Unit-1

INTRODUCTION

The Definition of Management

1.The process of getting activities completed efficiently with and through other people;

2. The process of setting and achieving goals through the execution of five basic management functions:
planning, organizing, staffing, directing, and controlling; that utilize human, financial, and material
resources.

3.The process of planning, leading, organizing and controlling people within a group in order to achieve
goals; also used to mean the group of people who do this.

4.the process of achieving the objectives of the business organization by bringing together human,
physical, and financial resources in an optimum combination and making the best decision for the
organization while taking into consideration its operating environment.

Importance of Management

1. It helps in Achieving Group Goals - It arranges the factors of production, assembles and
organizes the resources, integrates the resources in effective manner to achieve goals. It directs
group efforts towards achievement of pre-determined goals. By defining objective of organization
clearly there would be no wastage of time, money and effort. Management converts disorganized
resources of men, machines, money etc. into useful enterprise. These resources are coordinated,
directed and controlled in such a manner that enterprise work towards attainment of goals.

2. Optimum Utilization of Resources - Management utilizes all the physical & human resources
productively. This leads to efficacy in management. Management provides maximum utilization
of scarce resources by selecting its best possible alternate use in industry from out of various uses.
It makes use of experts, professional and these services leads to use of their skills, knowledge, and
proper utilization and avoids wastage. If employees and machines are producing its maximum
there is no under employment of any resources.

3. Reduces Costs - It gets maximum results through minimum input by proper planning and by
using minimum input & getting maximum output. Management uses physical, human and
financial resources in such a manner which results in best combination. This helps in cost
reduction.

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 4. Establishes Sound Organization - No overlapping of efforts (smooth and coordinated functions).
To establish sound organizational structure is one of the objective of management which is in tune
with objective of organization and for fulfillment of this, it establishes effective authority &
responsibility relationship i.e. who is accountable to whom, who can give instructions to whom,
who are superiors & who are subordinates. Management fills up various positions with right
persons, having right skills, training and qualification. All jobs should be cleared to everyone.

5. Establishes Equilibrium - It enables the organization to survive in changing environment. It

keeps in touch with the changing environment. With the change is external environment, the initial
co-ordination of organization must be changed. So it adapts organization to changing demand of
market / changing needs of societies. It is responsible for growth and survival of organization.

6. Essentials for Prosperity of Society - Efficient management leads to better economical

production which helps in turn to increase the welfare of people. Good management makes a
difficult task easier by avoiding wastage of scarce resource. It improves standard of living. It
increases the profit which is beneficial to business and society will get maximum output at
minimum cost by creating employment opportunities which generate income in hands.
Organization comes with new products and researches beneficial for society.

Management functions

 Management has been described as a social process involving responsibility for economical and effective
planning & regulation of operation of an enterprise in the fulfillment of given purposes. It is a dynamic
process consisting of various elements and activities. These activities are different from operative
functions like marketing, finance, purchase etc. Rather these activities are common to each and every
manger irrespective of his level or status.

Different experts have classified functions of management. According to George & Jerry, “There are four
fundamental functions of management i.e. planning, organizing, actuating and controlling”. According to
Henry Fayol, “To manage is to forecast and plan, to organize, to command, & to control”. Whereas
Luther Gullick has given a keyword ’POSDCORB’ where P stands for Planning, O for Organizing, S for
Staffing, D for Directing, Co for Co-ordination, R for reporting & B for Budgeting. But the most widely
accepted are functions of management given by KOONTZ and O’DONNEL i.e. Planning, Organizing,
Staffing, Directing and Controlling.

For theoretical purposes, it may be convenient to separate the function of management but practically
these functions are overlapping in nature i.e. they are highly inseparable. Each function blends into the

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other & each affects the performance of others.

Briefly, there are 5 core functions that constitute Scope of Management functions: Planning, Organizing,
Staffing, Leadership and Controlling.

1. Planning

 The first management function in scope of management functions that managers must perform is
PLANNING. Within this function plan is created to accomplish the mission and vision of the business
entity. Under the mission is considered the reason for the establishment, while under the vision is
considered where is business entity aiming. The plan must define the time component and to plan
necessaryresources to fulfill the plan. Here can also be shaped goal / s that want s to be achieved and
strategy to be used at the same time. Accordingly plan of organization is developed together with required
personnel, method of leading people is defined and controlling instruments for monitoring the realization
of plans. The guiding idea in the making of mentioned items is the realization of the objectives and
fulfilling the mission and vision of the business entity.
As is evident from the previous paragraph, each organization should make a good first step, a good plan,
because without it the organization takes a great risk of mistakes and thus compromising their business.

 2. Organizing
 Organizing is the second function manager, where he had previously prepared plan, establish an
appropriate organizational structure in business organization. In part, it determines the ranges of
management, type of organizational structure, authority in the organization, types and ways of delegating
and developing lines of communication. The organization and its subsystems are placed under the plan,
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which was created as part of functions, ie planning. In performing construction and organization in
particular must pay attention to formal and informal lines of communication, because if these lines are not
adequately monitored the possibility of collision between them, resulting in delays and / or even failure to
achieve the goal.
 
3. Staffing
 Staffing, as the next function of management, consists of a selection of appropriate staff for the
organization to reach a goal / goals easier and more efficient. According to today’s experience is well
known that it is difficult to financially evaluate, quality and efficient staff. Staff is one of the more
valuable, if not the most valuable resource in any successful organization. For this reason, good planning
of personnel policies, as a function of management, and corresponding execution of that selection of high
quality people is becoming increasingly important. The task of this management function is to set rules
related to employment and personnel policies. Within rules following items are determined:

 policy of employment (whether the target organization’s development of own staff to develop
within the organization or the staff mostly taken from other organizations),
 required expertise and theoretical knowledge to perform certain tasks (identification of necessary
skills),
 the policy of promotion ,
 assessment of employees,
 training of staff,
 conflict resolution,
 And other settings of personnel policies.

