entrepreneurship development a4

8/13/2019 Entrepreneurship Development A4

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ADCPM ENTREPRENEURSH IP DEVELOPMENT Page - 1

~ ~ ~ IN X ~ ~ ~

Chapter PagesCHAPTER 1: ENTREPRENEURSHIP 1 - 2

1.1 Concept 1

1.2 Meaning 1

1.3 Need 1

1.4 Competencies/Qualities of an Entrepreneur 1

1.5 Current Scenario 2

CHAPTER 2: ENTREPRENEURIAL SUPPORT SYSTEM 2 - 4

2.1 District Industry Centres (DICs) 2

2.2 Commercial Banks 2

2.3 State Financial Corporations 3

CHAPTER 3: MARKET SURVEY AND OPPORTUNITY/

IDENTIFICATION (BUSINESS PLANNING) 4 - 93.1 How to Start a Small Scale Industry 4

3.2 Procedure for Registration of Small Scale Industry 6

3.3 Assessment of Demand and Supply in Potential Areas of Growth 6

3.4 Considerations in Product Selection 8

3.5 Data Collection for Setting up Small Ventures 9

CHAPTER 4: PROJECT REPORT PREPARATION 10 - 11

4.1 Introduction 10

4.2 Project Viability 10


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CHAPTER 5: MANAGERIAL ASPECTS OF SMALL BUSINESS 12 - 26

5.1 Principles of Management 12

5.2 Operational Aspects of Production 13

5.3 Inventory Management 14

5.4 Physical Stock Verification (Stock Verification) 155.5 Basic Principles of Financial Management 16

5.6 Marketing Management 16

5.7 Objectives of Marketing Research and its Benefits 17

5.8 The Elements of the Marketing Mix 21

5.9 Personnel Management 22

5.10 Sources of Manpower 22

5.11 Recruitment and Selection Procedure 24

5.12 Importance of Communication in Business 26

CHAPTER 6: LEGAL ASPECTS OFO SMALL BUSINESS 26 - 31

6.1 Income Tax 26

6.2 Sales Tax Registration 28

6.3 How to Calculate DVAT 28

6.4 Patent Rules 29

6.5 Factory Act 296.6 Minimum Wages Act, 1936 (Amended up to 1957) 30

CHAPTER 7: BUSINESS ORGANIZATION 31 - 36

7.1 Introduction 31

7.2 Individual Ownership/Proprietorship 32

7.3 Authority and Responsibility 33

7.4 Types of Organization 34

CHAPTER 8: MISCELLANEOUS 36 - 7

8.1 Human Relations and Performance in Organization 36

8.2 Industrial Relations and Disputes 36

8.3 Relations with Subordinates, Peers and Superiors 37

8.4 Wages and Incentives 37

8.5 Leadership 41

8.6 Labour Welfare 428.7 Workers Participation in Management 42


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ENTREPRENEURSHIP

1.1 CONCEPT

The concept of the entrepreneur is to make a person to establish his ownunit/industry for the benefit of his own and to give jobs to various personsemployed in industry. The term entrepreneur itself indicates that the person canstart his business by spending his own money along with the money from thecontribution from various sources. The person, whosoever, starts business isknown as an entrepreneur.

1.2 MEANING

The person who wants to establish industry for the manufacture of any productby investing any amount by his own source or by collecting finance fromfinancial corporations or by any other means is called as an entrepreneur.

1.3 NEED

In the present scenario, there is a severe need of an entrepreneur to establishdifferent kinds of industries to strengthen the hands of the Government. Day byday, the prices of the commodities are increasing without any control of theGovernment. Therefore, once different kinds of industries are established in ourcountry, the rates of the commodities can be controlled as the bigmanufacturers, charge more for the same commodity, which is beingmanufactured by the small-scale manufacturers. Due to this problem also, thereis the need of various industries, which can provide jobs in various sectors andto reduce the unemployment, which is very essential for our country.

1.4 COMPETENCIES/QUALITY OF AN ENTREPRENEUR1. An entrepreneur must be able to understand the problems, which may

arise in the development of an industry easily and make up his mind tomake the changes required.

2. The decision must be perfect and without any doubt.

3. The system dynamics gives an overall picture of the set up to be started.The entrepreneur must know that everything affects everything. Anychange in the industry or business may affect the overall solution.

4. System dynamics is a tool to understand all kinds of problems and to findout the solution.

5. An entrepreneur must be frank everywhere while dealing with customers,suppliers, and all the Government organizations. He must be able todecide, understand, and take decision as per the situation of the problem.

6. He must be competent enough to solve all kinds of problems bynegotiation.

7. He must be a qualified person having industrial experience.

8. An entrepreneur must handle all the problems related to the industry while

starting the business. He must know how to set up an industry and todecide various factors, which may affect the production programme as perthe requirement. He should know how to make the project whileconsidering all the factors like raw materials, preliminary expenses, and


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sources of manpower, machinery, land and building and how to run theindustry. For this purpose, the entrepreneur must strengthen himself sothat there should not arise any problem while producing any item in theindustry.

9. He should have a trading experience before starting any kind of business.He must know about the market because production of any item is easy in

production hall but to market the product is very difficult. Therefore, heshould have a market survey before starting any kind of production. Heshould know about the requirements in the market otherwise the productwhatever is being manufactured may be affected and the losses mayoccur at later stage.

1.5 CURRENT SCENARIO

On April 6, 2005, an advertisement appeared in the newspaper, The HindustanTimes. Dr. A.P.J. Abdul Kalam, the President of India recommended thatentrepreneurship be made a subject in schools colleges to orient students

towards setting up enterprises that would provide them with creativity, freedomand the ability to generate wealth.

Inaugurating a three-day international conference on Employment and IncomeSecurity, Dr. Kalam said: Banks must be proactive in supporting innovativeproducts that enable wealth generation by young entrepreneurs.

ENTREPRENEURIAL SUPPORT SYSTEM

2.1 DISTRICT INDUSTRY CENTERS (DICs)

The District Industry Centers are meant for the development of variousindustries in different states. The Government has given lot of powers to District

Industry Centers. These are looking after the industrial sectors at various places.The General Managers of the District Industry Centers arc appointed to lookafter the industries running in their particular areas. The District Industry Centerprovides complete detail about the industries running at the particular locationalong with the guide which provides complete knowledge about the industriesand helps the entrepreneurs to find out the type of work to be started. The DICshelp entrepreneurs by guiding them in all the matters related to industries. TheGovernment gives full support to DICs as with these centers completeinformation is provided to the entrepreneurs to start their industries.

2.2 COMMERCIAL BANKS

The Government has approved many banks in various sectors like agriculturesector, commercial sector, industrial sector and the other development program.


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COMMERCIAL BANKS

State Bank of India

United Commercial Bank

Syndicate Bank Agricultural BanksState Financial Corporation

Industrial Development Bank of India

Fig. 2.4

Fig. 2.5

In brief, National Small Industries Corporation (NSIC) provides the undermentioned information:

1. Technical knowledge, how to set up an industry?

2. To provide loan at a concessional rate to the entrepreneur.

3. To guide entrepreneur about how to set up an industry.

4. To provide training to the entrepreneurs in the field of their desires bygiving training for a period of six months or one year as per the need.

5. Providing loan against the hypothecation of land, building plant &machinery.

Banks

DIC

Librarys

NSIC

Entrepreneurial

Support System

Udhyog Bhavan

Consultants

Industries

Environment


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MARKET SURVEY AND OPPORTUNITY IDENTIFICATION

(BUSINESS PLANNING)

3.1 HOW TO START A SMALL SCALE INDUSTRYThe person who is willing to start a small scale industry should have aknowledge, qualification and experience in the field of industry along with the

financial capability to run a business. He should go through the under mentionedpoints to set up a small scale industry:

1. Procurement of land & building on rental basis or purchase of land as perthe requirements of the industry.

2. Plant & Machinery required for the industry.

3. Electricity Connection.

4. Pre-operative expenses.

5. Escalation and contingencies.

6. Manpower.To start any small scale industry the person should start with trading of theproduct in which he is willing to start the industry. First of all, the entrepreneurmust go through the market position of the product in which he wants tomanufacture by having the market survey through his own sources. To startwith, first of all the entrepreneur has to prepare a detailed project report in whichthe complete detail of the land & building, plant & machinery, pre-operativeexpenses, escalation, contingencies, manpower required are to be given alongwith the fixed capital and the working capital which is required to run thebusiness. There are certain points which are to be considered while selecting aplace of production where all kinds of things are available. Some of them are:

1. Market of the Product.

2. Industrial Area.

3. The Suppliers availability.

4. Manpower availability.

5. Electricity.

6. Water.

7.Transport facility.

