. Zoom Udyog, a car manufacturing Co., has started its
number of people about the new fares. (CBSE SQP 2018) business with Zoom 800 and slowly launched Zoom-1000,
Ans. Advertising. Wagon-Z, Swy-fy etc. and offered various services like after
7. ‘Various tools of communication are used by the marketers sale service, availability of spare parts etc. Identify the element
to promote their products. of marketing mix referred here. (CBSE SQP 2015)
(a) Why do companies use all tools at the same time? Ans. Product

52
12. Shreemaya Hotel in Indore was facing a problem of packaging, warehousing, branding, pricing, promotion and
low demand for its rooms due to off season. The Managing selling. The company maintains good customer relations
Director (MD) of the hotel, Mrs. Sakina was very worried. She through various follow up activities. This helps the company in
called upon the Marketing Manager, Mr. Kapoor for his advice. procuring repeat sales orders.
He suggested, that the hotel should announce an offer of Name the concept related to the activities mentioned in the
‘3 Days and 2 Nights’ hotel stay package with free breakfast above paragraph. (CBSE SQP 2017)
and one day religious visit to Omkarehswar and Mahakaleshwar Ans. Marketing
Temples’. The MD liked the suggestion very much. Identify the 14. ‘You don’t close a sale, you open a relationship, if you
promotional tool, which can be used by the hotel, through want to build a long term successful enterprise.’ Identify the
which large number of prospective pilgrimage tourists, all over communication tool used by the marketer.
the country and also abroad, can be reached, informed and Ans. Personal selling
persuaded to use the incentive. (CBSE SQP 2016) 15. “If you’re trying to persuade people to do something, or
Ans. Advertising buy something, it seems to me you should use their language,
13. ‘Time Line’ watch manufacturing company is a renowned the language in which they think.” Identify the communication
company marketing watches. It performs various activities tool used by the marketer.
like, market analysis, product designing or merchandising, Ans. Advertising

Unit 12 Consumer Protection

12.1 Consumer Protection, Consumer Rights and Responsibilities
Consumer protection refers to protection of consumers can impair and tarnish the image of the company. Therefore,
from unscrupulous, exploitative and unfair trade practices business organisations should voluntarily resort to such
of manufacturers, traders, sellers and service providers. practices where the customers’ needs and interests will be
Scope of Consumer Protection Act, 1986 taken care of.
The Consumer Protection Act, 1986 seeks to protect and 3. Moral justification: It is the moral duty of any
promote the interests of consumers through speedy and business to take care of consumer’s interest and avoid
inexpensive redressal of their grievances. The scope of any form of their exploitation. Thus, a business must
the Act is very wide. The Act is applicable to all types avoid unscrupulous, exploitative and unfair trade practices
of undertakings, big and small, whether in the private like defective and unsafe products, adulteration, false and
or public sector, or in the co-operative sector, whether a misleading advertising, hoarding, black marketing etc.
manufacturer or a trader, and whether supplying goods 4. Since the business uses society’s resources,
or providing services. therefore it has a responsibility to supply products or
Importance of Consumer Protection services which are in public interest.
From Consumer’s Point of View CUW 5. It is because the business has social responsibility
1. Widespread exploitation of consumers: towards various interest groups, including consumers.
Consumers might be exploited by unscrupulous, Role/Functions of NGOs and consumer
exploitative and unfair trade practices like defective organisations PPT FEE
and unsafe products, adulteration, false and misleading In India, several consumer organisations and non-
advertising, hoarding, black-marketing etc. Consumers governmental organisations (NGOs) have been set
need protection against such malpractices of the sellers. up for the protection and promotion of consumers’
2. Consumer ignorance: Due to widespread ignorance interests, e.g. (i) Voluntary Organisation in Interest
of consumers about their rights and reliefs available to of Consumer Education (VOICE), Delhi (ii) Consumer
them, it becomes necessary to educate them about the Coordination Council, Delhi
same so as to achieve consumer awareness. 1. Educating the general public about consumer
3. Unorganised consumers: Consumers need to be rights by organising training programmes, seminars and
organised in the form of consumer organisations which workshops.
would take care of their interests. Though, in India, 2. Publishing periodicals and other publications
we do have consumer organisations which are working to impart knowledge about consumer problems, reliefs
in this direction, adequate protection is required to be available and other matters of interest.
given to consumers till these organisations become 3. Carrying out comparative testing of consumer
powerful enough to protect and promote the interests products in accredited laboratories to test relative
of consumers. qualities of competing brands and publishing the test
From the Point of View of Business LMG SR results for the benefit of consumers.
1. It is in the long-term interest of business 4. Encouraging consumers to strongly protest
to protect and promote the interests of consumers and take an action against exploitative and unfair
because satisfied customers lead to repeat sales and trade practices of sellers.
provide good feedback. 5. Providing legal assistance to consumers by
2. A business which engage in exploitative and unfair way of providing aid, legal advice etc, in seeking legal
trade practices invite government intervention. This remedy.