4. Directing
 It is that part of managerial function which actuates the organizational methods to work efficiently
for achievement of organizational purposes. It is considered life-spark of the enterprise which sets it in
motion the action of people because planning, organizing and staffing are the mere preparations for doing
the work. Direction is that inert-personnel aspect of management which deals directly with influencing,
guiding, supervising, motivating sub-ordinate for the achievement of organizational goals. Direction has
following elements:
 Supervision
 Motivation
 Leadership
 Communication
 Supervision- implies overseeing the work of subordinates by their superiors. It is the act of
watching & directing work & workers.

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 Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work.
Positive, negative, monetary, non-monetary incentives may be used for this purpose.
 Leadership- may be defined as a process by which manager guides and influences the work of
subordinates in desired direction.
 Communications- is the process of passing information, experience, opinion etc from one person
to another. It is a bridge of understanding.

5. Controlling
 It implies measurement of accomplishment against the standards and correction of deviation if any
to ensure achievement of organizational goals. The purpose of controlling is to ensure that
everything occurs in conformities with the standards. An efficient system of control helps to
predict deviations before they actually occur. According to Theo Haimann, “Controlling is the
process of checking whether or not proper progress is being made towards the objectives and
goals and acting if necessary, to correct any deviation”. According to Koontz & O’Donell
“Controlling is the measurement & correction of performance activities of subordinates in order to
make sure that the enterprise objectives and plans desired to obtain them as being accomplished”.
Therefore controlling has following steps:
 Establishment of standard performance.
 Measurement of actual performance.
 Comparison of actual performance with the standards and finding out deviation if any.
 Corrective action.

ENGINEERS AND ORGANIZATIONAL ENVIRONMENT

Responsibilities and How to Deal with Them

Co-ordination is the unification, integration, synchronization of the efforts of group members so as
to provide unity of action in the pursuit of common goals. It is a hidden force which binds all the other
functions of management. According to Mooney and Reelay, “Co-ordination is orderly arrangement of
group efforts to provide unity of action in the pursuit of common goals”. According to Charles Worth,
“Co-ordination is the integration of several parts into an orderly hole to achieve the purpose of
understanding”.

Management seeks to achieve co-ordination through its basic functions of planning, organizing,
staffing, directing and controlling. That is why, co-ordination is not a separate function of management
because achieving of harmony between individuals efforts towards achievement of group goals is a key to
success of management. Co-ordination is the essence of management and is implicit and inherent in all
functions of management.

A manager can be compared to an orchestra conductor since both of them have to create rhythm
and unity in the activities of group members. Co-ordination is an integral element or ingredient of all the
managerial functions as discussed below: -

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 Co-ordination through Planning - Planning facilitates co-ordination by integrating the various
plans through mutual discussion, exchange of ideas. e.g. - co-ordination between finance budget and
purchases budget.
Co-ordination through Organizing - Mooney considers co-ordination as the very essence of
organizing. In fact when a manager groups and assigns various activities to subordinates, and when he
creates department’s co-ordination uppermost in his mind.
Co-ordination through Staffing - A manager should bear in mind that the right no. of personnel in
various positions with right type of education and skills are taken which will ensure right men on the right
job.
Co-ordination through Directing - The purpose of giving orders, instructions & guidance to the
subordinates is served only when there is a harmony between superiors & subordinates.
Co-ordination through Controlling - Manager ensures that there should be co-ordination between
actual performance & standard performance to achieve organizational goals.
From above discussion, we can very much affirm that co-ordination is the very much essence of
management. It is required in each & every function and at each & every stage & therefore it cannot be
separated.
Responsibilities and how to deal with them

Engineers carry responsibilities. The creations of engineers can save or kill many people. To make
sure that engineers do the right thing, they need to be aware of their responsibilities and handle them in
ethically correct ways. In this chapter we will examine what kind of responsibilities there are. Also,
several types of ethical codes on how to deal with responsibilities are discussed.

Responsibilities of engineers

Whenever something goes wrong, people always start asking who is responsible. So, let’s discuss
responsibility. In fact, the main issue that we will discuss is moral responsibility. Moral responsibility
concerns the rightness/goodness of actions and their effects. In fact, we define morality as all the views,
decisions and actions that people use to express what they find right/justifiable/good. It must be noted that
different cultures/different groups of people adhere to different kinds of morals.

Responsibility is often linked to the role a person has. (For example, the responsibilities of an
airplane pilot are different from the responsibilities of the passengers.) And, since a person often has
different roles in life, he has responsibilities to different individuals/instances. Sometimes these
responsibilities may be inconsistent.
Active and passive responsibility

We can distinguish two kinds of responsibility.

Active responsibility is responsibility before something has happened. A person that is actively
responsible is expected to act such that undesired consequences are avoided as much as possible. The
chance for positive consequences must be as big as possible. When discussing active responsibility, the
ideals of engineers are often important. Let’s take a look at the ideals which some engineers might have.

Often, engineers have technological enthusiasm: they want to develop new technological
possibilities and take up technological challenges. Technological enthusiasm is not necessarily bad.
However, it can be dangerous when possible negative effects/consequences of technology are overlooked.

Engineers tend to strive for effectiveness and efficiency. (Effectiveness is the extent to which an
established goal is achieved. Efficiency concerns the ratio between the goal achieved and the effort
required.) Again, striving for effectiveness and efficiency is not necessarily bad.But it does need to be
done in a morally acceptable way.
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 Finally, engineers often wish to contribute to human well-being. However, human well-being
depends on many factors, like safety, health, welfare and sustainability. And often a choice needs to be
made between these parameters: a moral optimum needs to be found. Finding this optimum isn’t as easy
as it may seem

Passive responsibility is applicable after something undesirable has happened. So, if you’re
passively responsible, you need to be able to justify your actions. To hold someone passively responsible,
four conditions usually need to apply.