Transport Facility Consumer / Market

Man Power Production Unit Supplier

Raw Material Electricity & Water

Fig. 3.1 Factor Effecting Production Process


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All the above factors are the essential factors, which are to be considered beforestarting any small-scale industry. The small-scale industrialists always facemany problems while starting the business. If one considers all the above factorsbefore starting the business, there will be no problem at all in future. To start anybusiness is easy but to sell the product in the market is difficult without havingexperience in the field. The market survey is must, which gives the idea to tacklethe market position by supplying the material of good quality at a cheaper rate inthe competitive environment.

3.2 PROCEDURE for REGISTRATION of SMALL SCALE INDUSTRY

The under mentioned procedures are adopted for the registration of small-scaleindustry:

1. The entrepreneur must select the name of the industry in which he wantsto start his business as the name itself plays a very important role for anyindustry. Therefore, the name must be selected which can give the overallview about the type of industry.

2. The prescribed form is to be filled up for the registration of firm in whateverthe name. The entrepreneur can register his firm at the office of theRegistrar of firms.

3. The entrepreneur has to decide whether he would like to start

a. Individual Ownership/Proprietorship Firm.

b. Partnership

c. Private Ltd Company.

d. Public Ltd. Company.

4. The prescribed form for the registration of small scale industry can besubmitted in the office of the Director of Industries in various States forexample at Delhi, the application of registration of the small scale industrycan be submitted in office of the Director of Industries at Kashmiri Gate,New Delhi.

5. The prescribed form is to be filled up in which the complete details of theentrepreneur is to be submitted along with the project report of theindustry to be started.

6. Inspection by the Inspector of the office of the Director of Industries is

required thereafter.As per point number one the entrepreneur must decide the name of the industryby going through several factors. The name must give the overall idea of theproduct to be manufactured. The decision is to be taken after consultation withthe family members.

He submits his report to the Director of Industries for giving registration in small-scale industry. This registration helps the entrepreneur to appear in anyGovernment tender without submitting the earnest money required for obtainingany tender. The entrepreneur gets exemption to appear in the tender and with

this certificate different kinds of connections can be obtained by theentrepreneur for his own industrial benefit. This is also an essential requirementfor obtaining loan from any Commercial Bank, as while applying for loan in anybank the entrepreneur has to submit the copies of the registration of the firm.


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Introductory Stage

Maturity Stage

Growth Stage

Decline Stage

After the registration with the Director of Industries project report along with thesecurity deposits is forwarded for the sanction of loan in his favor. The banksfinance 90 percent of the amount and the balance of 10 is to be paid by theentrepreneur as a security. All these loans are provided against thehypothecation of stock, land & building, plant & machinery etc.

3.3 ASSESSMENT of DEMAND and SUPPLY in POTENTIAL AREAS of GROWTH

There are various stages like introduction, growth, maturity and the decline.These stages occur in any kind of business to be started.

The graph of the product life cycle is shown in figure.

Y

Output PRODUCT LIFE CYCLEE

OX

Time

Fig. 3.2

In any industry, the entrepreneur must have the knowledge of demand andsupply. The steps are as follow:

1. To assess the demand the questionnaires are required to be prepared andbrought to the notice of consumer by asking the questions like why,where, how, when, terms and by showing the comparative statement ofthe other manufacturers.

2. This demand can also be assessed by the entrepreneur by visiting variousindustries manufacturing the goods in the field of interest of theentrepreneur.

3. To go through the economic report available in the list of industries at

Udyog Bhawan, New Delhi.4. To assess the requirement of demand the entrepreneur must have the

survey report of the various organizations dealing in the line of providingliteratures and manuals, which help the entrepreneur to set up his own


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industry. As the supply is concerned once, the demand is known in themarket as per product life cycle. The items can be manufactured at thesite of the industrialist. The demand and supply affects as per the 4 Ps.

a. Product

b. Price

c. Promotion

d. Place.As per the marketing management, first of all for start any product its demandshould be known in the market, then the price should be decided by goingthrough various factors, after it promotion of the product should be launched inthe market. Lastly, the place where the product is to be sold should be decided.

3.4 CONSIDERATION IN PRODUCT SELECTION

While selecting the product the entrepreneur must go through the market surveyto know about the product in which he would like to start his own business orindustry as per his financial capability. The under mentioned points should be

considered:

1. The demand of the product in the market:To assess the demand of theproduct in the market, the entrepreneur has to visit various industries inwhich he is having interest to start the production to know the demand inthe market, while having a survey of various industries by means of usingquestionnaires and visiting various industries about the demand of thatparticular product.

2. To assess thedemand the entrepreneur must start trading business:By purchasing the same product and selling it in market to have thecontact with various consumers who can ultimately become the membersof the industry in his field of interest. The trading is must for starting anykind of business. Just to invest the amount for manufacturing any productat the site may lead to failure. Unless the demand is known in the marketthe selection of product is a crucial decision which is to be taken only aftergoing through several factors which may affectthe product as the productwhatever is to be selected should be decided only by going through thedetails of product which is already available in the market before startingthe product selection.

3. The entrepreneur must decide what type of industry he wants to start:

a. Manufacturing Business

b. Trading Business

c. Consultancy Business

d. Assembly of the components to make the product.

4. Decision consideration: The decision is to be taken on all the abovepoints. Only then the product is to be selected as in case the entrepreneurstarts producing a component in his industry in which he is not having any

knowledge may lead to failure in future. Due to this reason, the demand ofthe product in the market is to be known by going through survey either byliteratures by using questionnaires by visiting various industries by


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consulting different consultants to decide about the product before startingany business, entrepreneur must decide the place of his business at whichplace he wants to start his industry because the place itself plays a veryimportant role for the product selection.

5. Steps to decide selection of product:As in the marketing management, the under mentioned four points are

considered:a. Product

b. Price

c. Promotion

d. Place.From all the above points

First of all product to be manufactured, must be decided by the entrepreneuronly by going though several factors which may affect the sale in future.Therefore, the selection of the product is the crucial decision which is to betaken by the entrepreneur.

Secondly, the price of the component is to be decided as in case theentrepreneur is manufacturing a component which is having a monopoly in themarket, can be sold easily. In case the same component is also manufacturedby various industries then it will be difficult to survive in the market. Therefore,the price decision is also to be taken after going through the market survey todecide about the cost of the product to sell the component at competitive price inthe market.

Thirdly, in the promotion of the product the entrepreneur has to decide how topromote the product in the market as there are different ways to promote theproduct in the market: by giving advertisement in a newspaper, by usingelectronic media, by using questionnaires and by visiting various industries.Lastly, the place itself plays a very important role.

3.5 DATA COLLECTION FOR SETTING UP SMALL VENTURES

The collection of data for setting up small ventures can be done by the marketsurvey: by using the technique of questionnaires, by going through literaturesand by going through the know-how which is available at various industries forexample the project reports are available at Indian Investment Centre,Parliament Street, New Delhi, Udyog Bhawan, New Delhi, Libraries and byvisiting different small scale industries.

They are manufacturing different components as per the desire of theentrepreneur in which he wants to start his business. After visiting variousindustries the entrepreneur can assess the requirement in the market. On oneside he is going to get the idea of the demand and on the other side he will behaving knowledge in the particular industry. At present the small scale industriesare helping the nation in all fields because the big manufacturers/industries arecharging more for the component which is being manufactured by the smallscale industries. Due to this, the 80% of the supply is done by the small-scalesector and 20% by the big industries due to the competitive cost in the market.