53
6. Filing complaints in consumer courts on behalf of Many consumer organisations are also working towards
consumers. this direction and helping consumers in redressal of their
7. Taking an initiative in filing cases in consumer courts in grievances. For example, they may file complaints in
the interest of the general public, not for any individual. appropriate consumer courts on behalf of the consumers.
Rights of a consumer SC HIRE 4. Right to seek redressal states that a consumer
1. Right to Safety states that a consumer has a right has a right to get relief in case the product or service
to be protected against goods and services which are falls short of his expectations.  The Consumer
hazardous to life and health.  Right to get protection against Protection Act, 1986 provides reliefs to consumers such
the risks caused due to the use of substandard products as replacement of product, removal of defect in the
or products that do not conform to the safety norms. product, compensation for any loss or injury suffered
For instance, electrical appliances which are manufactured by the consumer, etc.
with substandard products or do not conform to the safety 5. Right to choose states that a consumer has
norms might cause serious injury. Thus, consumers are the freedom to choose from a variety of products at
educated that they should use electrical appliances which competitive prices.  Marketers should offer a wide
are ISI marked as this would be an assurance of such variety of products in terms of quality, price, size etc. to
products meeting quality specifications. enable the consumer to make the choice.
2. Right to be informed states that a consumer 6. Right to consumer education states that a
has a right to have complete information about the consumer has the right to acquire knowledge and to be
product he intends to buy such as, ingredients, date a well informed consumer.  He should be aware about
of manufacture, price, quantity etc.  It is because of his rights and the reliefs available to him in case of a
this reason that the legal framework in India requires product or service is falling short of his expectations.
the manufacturers to provide such information on the Many consumer organisations and NGOs educate the
package and label of the product. general public about consumer rights by organising training
3. Right to be heard states that a consumer has programmes, seminars and workshops. They publish
a right to file a complaint and to be heard in case periodicals and other publications to impart knowledge
of dissatisfaction with a product or a service.  It is about consumer problems, legal reporting, reliefs available
because of this reason many firms have set up their and other matters of interest.
own consumer service and grievance cells.