Wrong-doing – The individual (or institution) has violated a norm or did something wrong.

Causal contribution – The individual must have made a causal contribution to the conse- quences
for which he is held responsible. Although often multiple causal contributions have to be present: events
rarely have only one cause.

Foreseeability – The individual must have been able to anticipate the consequences of his actions.
Although we do expect people to do as much as reasonably possible to know the consequences of one’s
actions. Important here is also the precautionary principle. (The pre- cautionary principle states that if an
action or policy has suspected risk of causing harm to the public or to the environment, in the absence of a
scientific consensus that harm would not ensue, the burden of proof falls on those who would advocate
taking the action.)

Freedom of action – The individual must have been given the opportunity to choose for himself.
The role of engineers
Engineers are often salaried employees. They are thus hierarchically below managers. This can
lead to situations of conflict. On one hand, engineers have a responsibility to their managers/their
company. But on the other hand, they have a responsibility to society: the technologies that are developed
should not be harmful towards the society.

A view that is often employed is the tripartite model. In this model, the responsibility of engineers
is only confined to the technical choices that they make. So, engineers only have responsibilities towards
their employers, customers and colleagues. All the decision making is done by managers, who carry the
responsibilities towards society. The engineers thus separate their selves from the effects that their
technologies might have on society. This is called separatism.
Sadly, managers don’t always know the effects of technology well enough. It is therefore sometimes
proposed to have engineers fulfill the role of managers. These technocrats use technological insight to
decide what is best for the company/for society. However, technocracy is morally problematic, because it
is paternalistic. (Paternalism exists when a group of people thinks that it knows better what is good for
others than those others themselves do.) In a way, it denies people the right to shape their own lives.

A better way to deal with technology is to perform technology assessments. A technology

assessment (TA) is directed at assessing the effects of technology. A constructive technology assessment
(CTA) goes even a step further. It is directed at influencing and expanding the technological design
processes. This can be done by involving the people that are effected by the technology into the design
process.

Codes of ethics

Types of codes

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 Codes of conduct are codes in which organizations lay down guidelines for responsible behaviour.
They are intended as an addition to the requirements of the law. For engineers, two types of codes of
conduct are especially important. First, there are professional codes that are formulated by professional
associations of engineers. Second, there are corporate codes that are formulated by (engineering)
companies. We will go more into depth on these two types of code later in this part.

We can also split up types of codes of conduct, according to their objective. An aspirational code
expresses the moral values of a profession/company. An advisory code advices professionals/employees
on how to exercise moral judgments. (Most of the codes for engineers are advisory codes.) Finally, a
disciplinary code tries to make sure that the behaviour of professionals/employees meets certain values
and norms.

Professional codes

Professional codes of conduct are guidelines made by a professional society. They instruct on the
exercising of a particular profession. The use of professional codes mainly started after World War 2.
During the war, the image of technology was tainted. By implementing professional codes, societies of
engineers hoped to restore the social image of science and technology.

Professional codes for engineers mainly express the responsibilities of engineers. This is done in
three domains. First of all, engineers need to conduct their profession with integrity and honesty. Second,
they have certain obligations towards employers and clients which need to be fulfilled. And finally,
engineers have responsibilities towards the public and the society.

Corporate codes

Corporate codes are voluntary commitments made by (groups of) corporations. These codes of
conduct set certain values, standards and principles for the conduct of the corporations. Corporate codes
often consist of several main elements.

• A mission statement concisely formulates the strategic objectives of the company. It answers the
question what the organization stands for.
• The stakeholder statutes state the responsibility of a company towards its stakeholders. Stake- holders
include consumers, employees, investors, society and the environment.
• The value statements contain the core values of a company: the qualities which the company finds
desirable. Often mentioned values include teamwork, responsibility, open communication and creativity.
• The codes of conduct contain detailed rules and norms for the behaviour of individual employees. These
mainly consist of guidelines on how to act in specific situations. For example, it explains how one should
deal with fraud, theft, bribery, discrimation, etcetera Companies often draft a corporate code to improve
one’s image. However, if this is the only goal of the
code, then we are dealing with window-dressing. The danger of window-dressing is especially present in
aspirational codes.

Distribution of responsibility

The problem of many hands Previously, we have considered how individuals should act. Now
let’s look at a group of individuals. (For example, consider a group of people designing an airplane.) Let’s
suppose that something goes wrong, for which the group is responsible. (For example, the airplane

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crashes.) Of course it is always difficult to determine in a large group/organization who did what. Pointing
out a single responsible person can thus very well be nearly impossible.

But, it can also occur that every person in the group has acted in a morally justifiable way. In other
words, nobody is morally responsible. This is known as the problem of many hands: a collective is
morally responsible for some outcome, while none of the individuals can be held responsible. The
problem of many hands is often caused by an imperfect distribution of information. For example, person
A knows some piece of data, which person B does not know. If person B would have known this data, the
accident could have been prevented. But of course it is impossible for everyone to know everything. So,
person A could not be expected to know he had to present the data to person B. As such, neither person A
nor person B is responsible. But, an accident still occurred.

To solve the problem of many hands, responsibility has to be distributed among the members of
the collective. An ideal distribution is both morally fair and effective. However, meeting these two
requirements simultaneously is difficult. For this reason, we will examine several methods to distribute
responsibility, and see how well they work.