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PROJECT REPORT PREPARATION

4.1 INTRODUCTION

To establish any project the complete information about marketing, finance andtechnological aspects are scrutinized carefully. The market survey is done toknow about the latest development in the technique and the information is to becollected from various sources.

first of all the objective/goal/target is to be decided and then the further study areto be done. The flow diagram of the project is shown as under:

Input Work in Progress Output

(Finished Product)

Feed Back

Fig. 4.1 Flow Diagram of a Project

Land

Building

Plant & Machinery

Raw Material

Pre-Operative Expenses

Escalation and Contingencies

Electricity & Water

Labor

4.2 PROJECT VIABILITY

The pre-planning is done before starting any project and the under mentionedpoints should be checked very carefully.

1. Financial Aspects.

2. Break Even Point.

3. Net Present Value.

4. Marketing Aspects.

5. Technological Aspects.

6. Profit & Loss.

7. National Aspects.Investment Criteria

There are a number of investment criteria in use. Some of the accepted criteriaare given below:

1. Traditional Criteria

a. Pay Back Period.

b. Accounting Rate of Return.

2. Discounted Cash Flow Criteria

a. Net Present Value.

b. Internal Rate of Return.


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c. Profitability Index or Benefit Cost Ratio.It may be noted that different firms may use different methods. A large companymay use more than one technique to appraise each of its investment projects,while a small firm may contend with using only one technique, which involvesminimum funds and time.

Pay Back Period

Pay-back period is one of the most popular and widely recognized traditionalmethods of evaluating investment proposals. It is defined as the number of yearsrequired to recover the original cash outlay invested in a project.

Pay Back Period =Cash Outlay (Investment)

Annual Cash (Inflow)

Accounting Rate of Return Method

The accounting rate of return method uses accounting information as revealedby financial statements, to measure the profitability of the investment proposals.The accounting rate of return is found out by dividing the average income aftertaxes by the average investment. The average investment would be equal to theoriginal investment plus salvage value if any divided by two.

A.R.R. =Average Income

Average Investment

The Net Present Value

The net present value method is the classic economic method of evaluating theinvestment proposals. It is one of the discounted cash flow techniques explicitlyrecognizing the time value of the money. It correctly postulates that cash flowsarising at different time period differ in value and all are comparable only whentheir present values are found out.

The steps involved in the Net Present Value Method are - first an appropriaterate of interest should be selected to discount cash flows. Generally theappropriate rate of interest is the firms cost of capital which is equal to theminimum rate of return expected by the firm on its investment proposals.

Second, the present value of investment outlay i.e. cash outflows should becomputed by using cost of capital as the discounting rate if all the cash flows aremade in the initial year then their present value will be equal to the amount ofcash actually spent.

Thirdly, the net present value should be found out by subtracting the presentvalue of cash outflows from the present value of cash inflows.

Thus, the Net Present Value Method is a process of calculating the presentvalue of cash flows-inflows and outflows of an investment proposals, using thecost of capital as the appropriate discounting rate and finding out the presentvalue by subtracting the present value of cash outflows from the present value ofcash inflows.


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MANAGERIAL ASPECTS OF SMALL BUSINESS

5.1 PRINCIPLES OF MANAGEMENT

Definition

Management coordinates all the activities of the man, machine and materials.

1. Management is an on-going activity consisting of various functions.

2. Management is executive functions which actively direct human efforttowards common goal.

3. Management is the complex of continuously coordinated activities bymeans of which any undertaking or any administration or any otherservice, public or private conducts its business. This definition is statedby I.L.O.

4. Management involves getting things done through and with the peoplein formally organized groups. This definition is stated by Koortz.

5. Art of directing human activities. This definition is stated by Urwick.

6. Management is the art of coordinating activity of man, material andmeeting.

Functions of Management

Planning

Organizing

Directing

Motivating

Coordinating

Control

Fig. 5.1

Of these, the above two are generally known as Management in preparation and

the last four as Management in action. The aim of management is: First, planyour work, and then work your plan. If the proper planning is not done all theother efforts made will go waste and if every step is taken and control is notdone then also everything goes waste.

Planning

Planning means thinking before doing, before actual work is started, in planningit is decided what is to be produced, how is to be produced, when is to beproduced, and who are to produce it etc.

Organization

When complete planning is done, rest step is to arrange material, men andmoney for actual execution of manufacture. The main function consists of twodivisions namely:


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a. Material Organization.

b. Human Organization.It is the human organization which forms an important function of management.The purpose of organization is the delegation of authority and responsibility.

DirectingDirecting means the system of directing the plan into operation. Only giving

orders is no directing. The person who directs must have dynamic leadership.This work is done by the directors or Managing Directors/Chairman. He issuesthe instructions to his staff. These instructions must be simple, clear, completeand reasonable in all respect and as far as possible must be written and simple.

MotivatingSuppose a person is highly qualified, technically and physically sound, but he isnot willing to work hard his output will be much less. So the function ofmotivating is to find out the motive of work in a man and then he shouldencourage to do work by keeping his moral high. Motivating is the skill of

Manager and is linked with coordination.Coordinating

In an enterprise, there may be large number of workers, altogether with theobject of producing particular product. This is the task of coordination tointegrate and harmonize them to achieve a common object.

Control

The function of control is to match actual performance with the plans and topoint out defective work to rectify them and prevent re-occurrence. The variousforms of control are quality control, cost control, material control and production

control etc.5.2 OPERATIONAL ASPECTS OF PRODUCTION

In any production process the various inputs are given like manpower,machinery, raw material, electricity & power, pre-operative expenses, escalationand contingencies.. The flow diagram of the operational aspects of production isshown in figure given below:

Input Production Unit Output

Finished Product

Feed Back

Fig. 5.2 Operational Control

Land & Building

Manpower

Machinery

RawMaterial

Escalation and Contingencies

Pre-Operative Expenses

Electricity & Water

Drinking Water


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Raw Material

As per the above flow diagram the raw material is required as per therequirement of the industry either the trading unit, manufacturing unit orassembly unit. In all these units the raw material is purchased according to theproduct being manufactured in the production hall.

Pre-operative Expenses

The expenses utilized before starting any kind of production are called the pre-operative expenses.

Escalation & Contingencies

This is the amount kept for the hike in prices of the raw material at the time ofemergency.

Land and Building

In any kind of production unit either the constructed unit or on rent can be takenor the land to be purchased and the building is to be constructed as per therequirement of the production unit.

In all kinds of operations the production plays a very important role as the qualityof the product itself speaks the value of the item sold in the market.

5.3 INVENTORY MANAGEMENTThe scope of the store function is to look after effectively and efficiently thephysical custody of material, after their acquisition until these are issued forproduction/use.

Functions

1. Receiving and inspection.

2. Storage.

3. Retrieval and issue.

4. Stock accounting.

5. Physical stock verification.Performance Criteria for Store Management Effectiveness

1. Stores efficiently index pending indents at retrieval time.

2. Handling loss index.

3. Storage loss index.

4. Space utilization and house-keeping.5. Incoming material inspection effectiveness.Important Decisions Associated with Design and Operation of Storage andRetrieval Systems

1. Storage location - centralized vs. decentralized storage.

2. Stores layout planning objectives and guidelines.

3. Storage methods - bins, racks, platforms, shelves, buckets.

4. Storage systems - open, closed, and dedicated to random access.

5. Material identification code and store address systems.6. Documentation - forms procedures: for example (bin card).

7. Issue policies - LIFO, FIFO, Grouping market competition units of issue -items vs. bulk control.


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8. Store accounting system - FIFO, LIFO, approx. cost, stand cost.

9. Physical stock verification - need method period in perpetual, lawinventory method, had to handle discrepancy export - unjust by inspection.