12.2 Redressal Agencies under the Consumer Protection Act, 1986

Three-tier redressal machinery claimed exceeds ` 1 crore. The appeals against the
1. District Consumer Disputes Redressal Forums orders of a State Commission can also be filed before
(District Forums) the National Commission.
 Appeals where value of compensation exceeds ` 1 crore
 A complaint can be filed in a District Forum when the
value of good/service along with compensation claimed and consumer is not satisfied with order of the National
does not exceed ` 20 lakh. Commission, can be taken to the Supreme Court of India.
 If the consumer is not satisfied with the order of The National Commission is set up by the Central
the District Forum, he can appeal before the State Government. Composition/constitution–President and at
Commission within 30 days. least four members including a woman. They are appointed
by the Central Government. The National Commission has
The District Forums are set up, in each District by the State
territorial jurisdiction over the whole country, except Jammu
Government concerned. Composition/constitution–
and Kashmir.
President and two other members including a woman. They
are appointed by the State Government concerned. Reliefs available to a consumer
2. State Consumer Disputes Redressal 1. To remove the defect in good or deficiency in service.
Commission (State Commissions) 2. To replace the defective product with a new one, free
 A complaint can be filed in a State Commission when
from any defect.
the value of good/service along with compensation 3. To refund the price paid for the product or charges
claimed exceeds ` 20 lakh but does not exceed ` 1 paid for the service.
crore. The appeals against the orders of a District 4 To pay a reasonable amount of compensation for any
Forum can also be filed before the State Commission. injury or loss suffered by the consumer.
 If the consumer is not satisfied with order of the 5. To pay adequate costs.
State Commission, he can appeal before the National 6. To cease manufacture of hazardous goods and to
Commission within 30 days. desist from offering hazardous services.
7. Not to offer hazardous goods for sale.
The State Commissions are set up, in each State by the
8. To withdraw the hazardous goods from sale.
State Government concerned. Composition/constitution–
President and at least two members including a woman.
9. To pay any amount (not less than 5% of the value
They are appointed by the State Government concerned. of the defective goods) to be credited to the Consumer
Welfare Fund to be utilised for promotion and protection
3. The National Consumer Disputes Redressal of consumers’ interests.
Commission (National Commission) 10. To discontinue the unfair/restrictive trade practice
 A complaint can be filed in the National Commission and not to repeat it in the future.
when the value of good/service along with compensation
54
Definition of a Consumer a person who avails of such services for any commercial
Under the Consumer Protection Act, 1986, a consumer is purpose.
defined as: Who can file a complaint?
(a) Any person who buys any goods for a consideration, (i) Any consumer can file a complaint on his/her own and
which has been paid or promised, or partly paid and does not need the services of advocate/professionals;
partly promised, or under any scheme of deferred (ii) Any registered consumers’ association;
payment. It includes any user of such goods, when (iii) The Central Government or any State Government;
such use is made with the approval of the buyer, but (iv) One or more consumers, on behalf of many
does not include a person who obtains goods for re-sale consumers having the same interest; and
or any commercial purpose. (v) A legal heir or representative of a deceased
(b) Any person who hires or avails of any service, for consumer.
a consideration which has been paid or promised, or Against whom a complaint can be filed?
partly paid and partly promised, or under any system (i) the seller, dealer or manufacturer (in case of
of deferred payment. It includes any beneficiary of defective goods).
services when such services are availed of with the (ii) the service provider (in case of deficient services).
approval of the person concerned, but does not include