Responsibility in organizations
There are several models to determine who is responsible in an organization. Let’s discuss the
three most important ones.
• In the hierarchical model, those highest in the organization’s hierarchy are held responsible. In practice,
it can be very difficult for the executives to get hold of the right information in time. Also it can be hard
to effectively steer the behaviour of lower organisational units. So, this model is not
always fair.
• In the collective model, every member of the organization is responsible for the actions of the whole
organization. People can thus be held responsible, whether they contributed to the actions
or not. This seems morally unfair. Collective responsibility is therefore only applicable in a number of
exceptional cases, like in very small groups.
• In the individual responsibility model, each individual is held responsible for his own actions. Although
this is a morally fair problem, it can lead to the problem of the many hands.
So, none of the models discussed is ideal in terms of moral fairness and effectiveness. Which model to use
mostly depends on how the organization in question is organized.
Next to laws and organizations, also technology can influence responsibilities. If a person is given a task,
the technology must be available such that this person can carry out this task. If not, he cannot be held
responsible. For example, if an autopilot prevents pilots from intervening during cruise flight, the pilots
can’t be held responsible if something goes wrong during the cruise phase.

UNIT- II

MANAGEMENT CONCEPTS

MANAGEMENT BY OBJECTIVE (MBO)

What Is MBO?

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MBO is a technique and philosophy of management based on converting an organisational objective into
a personal objective on the presumption that establishing personal objectives makes an employee
committed, which leads to better performance. Koontz and others have defined MBO as follows:

Features of MBO

In the light of the above definitions of MBO, the following features of it can be identified.

1. It is a technique and philosophy of management.

2. Objective setting and performance review are made by the participation of the concerned
managers.
3. Objectives are established for all levels of the organisation.
4. It is directed towards the effective and efficient accomplishment of organisational
objectives.
5. It is concerned with converting an organisational objective into a personal objective on
the presumption that establishing personal objectives makes an employee committed
which leads to better performance.
6. The basic emphasis of MBO is on objectives. MBO tries to match objectives with
resources.
7. Objectives in MBO provide guidelines for appropriate systems and procedures.
8. Periodic review of performance is an important feature of MBO.
9. MBO provides the means for integrating the organisation with its environment, its sub-
systems and people.
10.Employees are provided with feedback on actual performance as compared to planned
performance.

Process of MBO

MBO is a process for accomplishing enterprise objectives, enhancement of employees commitment and
participation.

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This process consists of a number of steps. They are:

1. Setting of organisational objectives. The first step in MBO is to set verifiable objectives
for the organisation. The objectives that are set also indicate the measures for achieving
the objectives. The objective setting usually commences at the top level of the organisation and moves
downwards to the lowest managerial levels. It goes in sequence like this:
(a) Defining the purpose of the organisation
(b) Long-range and strategic objectives
(c) Short-range organisational objectives
(d) Departmental objectives
(e) Individual manager’s objectives.

2. Setting of subordinates’ objectives. Since organisational objectives are accomplished through

individuals, eachindividual manager should know in advance what he is expected to accomplish. The
objectives of the subordinates are set by the superior with their onsultation and agreement. This process
makes them committed.

3. Matching resources with objectives. When objectives are set, there should be a connection between
objectives and resources. This helps the organisation in allocating the
resources in an economical manner.

4. Appraisal. Appraisal is the periodical review of performance to measure whether the subordinate is
accomplishing his objective or not. If not, what are the problems and how
these problems can be overcome.

5. Recycling. The process of objective setting involves recycling. It means that first of all objectives are
set in consultation with the subordinates, then the subordinates set objectives for their subordinates, and
so on. Thus, objective setting is a joint process through interaction between the superior and the
subordinates. The three aspects involved in the recycling process consist of setting of objectives at various
levels, action planning in the
context of those objectives, and performance review (Figure B). Each of these aspects provides the base
for others.

Benefits of MBO
An effective system of MBO leads to the following results in the organisation.

1. MBO helps in improving productivity as the management team concentrates on the

important task of reducing costs.

2. MBO helps in making a more systematic evaluation of performance.

3. It provides greater opportunity to managers for personal satisfaction on account of

participation in objective setting and rational performance appraisal.

4. It helps in locating weak and problem areas because of improved communication and
organisation structure.

5. It serves as a device for organisational control integration.

6. It stimulates the subordinates’ motivation.

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7. It is the basis for organisational change as there is a constant process of interaction
between the superiors and the subordinates.