5.4 PHYSICAL STOCK VERIFICATION (STOCK VERIFICATION)

Need and Rationale

Storekeeper performs the custodial job or how carefully inventory records are

maintained. Some discrepancy between the actual and the book value ofinventory is bound to occur. Systems are operated by people and people canmake mistakes. For this reason every inventory item should be physicallycounted, measured or weighed and checked against book balance at least oncea year. Thus, physical stock verification is a systematic process with thefollowing objectives:

1. To reconcile the book records and documents for their accuracy andusefulness.

2. To identify the areas which require more disciplined documentary control.

3. To back-up the balance sheet stock figures.

4. To minimize pilferage and fraudulent practiser.

5. Suggest preventive and corrective follow-up measures.Who does it?

Normally material audit or internal audit does it. One person is given exclusiveresponsibility and authority.

Process of Verification

Y

StockMaximum Stock

Usage

Procurement Time

a aREVERSE STOCK

X XTime

YFig. 5.3

1. Must involve store people who know the physical location and can advise

StandardOrder

Minimum Stock


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on the right method of measurement.

2. Must rectify omissions by discussion before reporting. Major discrepanciesshould be re-verified.

Possible Sources of Discrepancy

1. Large scale pilferage. It may be true for valuable items in short supply inthe market due to lack of adequate security check.

2. Wrong posting of records3. Loose document control.

4. Evaporation losses due to poor storage matterApplications

1. Safety Margin.

2. Improve Profit.

3. Machinery Selection.

4. Product Addition.

5. Economic Strength.5.5 BASIC PRINCIPLES OF FINANCIAL MANAGEMENT

The Nature of Financial Management

Financial management is the managerial activity which is concerned with theplanning and controlling of the firms financial resources. The three importantactivities of the business firm are finance, production and marketing. The firmsecures capital it needs and employs it (finance activity) and generates returnson the invested capital (production and marketing activities). A business firm,therefore, is an entity that engages in activities to perform the functions of

finance, production and marketing. The firm acquires funds from the sourcescalled investors. The funds to secure when invested are called investments. Asto run any business finance is required and for collecting finance differentsources are required, but to utilize funds at different points the pre-planning isrequired as without planning for the investment to be made will go waste.Therefore, to manage the amount in right time at right place is essential and forthe purpose, finance management is required.

The Objective of Financial Management

1. Where to invest funds and in what amount?

2. How much to pay in dividends?

3. Where to raise funds and in what amount?These decisions relate to the firms investment and financing policies

5.6 MARKETING MANAGEMENT

Marketing Research - Role of marketing research in marketing

Marketing research is a systematic gathering, recording and analyzing the dataabout marketing problems to facilitate decision making.

Curdiff and Still

Marketing Research is a systematic problem analysis, model building, and factfinding for the purpose of improved decision making and control in the marketingof goods and services.


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Phillip Kotler

The main object of Marketing Research is to frame new policy or modify theexisting marketing policies, strategies, and programs. Marketing researchreduces the risks involved in marketing research and decisions. Fact got fromresearch can form the basis of planning, selling, sales promotion, andadvertising.

Marketing Research helps in reducing the risks involved in the marketingdecisions in two ways:

1. Current information for marketing to take decision.

2. Generalized knowledge about the marketing process.Scope of Marketing Research

The scope of marketing research is very wide and it is ever expanding.Marketing research includes various subsidizing types of research like:

1. Market Analysis.

2. Sales Analysis.

3. Customer Research.

4. Advertising Research.

5.7 OBJECTIVES OF MARKETING RESEARCH AND ITS BENEFITS

Valuable Information about Customers

Their needs, their ability to pay potential buyers, locations etc.

Production of New Items

An entrepreneur gets information about customers habits and preferences andmakes improvement in his products or develops new products.

New Uses of ProductsAn entrepreneur widely publicizes the alternative uses of his product and createsdemand of the product in the market.

Selection of Channel of Distribution

Marketing research helps in selecting the best channel of distribution to meet theneeds of customers effectively.

Knowledge of Demand

Anentrepreneur studies the nature of product demand.

Discovery of potential Markets

Potential markets are discovered where companiesproduct can be sold.

Existence in Competitive Situations

An entrepreneur studies the marketing policies and strategies of its competitorsthrough marketing research.

Planned Production

He facilitates the production of product in a planned way which results inmaintaining the equilibrium in demand and supply in the market.

Thus, marketing research is very useful for the planning and developing the

marketing activities in the right direction.Channel of Distribution

Types of Channel of Distribution


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1. Direct Distribution.

2. Indirect Distribution.In direct distribution, manufacturer sells his product direct to consumers.

a. ManufacturerRetailersConsumersIn indirect distribution, products reach from manufacturer to the consumersthrough intermediaries.

b. Manufacturer WholesalersRetailersConsumersThe following figure shows the relationship between manufacturer and customerin modern industry.

CHANNEL OF DISTRIBUTION

Manufacturer

Wholesalers

Distributors

Sub. Distributors

Retailers

Consumers

Fig. 5.4

Production Sales Dealer

Research Customer

Fig. 5.5 Manufacturer and Customer Relation

Undertaking Market Research

For undertaking marketing research the process of market research is divided

into four general groups described below:1. Product Analysis:Product Analysis is used for finding out customers for

the product and will fulfill the present requirement of the market.

Check List of Questions:

a. Whether the product fulfills market requirement?

b. Whether the product is competitive in character, performance andprice?

c. Whether the product permits efficient distribution?

d. Whether the product can be sold at handsome profit?e. Whether the reductions of selling prices have effects on demands?


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2. Market Analysis:Its objective is to find the location of market, scope ofsales and buying habit of customers.

Check List of Questions:

a. Who purchases the product?

b. Where are the markets?

c. What is the volume of sales during a particular time?

d. On what factors does buyer pays stress?e. Whether demand is seasonal?

f. What discount and credit terms are prevailing?

3. Distribution Analysis: This consists of the study of the Channels ofDistribution, Methods of Pricing, Resale Price, Maintenance, SellingMethods, Sales Promotion, Sales Training, Warehousing and DistributionCost Analysis.

4. Competition Analysis: It is generally included as a part of marketing

analysis. It makes study to recent or proposed production sales andpricing policies of the competition.

Technique of Market Research

1. Collection of Data.

2. Interviews.

3. Market Survey.

4. Statistical Method.Functions of Market Research

1. Helps in knowing who and where the customer is and what he wants.2. Helps in knowing the sales trend, market potential and its shares inmarket.

3. Helps in knowing the defects in the products and then rectify them infunction.

4. Studies the distribution channel and its effectiveness.

5. Exploits new markets and helps in developing new products.

6. Safeguards the market interest of the company against changes in themarket in future.

7. Keeps the business in touch with its market and thus helps the salespromotion effects.

Four Ps in Marketing

1. Product: Marketing managers plan and develop the right product orservices in the terms of quality, packing, branding and design for themarket segment. This planning includes determining the product line andproduct mix of the firm.

2. Price: Marketing managers determine a competitive fair price for products

which would earn fair profits.3. Promotion:Marketing managers inform customers about their products or

services by means of such marketing functions as personnel selling andadvertising.


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4. Place: Marketing managers make products or services available tocustomers by distributing goods through channels of distribution. Itprovides place and time utility to the products.

Product Mix

It has the marketing plan that satisfies the desires of consumers identified in themarketing segment.

The knowledge of utmost importance for guiding marketing decision in productplanning.

Break Even Point

Break-even point is the point where there is no profit and no loss.

B.E.P.. =Fixed Cost

Selling PriceVariable Cost

Applications

1. Safety Margin.

2. Improve Profit.3. Machinery Selection.

4. Product Addition.

5. Economic Strength.

5.8 THE ELEMENTS OF THE MARKETING MIX

Product Activities

Product, service or idea may be defined as something which is given toconsumers in exchange for a price. Activities related to a product service or ideaincludes the following:

1. Quality

2. Features

3. Style


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4. Brand Name

5. Packaging

6. Sizes

7. Services

8. Warranties

9. ReturnsPricing Activities

Target Customershow much they will buy at various places, in other words,price elasticity of demand.

Costhow much it costs to produce and market the product, i.e. both productionand distribution costs.

Competitionsevere competition may indicate a lower price than when there ismonopoly or little competition.