Application, HOTS, Evaluation and Multi-Disciplinary Questions

1. ‘Grahak Shakti’, an N.G.O. organised a workshop to discuss the consumer court as he does not have cash-memo. He
various issues relating to consumers. During the discussion, had purchased mobile phone on the verbal commitment
one of the members drew attention towards exploitation of only.
consumers due to defective and unsafe products, adulteration, 5. Aarushi buys a packet of dry cake from a cake shop without
black marketing, hoarding etc. To this another member argued asking for the bill. The pack does not bear any information
that consumers themselves are responsible as they do not other than the name of shop. After reaching home she finds
raise collective voice against the exploitation. The Chairperson the cake to be stale. Identify the consumer right that has been
of the organization was of the opinion that it was also the duty violated. (CBSE SQP 2018-19)
of the businessman to take care of the interests of various Ans. Right to Information
stakeholders. Business organizations earn money by selling 6. Ronit Raj, a marketing manager is a patient of diabetes
goods and services to consumers. So the interests of the for which he takes medicines regularly. One day, on his tour
stakeholders have to be well taken care of. State three points to Patna, he met with an accident and was hospitalised. Due
that highlight the need for consumer protection as discussed to doctors negligence a delicate nerve of his right leg was
in ‘Grahak Shakti’s workshop. (CBSE SQP 2017) cut rendering him crippled throughout his life. Identify the
Ans. (i) Widespread exploitation of consumers consumer right that has been violated by the doctors under
(ii) Unorganized consumers (iii) Social responsibility the Consumer Protection Act, 1986 in the above situation.
2. Aditi set-up a company ‘Dantik Ltd.’to manufacturer (CBSE SQP 2017)
toothpastes using herbs found in her village instead of Ans. Right to safety
chemicals that are hazardous to health. The package of the 7. Identify the right of a consumer under Consumer Protection Act,
product was eco-friendly and had details like price, quantity, 1986 which Consumer organisations help a consumer to claim by
ingredients, directions for use and other relevant information. performing the function of “encouraging consumers to strongly
It also carries the contact details like address, phone number protest and take an action against unscrupulous, exploitative and
and e-mail id of ‘Dantik Consumer Services and Grievance Cell’. unfair trade practices of sellers”. (CBSE SQP 2018)
The toothpaste became very popular and she started getting Ans. Right to be heard
orders from reputed traders. Identify and explain any two 8. Give any one responsibility of the consumer in addition to
Rights of Consumers discussed above. obtaining a cash memo while purchasing an edible oil.
Ans. (i) Right to be Informed (ii) Right to be Heard (CBSE 2012)
3. Himesh after completing his graduation started working Ans. To look for the AGMARK label.
with a multinational company in Delhi. But due to ill health of 9. Rita wants to buy a packet of juice. As an aware customer,
his parents he had to go back to his village. There he noticed how can she be sure about the quality of juice she plans to
that the villagers were literate but ignorant about their rights. buy? (CBSE 2008)
Many vegetable vendors were using stones as weights to sell Ans. By FPO mark label
their vegetables. Some shopkeepers were selling food items 10. Government is actively advertising for ‘Jago Grahak Jago’.
without having ‘FPO mark’. Villagers did not find anything Whch consumer right is highlighted in the given statement?
wrong with these practices. So to create awareness among Ans. Right to Consumer Education.
villagers Himesh decided to publish a weekly Journal ‘Jan 11. On the eve of Diwali, Ravi purchased two kilograms of
Jagriti’. Identify the ‘Right’ which Himesh has exercised by sweets from Nandan Sweets. On consumption of sweets, his
doing so. (CBSE SQP 2015) wife fell sick and was to be hospitalised. Ravi wanted to file
Ans. Right to consumer education a case in the consumer forum but could not do so because
4. Mohit purchased a smart phone for `30,000 from a mobile he did not have any proof of buying the sweets from Nandan
phone seller on his verbal commitment that the smart phone sweets. Name the document that Ravi could have obtained for
will be replaced in case of any defect, within a span of six filling the complaint in the consumer forum.
months. The phone started creating technical issues in spite Ans. Cash Memo.
of proper maintenance and upkeep of the phone. The seller 12. A school owned a swimming pool and offered swimming
denied taking any action on the complaint made by Mohit. facilities to the public on payment of a fee. The school
Name the redressal agency under the Consumer protection conducted winter and summer training camps to train boys
Act where Mohit can file his complaint. (CBSE SQP 2018-19) in swimming and for this purpose engaged a coach. Mr. Ajay
Ans. No, Mohit cannot file a complaint against the seller in