Limitations of Management By Objectives MBO :-

1. Time-consuming: MBO is time-consuming process. Objectives, at all levels of the Organisation,

are set carefully after considering pros and cons which consumes lot of time. The superiors are
required to hold frequent meetings in order to acquaint subordinates with the new system. The
formal, periodic progress and final review sessions also consume time.
2. Reward-punishment approach: MBO is pressure-oriented programme. It is based on reward-
punishment psychology. It tries to indiscriminately force improvement on all employees. At times,
it may penalize the people whose performance remains below the goal. This puts mental pressure
on staff. Reward is provided only for superior performance.
3. Increases paper-work: MBO programmes introduce ocean of paper-work such as training manuals,
newsletters, instruction booklets, questionnaires, performance data and report into the
Organisation. Managers need information feedback, in order to know what is exactly going on in
the Organisation. The employees are expected to fill in a number of forms thus increasing paper-
work. In the words of Howell, "MBO effectiveness is inversely related to the number of MBO
forms.
4. Creates organizational problems: MBO is far from a panacea for all organizational problems.
Often MBO creates more problems than it can solve. An incident of tug-of-war is not uncommon.
The subordinates try to set the lowest possible targets and superior the highest. When objectives
cannot be restricted in number, it leads to obscure priorities and creates a sense of fear among
subordinates. Added to this, the programme is used as a 'whip' to control employee performance.
5. Develops conflicting objectives: Sometimes, an individual's goal may come in conflict with those
of another e.g., marketing manager's goal for high sales turnover may find no support from the
production manager's goal for production with least cost. Under such circumstances, individuals
follow paths that are best in their own interest but which are detrimental to the company.
6. Problem of co-ordination: Considerable difficulties may be encountered while coordinating
objectives of the Organisation with those of the individual and the department. Managers may face
problems of measuring objectives when the objectives are not clear and realistic.
7. Lacks durability: The first few go-around of MBO are motivating. Later it tends to become old
hat. The marginal benefits often decrease with each cycle. Moreover, the programme is
deceptively simple. New opportunities are lost because individuals adhere too rigidly to
established goals.
8. Problems related to goal-setting: MBO can function successfully provided measurable objectives
are jointly set and it is agreed upon by all. Problems arise when: (a) verifiable goals are difficult to
set (b) goals are inflexible and rigid (c) goals tend to take precedence over the people who use it
(d) greater emphasis on quantifiable and easily measurable results instead of important results and
(e) over-emphasis on short-term goals at the cost of long-term goals.
9. Lack of appreciation: Lack of appreciation of MBO is observed at different levels of the
Organisation. This may be due to the failure of the top management to communicate the
philosophy of MBO to entire staff and all departments. Similarly, managers may not delegate
adequately to their subordinates or managers may not motivate their subordinates properly. This
creates new difficulties in the execution of MBO programme.

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Theory Z  

Theory Z is the name applied to the so-called "Japanese Management" style popularized during
the Asian economic boom of the 1980s. In contrast Theory X, which stated that workers inherently dislike
and avoid work and must be driven to it, and Theory Y, which stated that work is natural and can be a
source of satisfaction when aimed at higher order human psychological needs, Theory Z focused on
increasing employee loyalty to the company by providing a job for life with a strong focus on the well-
being of the employee, both on and off the job. According to Dr. William Ouchi, its leading proponent,
Theory Z management tends to promote stable employment, high productivity, and high employee morale
and satisfaction.

Ironically, "Japanese Management" and Theory Z itself were based on Dr. W. Edwards Deming's famous
"14 points". Deming, an American scholar whose management and motivation theories were rejected in
the United States, went on to help lay the foundation of Japanese organizational development during their
expansion in the world economy in the 1980s. Deming's theories are summarized in his two books, Out of
the Crisis and The New Economics, in which he spells out his "System of Profound Knowledge". He was
a frequent advisor to Japanese business and government leaders, and eventually became a revered
counselor. Deming was awarded the Second Order of the Sacred Treasure by the former Emperor
Hirohito, and American businesses ultimately tried unsuccessfully to use his "Japanese" approach to
improve their competitive position.

Pre theory Z
 Abraham Maslow, a psychologist and the first theorist to develop a theory of motivation based upon
human needs produced a theory that had three assumptions. First, human needs are never completely
satisfied. Second, human behavior is purposeful and is motivated by need for satisfaction. Third, these
needs can be classified according to a hierarchical structure of importance from the lowest to highest
(Maslow, 1970).

1. Physiological need
2. Safety needs
3. Belongingness and love needs
4. The esteem needs – self-confidence
5. The need for self-actualization – the need to reach your full potential

Maslow's hierarchy of needs theory helps the manager to understand what motivates an employee. By
understanding what needs must be met in order for an employee to achieve the highest-level of
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motivation, managers are then able to get the most out of production. Theory X, Y and Z all play a role in
how a company should manage successfully. Theory X and Theory Y were both written by Douglas
McGregor, a social psychologist who is believed to be a key element in the area of management theory. In
McGregor’s book The Human Side of Enterprise (1960), McGregor describes Theory X and Theory Y
based upon Maslow’s hierarchy of needs, where McGregor grouped the hierarchy into a lower order
(Theory X) needs and a higher order (Theory Y) needs. McGregor suggested that management could use
either set of needs to motivate employees, but better results could be gained by the use of Theory Y,
rather than Theory X (Heil, Bennis, & Stephens, 2000).

Characteristics of the Theory Z

    * Long-term employment and job security

    * Collective responsibility
    * Implicit, informal control with explicit, formalized measures
    * Collective decision-making
    * Slow evaluation and promotion
    * Moderately specialized careers
    * Concern for a total person, including their family 

Theory Z 

Theory Z is a form of management in which workers are involved in the work process on the factory
floor. Schedules, division of labor, work assignments, and other aspects of the labor process are given
over to workers to do as they see best. Investment policies, wages, fringe benefits and kind of product are
not given over to workers to decide; only how best to do that decided by top management.

Theory Z was developed by William Ouchi, in his book 1981 'Theory Z: How American
management can Meet the Japanese Challenge'. William Ouchi is professor of management at UCLA, Los
Angeles.

Theory Z is often referred to as the 'Japanese' management style. It's interesting that Ouchi chose
to name his model 'Theory Z', which tends to give the impression that it's a Mcgregor idea.
Theory Z essentially advocates a combination of all that's best about Mcgregor's XY theory and
modern Japanese management, which places a large amount of freedom and trust with workers, and
assumes that workers have a strong loyalty and interest in team-working and the organisation.
Theory Z also places more reliance on the attitude and responsibilities of the workers, whereas

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Mcgregor's XY theory is mainly focused on management and motivation from the manager's and
organisation's perspective.
 

. 

KAIZEN

What is Kaizen? - In simple terms Kaizen is Japanese for ‘a change for better’, which results in
‘continuous improvement’. Kaizen ideology can be traced back to the 1980’s; Kaizen was first adopted in
the West with the influx of Japanese car manufacturers brought a wave of new thinking.

Kaizen logic was first enshrined in written text with Masaaki Imai’s book ‘KAIZEN - The Key To
Japan’s Competitive Success’ (1996) this book showed what the fundamental Kaizen logic is. We shall be
exploring the issues discussed in this text.