The LawGovernment authorities place numerous restrictions on pricing

activities.Promotional Activities

Advertising, Personal Selling, Sales Promotion, Publicity and Public Relations.

Place or Distribution Related Activities

Basically place or distribution related activities are used to transfer ownership toconsumers and to place products, services and ideas at the right time and place.Distribution is made up of two components, i.e.

1. Physical Distribution.

2. Channel of Distribution.

Physical Distribution consists of the activities involved in moving products orservices from producer to consumer, for example,

1. Transportation.

2. Warehousing and storage.

3. Order Processing.

4. Inventory Control.

5. Location.Identification of Problems and Opportunities

Here the marketer has to identify the strength and weaknesses as well as theopportunities and threats which exist in the environment in relation to thecompany product. The data required to be collected in respect of the currentmarketing situation should help him in identifying major strength, weaknesses,opportunities and threats.

5.9 PERSONNEL MANAGEMENT

Introduction

The need of personnel department arise due to the problems faced by theorganizations/industries because of large workers working in an organization

require someone who can look after their welfare measures and to solve theproblems within the industry as it is impossible for single person to look after allthe work, therefore, it becomes essential to have personnel management


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department due to this the top management gets more time to spend on othermatters, as the number of persons working in an organization are increasing dayby day and it also made it essential for all the companies to run separatedepartment which can look for the personnel and the development work of allworkers. The person, who takes care of all these matters, is called as the Headof the Department (Personnel) or Personnel Officer.

Duties and Responsibilities of Personnel Department

The Personnel Officer has to look after the under mentioned points:

1. To provide proper training and education to the staff which includeworkers and others?

2. To maintain good industrial relations between industries.

3. To look after the welfare and employees services.

4. To arrange labors/workers for the industries well in time to avoid any delayin production programme.

5. Providing safe place for doing their work and this is being done by makingproper layout diagram of machines to be kept at various places in workingproduction hall.

6. Maintaining employeeshealth

7. Maintenance of employees safety, safety standards, safety guards andinspection of safety equipments, fire protection and accident, investigation,safety records and workmen compensation for injuries.

8. Employees welfare group, insurance, profit sharing, pension, legalassistance, housing programme, company stores and restaurants.

Planning of manpower is done by making a layout of all the machinery. Itis finalized by counting machine in numbers and the steps required tocomplete the process at the earliest and the delay period of work etc.

5.10 SOURCES OF MANPOWER.

1. Through Existing WorkersAs the workers working in a family can suggest better, workers for industryas they know what kind of experienced workers are required to run aparticular machine, these workers can be controlled by the organizationbecause the existing workers can give guarantee for the new workers

discipline, etc.2. Employment Exchange

Government employment exchange receives letters from personsrequiring jobs in various organizations by sending their bio-data i.e.educational qualifications and experience etc. The exchange goes throughtheir experience and qualifications and recommends their name to theGovernment organizations as well as Pvt. Companies so that they canselect the candidate for their organization as per their requirement..

3. AdvertisementThe advertisement is given in different leading newspapers for themanpower required for the organization by mentioning the qualificationsand experience required for particular organization, like schools, colleges


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and technical institutions. The manpower can be arranged from schools,colleges and technical institutions by the visit of the companysrepresentative/area executive/human relation officer at different placesand can have the preliminary interview at the premises of the schools,colleges and technical institutions and the interviewer can select thesuitable candidate by going through a test at the premises as well as byasking questions on the topic related to their field.

4. School, College and Technical InstitutionsThe man power is also available at various educational institutions.Companys representative visits various colleges as per the interest of thecompany in fields like electronics engineering, mechanical engineering,computer science, electrical engineering in which field the men power isrequired. The company candidates interview at the company itself andselect the candidates as per his choice..

5. Through Contractors

There are some of the workers or the agencies providing men power asper the requirement of industry. The men power can be selected throughthese companies.

6. Notice on Factory GateThis is the best way. When few numbers of skilled, unskilled workers arerequired for factory, the factory owner fixes notice on the main gate of thefactory and mentions the number of persons required. The workerssearching for job go through the requirement of factory and can meet thesupervisor/ production manager for job.

7. Through ConsultantsBy this way the suitable candidate can be selected as the consultantsusually collect the bio-data of different candidates desirous of employmentin various organizations. The consultants suggest the name of theemployees required as per the companys requirement. By this waycompany saves money in spending on advertisement for workers requiredfor their company. At present so many consultant organizations are doingthis business only.

8. Through Trade Associations

The trade associations register the names of different organizationsrunning different types of business and they are in touch with differentindustries all the time. Therefore they can suggest suitable kind ofskilled/unskilled workers/managers etc. for companies as per theirrequirement.

9. As Recommended by Professional Bodies and SocietiesThere are some of the professional organizations/societies those areworking for the welfare of the employees. They can reclaim there name forthe similar opportunities in industries. As these peoples are alreadyworking as the line these have their expertize knowledge.

10. Former Employees who had good service records when they left theOrganizations


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In the case the senior employees those have already worked in the sameorganization and have good service record can provide workers as theynow about the organization report.

5.11 RECRUITMENT AND SELECTION PROCEDURE

Recruitment is the process or means by which a suitable candidate is selectedas per the requirement of an organization. By this process, a right person is

selected in right time without any bias. This is the work of personnel departmentand he usually gives the under mentioned details in newspapers.

1. Details of the organization work in their field, its branches, their turnover,and scope etc.

2. Name of the Post.

3. The educational qualification and experience required for the said post.

4. Number of persons required in different trades like general numbers/SC/ST/BC etc.

5. Pay scale and other allowances like DA, CCA, HRA, TA and totalemoluments and any other terms and conditions for the job.

6. Cost of application form if any for applying the job and the last date ofsubmission by registered post etc.

Now the interested candidate will apply in typed paper or in the formprescribed by the organization if any obtainable from the employer and forthis purpose the details are given as under:

a. Name of the Candidate.

b. Fathers Name.

c. Permanent Address.d. Present Address.

e. Mother Tongue.

f. Nationality.

g. Religion.

h. Date of Birth.

i. Educational Qualifications.

j. Service experience from the starting job in chronological order.

k. Minimum Salary Acceptable, if anySelectionU.P.S.C.gives advertisement in newspapers by giving the Performa of the formto be submitted. The applications received up to the last date of submission arecollected. The summary sheet on the basis of qualification and experience aremade by giving suitable weight age to qualification and experience etc. Thesheet is prepared and the suitable candidates are then called for interview.

The persons scrutinized during the recruitment procedure are called for interviewfor selection. The test of selection is done for selecting a suitable candidate

required for the particular post and to reject the unsatisfactory candidatesNeed of Scientific Selection


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The need of scientific selection arises because in previous days the person whowas running his business felt that he knew each and every thing

1. Trade Test:This test gives the idea to the employer about the knowledgeof the candidate for doing work on a particular machine.

2. Medical Test:This test helps the employer to know about the candidatessuitability for the required post. By going through medical test the suitable

candidate can be found and to know whether the candidate is sufferingfrom any disease or not etc.

3. Interview: In an interview the person is selected by going through theeducational qualification and experience and his ability to work under theenvironment of the industry etc. As in interview there is a face to facediscussion, the interviewer can judge about the candidates realwillingness for the job and his personality and by asking questions on therelevant topics. The knowledge of the candidate can be known as inteaching job the candidate is asked to explain some topic in the presence

of all the students which gives an idea about his way of teaching. Thus,interview is an additional point for the interviewer.

4. Aptitude Test: By this test the persons interest towards the job ischecked. As the person may be interested in different line but he likes thejob because of unemployment. Aptitude can be categorized as under:

a. Mental Abilities.

b. Visual Skill.

c. Specialized Aptitude.

5. Personality Test: By this test the persons characteristics likeleadership in work, appearance, sociability, the way of representing thefact etc., can be judged.

6. Psychological Test:This test shows the general knowledge ability of thetopic given. In this test generally the set of questions are prepared bycomputer set or on typewriter and about 200-250 questions are given in allfields like General Knowledge questions, Mathematics questions, andEnglish questions like paragraph and find out the correct answers from theparagraph given. The marks secured by the candidate show hisintelligence level.