55
enrolled his only son for learning swimming under the guidance he appealed before the National Commission. Sirajuddin was
of the coach. That due to the negligence of the coach, the boy not satisfied with the orders of National Commission. Suggest
drowned and died. The school denied any responsibility on its him the highest authority where he could appeal against the
part. The coach claimed that he had considerable experience decision of the National Commission. (CBSE SQP 2017)
in coaching young boys for swimming. Ans. He cannot appeal to any other higher authority as
Mr Ajay decided to file a case in the appropriate consumer only those matters which have been directly filed in the
court and decided to claim ` 50 lacs. National Commission and where the value of goods and
(a) Against whom can Mr Ajay file a case in the consumer services in question along with the compensation claimed
exceed `1 crore are appealable before Supreme Court.
court? Justify your answer.
15. Bhavya visited his friend, Raghav. On his returning from
(b) Where can Mr Ajay file the case? Give reason.
Raghav’s home, Raghav booked a taxi for Bhavya from ‘Ganga
(c) If the school authorities are not satisfied with the order of
Travels’. The taxi driver drove UBAR Co. the car very fast and
the consumer court, where Mr Ajay had filed the case, what
his behaviour was rude with Bhavya.
option is available to them?
Bhavya told about this to Raghav who in turn complained to
Ans. (a) Mr Ajay can file a case against the school as well
as the coach. the proprietor of ‘Ganga travels’.
Reason: Failure to provide basic safeguards in the (a) Can Raghav file a complaint against UBAR Co.? Give reason.
swimming pool by the school and the negligence of the (b) Can Bhavya file a complaint against UBAR Co. Give reason.
coach amounts to deficiency in services. (c) Can Ganga travels file a complaint against UBAR Co. ? Give
(b) Mr Ajay can file the case in the State Commission since reason.
he decided to claim ` 50 lacs, which exceeds ` 20 lacs but Ans. (a) Yes, Raghav can file a complaint against UBAR
does not exceed ` 1 crore. Co. since he is a ‘consumer’ as per the definition of a
(c) If the school authorities are not satisfied with the consumer under the consumer protection Act, 1986 “A
order of the state commission, they can appeal before the consumer is any person who hires or avails of any services
National Commission within 30 days of the passing of the for a consideration, which has been paid or promised, or
order. partly paid and party promised, or under any system of
13. Mr. Man Mohan Singh and his wife Kamlesh had bought deferred payment.”
a railway journey cum-reservation ticket for `2000 at (b) Yes, Bhavya can also file a complaint against UBAR
Ahmedabad for travel from New Delhi to Kanpur Central by Co. since he is a ‘consumer’ as per the definition of a
the Shatabdi Express on 2 December 2001. The details on ‘consumer’ under the consumer protection Act, 1986. A
consumer includes “any beneficiary of such services with
the ticket, including the coach number, the date of journey,
the approval of the person concerned.....”
etc., were illegible. Hence, they were forced to buy another (c) No, ‘Ganga Travels’ cannot file a complaint against
ticket for journey from New Delhi to Kanpur. They applied for a UBAR Co. since it is not a consumer as per the definition
refund for the earlier ticket but, as the Forum noted, they had of a ‘consumer’ under the consumer protection Act, 1986
to suffer much for the purpose. In spite of the couple’s giving – “A consumer does not include any person who avails of
the Ahmedabad residential address for sending the refund, such services for any commercial purposes.”
the Railways sent it to their Delhi address. They approached 16. Prakhar purchased an ISI mark electric iron from ‘Bharat
Consumer Education and Research Society (CERS), Ahmedabad Electricals’. While using he found that it was not working
for help. CERS filed a complaint against the Railways before a properly. He approached the seller and complained for
District Consumer Dispute Redressal Forum, Ahmedabad City the same. The seller satisfies by saying that he will ask the
and claimed that the two senior citizens had to face mental manufacture to replace this iron. The manufacture refused to
harassment due to the deficiency in service by the Railways. replace and Bharat Electricals decided to file a complaint in the
(a) Can CERS file a complaint against the Railways before the consumer court.
District Consumer Dispute Redressal Forum, Ahmedabad? (a) Car ‘Bharat Electricals’ file a complaint in the consumer
Justify your answer. (b) Which consumer right is being court against the manufacture of the electric iron? give reason
promoted by CERS in this case? (c) State any two reliefs in support of your answer.
available to Mr. Man Mohan Singh and his wife Kamlesh. (b) Who can file a complaint as per the provisions of the
Ans. (a) Yes, CERS can file a complaint against the Railways consumer protection act, 1986?
before the District Consumer Dispute Redressal Forum, Ans. (a) No, ‘Bharat electricals cannot file a complaint in
Ahmedabad since as per the Consumer Protection Act, the consumer court against the manufacture of the electric
1986 a complaint before the appropriate consumer forum iron since it is not a consumer. As per the provisions of the
can be made by any registered consumers’ association consumer protection Act, 1986, definition of a consumer
also. (b) ‘Right to be heard’ is being promoted by CERS in does not include a person who obtains goods for resale or
this case. (c) The District Forum may order the Railways: any commercial purpose.
(i) To refund ` 2000, the charges paid for the railway (b) (i) Any consumer can file a complaint on his/her own
journey cum-reservation ticket, and/or (ii) To pay adequate and does not need the services of advocate professionals:
costs or reasonable amount of compensation for any loss (ii) Any registered consumer’s association; (iii) The
suffered. central Government or any State Government; (iv) One or
14. Sirajuddin purchased a car for ` 15 lacs from an automobile more consumers, on behalf of many consumers having
company and found that its airbags were defective. After many the same interest; and (v) A legal heir of representative of
complaints with the company that went unheard, he filed a case a deceased consumer.
in the District Forum. He was not satisfied with the orders of the 17. Name the apex institution under the Consumer Protection
District Forum. He then appealed before the State Commission Act, 1986.
and on being dissatisfied with the orders of State Commission, Ans. National Consumer Disputes Redressal Commission
(National Commission)
56