Kaizen uses the Japanese logic of bringing improvements internally from within the workplace; this goes
against the European ethics of using external sources such as consultants to improve processes.

Understanding the Kaizen Process: Steps and Goals

Kaizen is all about continuous process improvement, not just of products and the way things are done, but
also the environment at work. Learn about the Kaizen process steps and goals in this article.
Kaizen comes from Japan. The word itself means "continuous improvement," and that's what Kaizen
methodologies focus upon. Kaizen is not a methodology for total quality improvement that only focuses
upon the top tier at a company. Instead, Kaizen's methodologies focus upon the entire company. Kaizen
companies are open to suggestions from employees and stakeholders at all levels and they take these
suggestions and implement them on a regular basis. Companies that implement Kaizen are constantly
defining, meeting, and redefining standards. Why implement Kaizen principles in a company? Easy,
because by seeking continuous improvement, a company's bottom line is always being increased,
employees are becoming more productive, and customers are becoming more satisfied.

Kaizen Process

Kaizen events are among the most important activities of a Lean enterprise. Successful Kaizens
help build a Lean culture and measurably improve company performance. Kaizen success requires
effective Planning, Implementation, Follow-up and Evaluation. IMEC’s expert Lean Implementers will
work with your company at each phase of the Kaizen process, helping plan and prepare for events,

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facilitating Kaizen events, working with your team to ensure effective follow-up and completion of the
improvement process, and evaluating the results to continuously improve your Kaizen process.

Plan

The Kaizen Planning phase, within the 6 Sigma DMAIC framework, seeks to Define, Measure, and
Analyze the process that will be the Kaizen focus. There are three levels of Kaizen planning.
• High-Level Planning links the Enterprise Lean Deployment Strategy to the specific processes that
need to be improved and the timeline for improvement.

• Mid-Level Planning uses Value Stream Mapping to select specific areas of improvement that will
be addressed through Kaizen events versus 6 sigma projects and “just-do-it” activities.

• Event-Level Planning uses checklists and standard documents to ensure that everything is in place
so each Kaizen event is conducted successfully. Event planning includes:

- Kaizen team member selection

- Kaizen charter approval
- Location preparation (including equipment, materials, etc.)
- Data needs identification and preparation

Implement

Kaizen event implementation , within the DMAIC framework, is primarily focused on actual
Improvement, although some additional Measurement and Analysis may be required. Kaizen
Implementation requires a company to:

• Train members of the Kaizen team on the Lean principles that they will be applying
• Review the VSM, and perform additional measurements and analyses, if needed
• Facilitate an ideation/brainstorming processes to identify improvement options
• Implement improvements by “breaking apart” the process and putting it back together without the waste
• Prepare an action plan with a list of activities required to complete the Kaizen process
• Verify the alignment of the selected improvements with the future state VSM
• Identify expected measurable improvements
• Obtain participant feedback
• Report Kaizen results to Champions and celebrate success

Follow-up

This phase of the Kaizen process involves the completion of the Improvement and Control DMAIC
elements. The success of the Kaizen depends on timely completion of the Improvement process and
effective change management. This process involves:

• Following-up to ensure that action items are successfully completed

• Working with Lean Champions to breakdown obstacles
• Measuring the actual results of the Kaizen to document and quantify benefits
• Establishing process control to ensure the ability to consistently obtain improved performance

Evaluate

This is the last phase of the Kaizen process cycle. A Lean enterprise is a learning organization that
recognizes Kaizen as a continuous process of improvement through:
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• Identifying improvements to the Kaizen implementation process
• Encouraging employees to identify further improvement opportunities
• Establishing a schedule to re-evaluate the VSM and start a new Kaizen improvement cycle

Kaizen Process Steps

In order to properly implement Kaizen principals for process improvement, there are ten steps towards
reaching successful implementation of Kaizen:
1. Get rid of any fixed ideas you may have based upon conventions. Just because you've always
done something a particular way, doesn't mean that it's the best way to complete that task. Instead,
allow yourself to scrap conventions in exchange for potentials for growth.
2. Think about the "hows," not the "whys." Let me explain this. Perhaps you're looking for a way
to cut costs on materials while engaging in the green movement. Many people would point out
"why" this is not possible. If, instead of looking at why something cannot be done, you look at
how it can be done, you focus upon action. Focus upon solutions to problems, not on the problems
themselves.
3. No excuses are allowed. It is so easy to get to the point where you've found a place where
improvement can occur, and you've even determined how to enforce the improvement and just
stop. Why do companies stop at this point? They begin focusing on the negative, pessimistic view
again - they make excuses. "I can't do x, because x is too hard." Scrap this line of thinking and
take action!
4. Perfection seeking does not lead to progress. Just the word "perfect" can stop most people in
their tracks. Do not wait until you have determined the "perfect" course of action. Scientists don't
wait until they've created the "perfect" experiment (and those who do don't find employment for
too long). Determine a course of action and follow it until you need to adjust it.
5. When mistakes occur, don't wait to correct them! If a tailor waited until the whole dress was
complete before ripping out an uneven seam, he would create more work for himself. Correct
mistakes as they occur. Make continuous adjustments throughout the process of implementing
improvements.
6. Practice the art of continuous monitoring and review. Don't wind up in Argentina when you're
trying to get to Vancouver. Make sure that you monitor the progress of the improvements being
implemented and review whether the implementations are truly improvements.
7. Practice the five why approach to determining root causes. When faced with a problem or a
mistake, ask the question, "Why" to go deeper into the problem.
8. Implement the 3G approach for decision making. The 3G approach involves Gemba (place or
location), Genbutsu (the product), and Genjitsu (the problem being specifically looked at). By
viewing the problem, in a given space, related to the product, it helps you to be specific about the
changes you wish to implement.
9. Improvements need to occur on a daily basis. Every day, in a Kaizen workplace, a new
improvement should be put forth.
10. Look to the group rather than the individual. While an individual may be extremely gifted at
what she does, groups tend to put forth synergy - the conglomeration of new ideas and new
thinking. By focusing upon collaboration, new ideas can spring forth.