5.12 IMPORTANCE OFCOMMUNICATION IN BUSINESS

In business, the term communication itself speaks the truth of the persons abilityto communicate the message (1) verbally, (2) in writing (3) by consultation/bydiscussion (4) by sending letters (5) by mutual understanding.

The flow diagram is shown below:

Input SystemA Output

Feed Back

Fig. 5.2 Communication Process


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Proposal to permit FIls to submit collateral when trading in derivatives onthe domestic market.

Commodities

To go cheaper: ACs, cell phones, imported fabric, cakes and pastries, tea,vanaspati, edible oils, imitation jewellery, polyster imports.

To get expensive: Petrol/diesel, branded jewellery, tobacco products,

steel, cement, IT hardware, imported cut flowers, mosaic tiles, roadtractors.

6.2SALES TAX REGISTRATION

Any kind of business where the sales/purchase is being made the sales tax is tobe charged by the party (seller). The tax is to be paid by the buyer and for thispurpose the sales tax registration is must. To deduct sales tax from the invoicethe sales tax number is required. This number is given by the Sales TaxDepartment

Types of Sales Tax

1. Central Sales Tax: Central Sales Tax is charged by the party when inter-state sales are made i.e., from one state to another state and this tax ischarged according to the tax to be imposed on a particular item given inlist available at the sales tax office/govt. budget of each year.

2. Local Sales Tax: This is the local tax charged by the party in case ofsales made locally. Here in this case how much tax is to be charged on aparticular item can be seen from the book of sales tax procedure.

6.3 HOW TO CALCULATE DVAT

Calculation is simple, hassle free.For any given tax period, first calculate total output tax by multiplying theturnover for each sale of goods by the tax rate applicable to those goods.

You then calculate your total input tax for the period by adding up all theDVAT amounts charged by your suppliers on purchases made by youduring the period.

Your net tax is the difference of the two amounts.

If the difference is positive (+), you pay this amount to the Government.

If the difference is negative (-), you can apply the excess credits againstyour CST liability, and claim a refund for any remaining balance.

Alternatively, the excess credits can be carried forward to the next period.

Important Points

Output Taxis the tax that you charge on your sales that are subject to tax. Thetax is calculated by multiplying the sales turnover (defined as the sale priceexcluding the amount of DVAT) by the applicable tax rate.

Input Taxis the tax (DVAT) that you pay on your local purchases of businessinputs, which include the goods that you buy for resale, raw materials, capital

goods, as well as other inputs for use directly or indirectly in your business.Tax Creditis the amount of input tax for which you are allowed to claim a credit.

It is also referred to as Input Tax Credit.


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Net Tax is the difference between your Output Tax and Tax Credits you areallowed to claim in a given tax period. It could be a positive (+) or a negative (-)amount. The negative amount represents tax credits in excess of output tax for agiven period.

Types of Sales

Under DVAT, Sales fall under the following distinguishable categories:

Taxable Salesare sales on which you have to charge tax and you will beable to claim input tax credits on purchases of inputs for use in makingthese sales.

Exempt Sales are those sales that are exempted from tax, and no tax

credits are allowable for purchases or use in making these sales.

Non-Taxed Sales are sales that are not subject to DVAT, but you mayclaim tax credits on purchases related to these sales. They consist ofinter-state and export sales from Delhi.

Types of Sale VAT Payable Input Tax Credit AllowedTaxable Yes Yes

Exempt No No

Non-taxed No Yes

Taxable sales include all sales of goods in Delhi by registered dealers (includingthose required to be registered), except those which are specified to beexempted or non-taxed.

Exempt sales IncludeSale of goods specified in the first schedule, such as books, periodicals,newspapers, and maps, coarse grains other than paddy, rice and wheat,fresh vegetables and fruits, fresh plants, saplings and fresh flowers, andmeat, fish eggs, and livestock.

Resale of capital goods used exclusively for purposes other than makingnon-taxed sales, provided no tax credit has been claimed.

Non-taxed sales are

Sales in the course of the inter-state trade or commerce; and

Sales in the course of import or export from India.

What is Input Tax Credit?

An important point to remember is that tax credits are allowed only in respect ofthe DVAT paid or payable on your inputs, and forwhich you have a valid taxinvoice. Another point to remember is that tax credits are allowed in respect ofthe DVAT paid on those of your purchases that are for use in making taxable ornon-taxed sales.

Tax Identification Number (TIN)

Under VAT every registered dealer (except those opting to pay tax under thecomposition scheme) is required under the law to issue a Tax invoice to thepurchasers. This Tax invoice contains the details of the registered selling dealerand also his registration number which is the Tax Identification Number (T.I.N.)


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6.4 PATENT RULES

The patent is meant for the protection of the product manufactured by thecompany as the manufacturer invests a lot of amount for the product anddecides to give some name to the product and market his product by theparticular name. After selling the product in the market by his brand name someother manufacturer tries to bring down his brand name by selling the same

brands duplicate product in the market. Therefore, to save the brand namepatent is registered. Once the trade mark is patented no one else can use thesame name for his own product.

Patents run for 17 years and are not reversible. After 17 years they are in thepublic domain. In effect, though, they can often be extended beyond 17 yearsthrough the use of patented improvements. By the time the basic patents runmarket, mainly patented improvements make competitors use the basic patentbut not, without permission.

6.5 FACTORY ACT

The Indian Factories Act, 1948This Act safeguards the interest of the labour engaged in the factories. This Actis now applicable throughout India. It came first into force from 1st April, 1949,and was extended to the Union Territories of Goa, Daman and Diu in 1963 andto the State of Jammu and Kashmir in 1970.

Definitions

1. Adult:A person who has completed the age of 18 years.

2. Adolescent: A person who has completed 15th year but not completed18

thyear.

3. Child:A person who has not completed his 15th year of age.4. Calendar Year:A period of 12 months from 1stJanuary.

5. Young Person: Either a child or an adolescent.

6. Week:A period of 7 days beginning at midnight on Saturday night.

7. Power: Electrical energy or any other form of energy, which ismechanically transmitted and is not generated by human or animalagency.

8. Prime Movers:Any engine, motor or other appliance, which generates or

otherwise provides power.9. Transmission machinery: Any shaft, wheel, drum, pulley, system of

pulleys, coupling clutch, driving belt or any other device by which themotion of a prime mover is transmitted to or received by any machinery orappliance.

10. Worker:A person employed directly or through any agency, whether forwages or not, in any manufacturing process or premises used formanufacturing process or in any other kind of work incidental to orconnected with the manufacturing process.

Latest Amendment in Factories Act 1948 by the GovernmentIn a bid to extend its pro-women agenda further, the Government will soon enacta law to provide for flexibility in their employment during night hours.


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Currently, the law does not permit women to work in any factory except between06:00 a.m. to 07:00 p.m.

The Government intends to amend Section 66 of the Factories Act 1948 toensure employment of women during night shifts.

Empowerment

Government intends to amend Factories Act 1948 to ensure employment

of women during night shifts.Currently, women are allowed to work only in between 06:00 a.m. to 07:00p.m.

Amendment will benefit women in special economic zones, IT sector.

Other cabinet decisions included the conversion of Manipur University into acentral university through an act to be passed in Parliament and thepromulgation of the Daman and Diu VAT Regulation 2005 and Dadra and NagarHaveli VAT Regulation 2005 by the President.

6.6 MINIMUM WAGES ACT, 1936 (AMENDED UPTO 1957)

Under this Act, State Government can fix the minimum rate of wages payable toemployees in the establishment i.e., woolen carpet making, rice mills, flour mills,tobacco manufacturing, plantation, oil mill, local authority, construction ormaintenance of roads and buildings, stone breaking, mico-works, publictransport, agriculture; dairy etc. Workers should not suffer from with-holding ordelays in the payment of wages and checks the malpractices of the employers.

Wages

Wages means all remuneration expressed in terms of money payable to personswhile in employment, and it will include:

1. Basic Wages.

2. Dearness Allowance.

3. Bonus.

4. Payments under any award.

5. Settlement or order of a court.It will not include:

1. The value of any house accommodation, supply of light, water, medicalfacilities and other amenities of life specified by the State Government.

2. Travelling allowances.

3. Employers contribution of pension or Provident Fund.

4. Gratuity etc.Methods of Payment

1. A factory employing 1000 or less workers must make payment of wageswithin 7 days after completion of the month.

2. In case a worker is discharged, his claim must be settled within 2 days.

3. Wages must be paid in current coin and currency notes and not in otherkind.

4. The employers can, however, with-hold the payment of wages in theevent of stay in or sit-down strikes.


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Deductions

The following deductions from the wages are permitted by this Act.

1. Fines.

2. Absence from duty.

3. Damage or loss of any factory property.

4. House accommodations and for amenities and services supplied by the

employer.5. Recovery of advances of over-payment of wages.

6. Income-tax, contributions to provident fund etc.

7. Insurance premium.

8. On account of penalties under the service rules.

BUSINESS ORGANIZATION

7.1 INTRODUCTION

In broad sense, business includes industry, commerce, and trade. Its main aimis to increase wealth. Industry means a place where materials are converted intofinished or semi finished products. Trade means a process of buying and sellingof commodities, while commerce is a process that relates to financing,transportation, insuring and allied activities. The form of organization to beselected will be decided by the factors such as:

1. Size and nature of the business to be started.

2. Technical difficulties.

3. Market conditions (i.e., competition and scope of the article in market).

4. Capital required starting the business and the means to collect the funds.

5. Limitations and restrictions put forth by the government (i.e., grant ofloans; foreign exchange and other such things).

After considering the above factors a suitable type of organization is discussedbelow.

Various types of Business Organisations:

1. Individual ownership or Sole trade or Proprietorship.

2. Partnership.

3. Joint Stock Companies.

4. Cooperative Organization.

5. State owned or in Government ownership.

6. Joint Sector Management.7.2 INDIVIDUAL OWNERSHIP/PROPRIETORSHIP


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As the name suggests, such type of business is owned by one man. Thebusinessman invests capital, employs labour and implants machines. This is theoldest and the simplest form of business organization. In such business theowner supplies all the capital needed to run the organization and produces onlywith the help of his own land, capital and labour. Hence, the owner alone enjoysprofit or suffers loss in his business. Therefore, he is the supreme authority todecide into different matters concerning his business and has unlimited freedomof action under legal jurisdiction.

Overall control in single hand helps him in taking quick decision, efficientadministration and working. In this type of organization, owner may or may notobtain valuable advice and guidance from other sources. In such organizationsowner himself is responsible for all the liabilities. Hence, debtors can collect themoney even from his personal property. Therefore, to have this type of businessit is not the money alone necessary to start but also the zeal, enthusiasm,courage and faith of the person.

Application

This form of organization is most satisfactory in the following cases:

1. In small enterprises requiring small capital which can be spread by oneman (owner).

2. Where risk covered is not too heavy because in this type of system riskinvolved is very high.

3. Where management by one man is possible. He may have 16 workers.In practice the ratio is therefore, kept between 3 to 5 and in exceptionalcases six. Generally where the work is of routine nature the number is

more.Chain of Command

It has been felt for different working employees that they should receive theorders only from their superior boss. If an employee has more bosses, his workmay suffer and it creates discipline problem. Chain of command shows thatunder which boss, an employee should be so that he may obey the orders andinstructions of his boss. It is essential to have a uniform working. As regards tothis consideration line organization superior exercises a direct authority over hissubordinates, who become entirely responsible for their performance to the

commanding superior.7.3 AUTHORITY AND RESPONSIBILITY

Authority means one who has right to act, decide and command. The delegatewill not be in position to perform his task properly unless he is given necessarypowers i.e., authority. Hence, whenever a task is assigned to a person, he mustbe given sufficient powers to exercise his control to achieve this task.Responsibility is the obligation of a subordinate for the performance of any joballotted by the superior. As explained earlier a superior officer cannot perform allthe activities himself and hence certain responsibilities and authorities are

delegated to his assistants. He must check that the task assigned by him iscarried out properly and he must hold his delegates responsible for properworking of job and utilization of powers as the delegate himself is alsoresponsible to his superiors. Thus the authority and responsibility both go hand


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in hand unless a man is given necessary authority to perform certain duties hecannot be held responsible.

Centralization of Authority

Centralization means systematic reservation of authority at central points in anorganization. Hence, the majority of the decisions regarding the work are takenup at higher levels and not by those who actually do it.

Decentralization of AuthorityDecentralization is the systematic delegation of authority in an organization.Decentralization is said to be complete only when the fullest possible delegationis made to the persons who are delegated with any kind of responsibility.

7.4 TYPES OF ORGANIZATION

Organizational structure is the network of relationship between the variouspositions in an organization. In this structure different tasks and authorities aredistributed. According to different methods of distributing, the authorities andresponsibilities in an organizational structure are of the following types:

Line or Scalar OrganizationThis type of organization is also known as departmental or military type oforganization. In this type of organization business activities are divided into threegroups namely finance i.e., accounts, production and sales. Each of thesedepartments is subdivided into certain self-contained departments i.e., section.Each departmental head is in sole control over his section and has full authorityto select his labour staff purchase of raw materials, stores and to set thestandards of output etc. Foreman of each shop trains new men and supervisesthe quality of output.

This is known as military type of organization, because in military discipline is ofhigh order. Orders and instructions issued from the top have to be followed bythe lowers. In this organization, the flow of authority moves from top to bottom invertical lines, therefore this is also called lined or scalar organization.

Table 7.1Line or Scalar Organization

GENERAL MANAGER

Sales Manager ProductionSuperintend

Accountant OfficeStaff

Salesmanship *Line relationForeman Foreman Foreman

Workers Workers Workers

Advantages

1. A clear cut division of authority and responsibility, hence no scope ofshifting the responsibility.

2. Strong in discipline.

3. It permits the quick decision.

4. As responsibility of each individual is fixed, hence faults can be easilyand quickly known.


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5. Everybody from top to bottom remains busy like a machine and hencetotal cost of product will be less.

6. It is simple to understand.

7. Flexible and able to extend the contract.Disadvantages

1. It requires different departmental heads to be expert in various

functions, hence lack of specialization.2. Departmental heads are over burdened with various routine jobs hence

no time to think for further expansion and planning.

3. Certain people become key points and they are loaded with maximumwork.

4. Chances of accidents, wastage of material and labour are morebecause of insufficient knowledge of all the work by one man.

5. Chances of delaying the orders of General Manager or any other

departmental head are up to the workers and therefore possibility ofdistortion, due to long channel.

6. Over-burdened foreman can give orders twice for the same job and willcause wastage and error.

7. It has no means of rewarding good workers.Applications

1. Such organization is suitable for factory of small and medium size inwhich subordinate and operational staff is not too much.

2. Suitable for continuous process in industries such as sugar, paper, oil

refining, spinning and weaving etc.3. Suitable where labour problems are not difficult to solve.

4. Suitable where automatic plants are used.Functional Organization

The difficulties in finding the man all round qualified to be foreman in the old lineorganization are overcome with this organization. He is replaced by variousfunctionalized people. This system is advantageous because each will bespecialized in a particular field and workers will be controlled by him. He attends

to one factor in all the departments. Below is its layout.GENERAL MANAGER

GANGBOSS SPEED BOSS INSPECTOR REPAIR BOSS

WORKMEN

This is a short and simplified form, showing the structure of functional type of

organization. In the same way in some of the organizations there are differentexperts and the bosses/foremenall have the responsibility to do the job of allexperts and the experts can also have direct contact with the foreman in this


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MISCELLANEOUS

8.1 HUMAN RELATIONS AND PERFORMANCE IN ORGANIZATION

The human relation is the relation between the employer and employeesworking in any kind of organization. The organization may be the manufacturingunit, trading unit, consultancy unit, assembly unit or any other kind of business.The relation of employees and employer plays a very important role to givebetter output by minimum investment. The human relation itself shows theperformance of any kind of organization as in an organization different types ofpersons visit for their various purposes. The performance may be for thepurchase, sale or for any kind of administrative work. The human relation plays avery important role therefore, the relation between the employer and employeescan only speak the truth of the organization.