Kaizen Process Goals

The Kaizen process has seven goals. These goals drive forth the process steps outlined on the first page of
this article. The seven goals of Kaizen strategies are:
1. Kaizen simplifies the job. By having employees, management, and other
important stakeholdersconstantly suggesting improvements, it simplifies everyone's jobs -
improvements should streamline all processes.
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 2. Kaizen changes things up. Do you like doing the same old same old every day? If not, Kaizen is
a great way to keep you on your toes and remove the boring tasks from the radar.
3. Kaizen keeps things from being a total pain in your rear. If something's not working, why
continue to do it? Instead, it is far better to suggest improvements to solve problems before costly
defects occur. Kaizen keeps your work from becoming a huge burdon.
4. Kaizen improves job safety records. By constantly improving processes, you will be abreast of
important new safety standards, the latest in advances in equipment and technology, and the safest
way to do things.
5. Kaizen improves everyone's productivity. If you eliminate wasteful tasks, then you save time.
For example, is it necessary to create a report of reports every month? Are there less wasteful
ways to do things? Is everyone making the best use of their time? Look into the answers to these
questions to meet this Kaizen process goal.
6. Kaizen improves the quality of your products. By following the Kaizen process steps, you can
improve product quality. It is important to have quality products because this will increase your
customer base, and ultimately, it will increase your bottom line.
7. Kaizen saves you money and it saves you valuable time. By having high quality products, few
accidents, few burdons, and highly productive employees, you will save time. When you save
time, you save money. It's a win-win situation, all around.

Why Use Kaizen Process Steps and Goals?

Kaizen process steps and goals lead ultimately to success. Kaizen isn't only useful for implementing in
business and project management situations. If you are looking to self improvement, you can follow the
principles of Kaizen. Remember step nine, improvements need to occur on a daily basis. Every day, you
should strive to improve something new in your self or your company. By focusing on total quality
improvement, not only will you meet the above goals with stunning success, but you will also have a
more rewarding career and your business will soar.

SIX SIGMA

What is Six Sigma Concepts?

The Six Sigma is perhaps one of the most famous business philosophies in the world to date. It is, of
course, more than just a corporate culture—it is a management methodology that seeks to increase
company profitability by minimizing or even eliminating variances in business processes.

This is in contradiction to how laymen would usually perceive “increase in profitability”: most people
would think that, in order to increase a company’s profits said company should also increase production
or output. The Six Sigma concept revolves around the oft ignored fact that company profitability can also
increase by decreasing costs.

According to the Six Sigma paradigm, a company could bleed as much as 20 to 30 percent on its profit
just by adhering to inefficient systems, correcting mistakes that shouldn’t have been made in the first
place and compensating the customer/client for the inconvenience of those same mistakes.

The concept behind the Six Sigma took root in Motorola back in 1986, when the company upper echelons
looked inwardly into their company and took critical notice of their company’s lack of profitability. It was
a the concept was revolutionary at that time, and since then, Motorola (and other high-profile companies
such as General Electric and Bank of America) began advancing the Six Sigma paradigm all over the
world. Today many of the Fortune 500 companies adapt the Six Sigma philosophy into their companies—
testament to how effective the concept was in execution and not just on paper.

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It can be said that one of the key concepts behind Six Sigma is the merging of both science and
leadership, and the emphasis on quantity (output) without compromising quality.
A fine example of how these concepts came together was during Henry Ford’s time: mass production
didn’t really happen until Henry Ford invented the assembly line. There, people worked like separate cogs
in the machinery, coordinating and working together simultaneously in a controlled process to create cars
by the hundreds, something that no one has ever done before at that point in history.

Six Sigma seeks to better the assembly line so to speak. In any given company, an “invisible factory”
exists where one department is beholden and responsible for another, and how an individual’s
performance does affect the whole.
The Six Sigma methodology was originally developed for manufacturing companies, though today it
encompasses a more general approach to maximizing value and minimizing mistakes. It slants heavily
towards statistical use: to sum it up, Six Sigma posits that the ideal company should be able to make 3.4
defects per millions of units produced (echoing its manufacturing industry origin)—which translates to
99.99966% of units made (or quantifiable services rendered).

The difference between a normal company and a company that have their “cogs” or departments that
follow through the Six Sigma approach (of minimizing variations to 3.4 defects per million) is the
difference between a courier company losing 20,000 lost articles of mail per hour to 7 lost articles of mail
per hour; or the difference between a hospital performing 5,000 incorrect surgical operations per week as
opposed to one that practices 1.7 incorrect surgeries in a week.
This separates a “good” company and a company that follows the methodology of Six Sigma. The
difference is significant indeed, and so is the quality of the output, as well as the profit margins.

What is Six Sigma Methodology?

Six Sigma involves two methodologies namely DMAIC and DMADV. DMAIC stands for Define,
Measure, Analyze, Improve, and Control. This methodology is the basic one given to all employees.
DMAIC defines the needs of the customers, project goals, and the problem. It also analyzes the data
available in order to verify the cause-and-effect relationships and to know the root cause of the problem.
The company can then improve the processes by using the tools and techniques of Six Sigma. With all
these done, the company can control the future processes by knowing any deviations from the goal and to
prevent the defects from happening.