8.2 INDUSTRIAL RELATIONS AND DISPUTES

A. Industrial Relations

Introduction: Industrial relations are also called employee relations,labour relations and personnel relations. They represent the relationshipthat exists between the employers and the employees in an industrialundertaking. If these relations are strained, industrial disputes occur andindustrial progress suffers. The employers suffer losses, the workers donot get wages and there is shortage of goods and services for community.

Here it is in the interest of both the employers and employees as well as ofsociety, in general the industrial relations should be cordial andharmonious.

B. Industrial DisputesStrike: A common form of industrial dispute is the strike which meansworkers abstaining from work until their demands are met or acompromise is affected.

8.3 RELATIONS WITH SUBORDINATES, PEERS AND SUPERIORS

The functioning of an organization depends on the working/relations of thesubordinates peers and superiors. The organization works with the coordinationof all just like the captain in a team manages all the players of the team byhaving good coordination. The superiors relation with the subordinates is

concerned both must have a proper understanding to run any organization toachieve the goal/objective of the organization. It can be met only by having goodrelations between the subordinates, superiors and peers. All kinds of conflictscan be shorted out by negotiations, consultations, discussions and by theworkers participation in the management. The relation of all the members helpsthe management to achieve the target decided by the board.

8.4 WAGES & INCENTIVESWages:These are the payments made by the employer for the efforts put in bythe worker in production. These are the payments made for the services

rendered by the labour. As the wages determine the standard of living of theworker and his dependents, it is necessary that they should represent a fairreturn for the efforts of the worker. But above all wages should be sufficient to


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satisfy his ordinary needs and necessity. They should be enough provide himsome comforts of life and help him in maintaining his standard of living.

Normal Wages: It is the amount of money paid to a worker in cash for theefforts put in by him in an industry and no other advantages to the worker ismade. This is also called money wages. The rate of wages at different placesmay differ from each other as per the availability of the workers and necessitiesof life. The amount of payment is so calculated that every worker should getactual worth for his services.

Real Wages: It refers to the amount of necessaries, comforts, luxuries and cashpayments which a worker can get in return for his effort and work. For example,uniforms, essential commodities, housing with free water and electric supplies,conveyance and other such facilities are generally provided by the factory inaddition to the money in cash. If all this amount as a whole is considered forwages, these incomes become real wages.

Living Wages:When the rates of wages are such that can meet some of therequirements of a social family like education, food, clothes and some insuranceagainst the more important misfortunes along with prime necessities of life arecalled living wages.

Fair Wages:It is actually the wages which must be fair for the work of a workerand should provide him with other necessities of life in addition of food for hisfamily. The rates for the fair wages range between these two ranges, the actualwages will depend on production capacity of worker, rates in the surroundingareas, the level of the national income and its distribution, the place of industryin the economy of the country and the bargaining power of employer andemployee.

Minimum Wages:Wages cannot be raised beyond the capacity of industry topay. The productivity of an industry is the source from which wages are paid atthe same time it cannot be forgotten that labour is a human being, and fromhumanitarian point of view he is to be protected. Hence there is the problem offixing minimum wages for the workers. This minimum should be sufficient forallowing the worker to maintain himself according to his needs.

Minimum wages may be deputed as the wage, which provides not only for baresubsistence but something more than this. It must be sufficient for thepreservation of the efficiency of the worker. It must also provide some measureof education, medical requirements and other amenities of life. Thus, in fixing aminimum wage we have to take into consideration the cost of living. To ensurethis in India, Minimum Wages Act 1948 has been in force where wages havebeen fixed for different parts of the country and this has forced employers to givenot less than this fixed minimum wages to any of their workers.

The main objectives of the minimum wages are:

1. To protect those sections of the working population whose wages are verylow and whose conditions are materially unsatisfactory.

2. To prevent exploitation of workers and to secure wages according to thevalues of the work done.

3. To promote peace in industry.


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4. To improve the normal standard of living.The factors which influence wages are:

1. The condition of demand and supply.

2. The respective bargaining capacity of employers and employees.

3. Cost of living which may vary from time to time according to industrialsituation of each industrial district.

4. Economic capacity of the industry to pay wages.5. Level of wage rates ruling in each industrial area for the same class of

industry and same grade of workers.

6. The workers skill training and experience.

7. Nature of task involved i.e., risky, noisy, requiring high concentration,heavy or light work, heat work etc.

8. Economic outlook of the employer.

9. The regularity in service.

10. Extra earning on the job.11. Prospective of future promotions.

Characteristics of a Good Wage or Incentive System:

1. This should guarantee an adequate minimum day wage.

2. It must have the free consent of the worker.

3. It must reward the worker according to his capacity and merit.

4. It must be simple in its working.

5. It must not involve heavy clerical work and thereby increase of ultimate

cost.6. It should aim at increasing production, without adversely affecting its

quality.

7. It should reduce wastage of material and careless use of plant, tools andequipments.

8. It should have effective supervision but it should not be too heavy.

9. Incentive, bonus, etc., should be paid with the wages, and not put off forfuture.

10. The system should be fair both to the employer and the employees.Methods of Wage PaymentsTime or day rate system. This is the most common system found in practice.Under this the worker is paid hourly, daily or weekly rate of wages. Thus, hisremuneration depends upon the number of hours for which he is employed andnot upon the amount of his production.

Advantages

1. There is no dispute about the amount of payment, because it has beenfixed from the very beginning and the worker knows in advance what he is

going to get.2. It possesses security from the stand point of the workers because they are

sure to receive their wages irrespective of temporary reductions in


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personnel efficiency, which may result from unavoidable accident orsickness or fatigue from outside activities.

3. The interruptions to work due to breakdown of machinery of some otherpart of the organization will not make workers suffer from the loss ofwages.

4. The quality of the work can be raised very easily, as there is no need of

hurrying about the things to be done.5. There is no rough handling of machinery due to slow and steady working

of workers.

6. There are no difficult calculations to be made. If there are manycalculations to be made to arrive at the remuneration of a worker, it ispossible that an illiterate worker may doubt the exactness of hisremuneration from time to time.

Disadvantages

1. The employer bears the losses resulting from slow and sluggish workers

as they are paid the same wages irrespective of their output.2. This system tends to reduce production unless a strict supervision is

managed. Therefore, a well qualified and strict foreman is required toobtain satisfactory production.

3. This system tends to give higher production cost.

4. This system is not suitable in case of lazy workers.Straight Piece Work Rate System

This is an improvement on the time rate system. Under this system a fixed rate

of wage is paid for each piece or unit produced.Advantages

1. It is simple in its working and the workmen can easily calculate theirwages.

2. An inducement is given to the workers to increase their production andthus the overhead expenses are reduced per unit of production and themargin of profit is increased and scope for reduction of selling price istherefore, increased.

3. The relations of the workers and employers improve and no dispute takes

place for wages as the workers get satisfactory reward for their work.4. The employer is enabled to know his labour cost per unit of job.

5. Workers are paid on their merits.

6. The work and time spent on preparing pay rolls and bills are eliminated.

7. Wasted time is not paid as is done in time rate system.

8. There is no need of keeping strict supervision and workers are taught selfreliance and responsibility.

9. In this method the production will improve as workers demand material

and machinery is free from defects and under perfect working condition.Disadvantages

1. It is difficult to fix accurate piece work rate.


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2. When the wages earned by workers are high, the employer may beinduced to reduce the rate, which will cause friction between the employerand the employees.

3. The workers put maximum efforts to earn more and more which resultssuffering with their health.

4. This causes displacement of labour as with increase in production, the

number of workers engaged will be reduced. It will cause an increase inthe wastage of materials because the worker will always try to obtain themaximum output.

5. Accidents occur frequently due to hasty work and improper use ofmachines and tools in order to give more production. It also damagesmachines earlier.

6. Mis-utilization of costly machine

entrepreneurship development a4

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