DMADV methodology also has 5 phases, namely define, measure, analyze, design, and verify. This
methodology defines the goals that are consistent with customer satisfaction and demands. It measures
and identifies the factors and characteristics that are critical to quality, risks, capabilities in production
process, and product capabilities. Alternatives are designed and analyzed in order to choose the best
design that the company will accommodate. The details are then designed and optimized for design
verification. Lastly, the design is verified by having pilot runs and implementing the production process.

Methods

Six Sigma projects follow two project methodologies inspired by Deming's Plan-Do-Check-Act Cycle.
These methodologies, composed of five phases each, bear the acronyms DMAIC and DMADV.
 DMAIC is used for projects aimed at improving an existing business process. DMAIC is
pronounced as "duh-may-ick".
 DMADV is used for projects aimed at creating new product or process designs. DMADV is
pronounced as "duh-mad-vee".

DMAIC
The DMAIC project methodology has five phases:
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  Define the problem, the voice of the customer, and the project goals, specifically.
 Measure key aspects of the current process and collect relevant data.
 Analyze the data to investigate and verify cause-and-effect relationships. Determine what the
relationships are, and attempt to ensure that all factors have been considered. Seek out root cause
of the defect under investigation.
 Improve or optimize the current process based upon data analysis using techniques such as design
of experiments, poka yoke or mistake proofing, and standard work to create a new, future state
process. Set up pilot runs to establish process capability.
 Control the future state process to ensure that any deviations from target are corrected before they
result in defects. Implement control systems such as statistical process control, production boards ,
visual workplaces, and continuously monitor the process.

DMADV or DFSS
The DMADV project methodology, also known as DFSS ("Design For Six Sigma"), features five phases:
 Define design goals that are consistent with customer demands and the enterprise strategy.
 Measure and identify CTQs (characteristics that are Critical To Quality), product capabilities,
production process capability, and risks.
 Analyze to develop and design alternatives, create a high-level design and evaluate design
capability to select the best design.
 Design details, optimize the design, and plan for design verification. This phase may require
simulations.
 Verify the design, set up pilot runs, implement the production process and hand it over to the
process owner(s).

What is Six Sigma Used For

 Six Sigma is a tool for quality improvement. Its main objective is to design and systematize a
process or processes in order to eliminate defects and inefficiency. It was originally invented by
Motorola, USA in the year 1980s. Later on, it has become popular in the corporate world due to its
effectiveness and proficiency.

 Six Sigma aims to give incomparable performance, high value and extremely reliable products or
services to its target customers. It is considered to be one of the most powerful tool in Total
Quality Management.

Though Six Sigma is developed and designed especially for Quality Control, it is also used in many
different ways. These include:

 Improving communications with customers, employees and shareholders and;

 Improving the total process of interaction, communication and product design.

Why should Six Sigma be adopted?

 - It defines a concrete process for a certain problem.

 - Six Sigma is usually adopted since it is a proven tool to solve problems or issues.
 - Six Sigma is proven to be consistent with its results.
 - It focuses on the bottom line that entails credibility from the top of the organization.

Six Sigma Calculator

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To accomplish a Six Sigma level, a production process must generate less than 3.44 defects per 1,000,000
opportunities, as shown in the table below:

The Six Sigma Levels and their corresponding defects

Quality Circles

The concept behind quality circles is widely believed to have been developed in Japan in 1962 by Kaoru
Ishikawa as a method to improve quality, though it is also argued that the practice started with the United
States Army soon after 1945, whilst restoring the war torn nation, and the Japanese adopted and adapted
the concept and its application.

A quality circle is a volunteer group of employees from the same work area who meet together to discuss
workplace improvement. The circle is empowered to promote and bring quality improvements through to
fruition. Though quality circles are not the silver bullet solution for quality improvement, with the right
top end management commitment, resources, and organisation, they can support continuous quality
improvement at shop floor level.

Because of the social focus of a Quality Circle group, they can not only improve the performance or an
organisation, but also motivate and enrich the work lives of fellow employees. A typical Quality Circle
group will display a good approach to:

* Analysing the context of a problems and its situation

* Define exactly what the problem is and the relationship between its component parts
* Identify and verify that the causes are indeed causes, ensuring that solutions address the real problem
* Define, quantify and measure the impact of a given problem
* Understand the quality objectives
* Create a solution to a given problem

Quality Circle groups generally address issues such as improving safety, improving product design, and
improving manufacturing process. Because Quality Circle groups remain intact from project to project
they have the advantage of consistency, though they retain the option to call in expertise or request
training when needed.

Techniques used by a Quality Circle group will usually consist of process capability flow charts, lot
sampling, brainstorming, cause and effect analysis, reverse engineering, value analysis, and pareto
analysis.

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Japanese Quality Circles demonstrated the effectiveness of worker teams in identifying and solving
process problems in their own work areas. However the more serious quality problems from non-
manufacturing organisations often arise in activities that span more than one department or function.

Concept of Quality circle

Quality circle is a group activity, practiced at regular intervals, which focuses on quality practices. By
quality practice ,it is meant teamwork,2 way communication between top and bottom caders,use of
scientific methods for analysis ,continuous problem solving ,humanitarian approach ,continuous up
gradation of work related knowledge and recognition for good work. Quality circle is voluntary
movement. Employees in the organization should be motivated to join this movement.
Effectiveness of the QC depends on the following factors:
 Commitment of top management
 Following the rule of the game
 Rewarding system prevalent in the organization
Following actions from CEO may be worthwhile:
 Attending quality circle presentations ,whenever in station
 Visiting shop floor and having informal enquires
 Inviting the employees, who have done quality work, to the room and praising them
 Invariably stressing the need for quality work in all the meetings
 Encourage people who work towards quality improvement, by word and deed
Objectives of Quality circle:
 To develop individual skill
 To maintain harmony at workplace
 To create problem solving capability
 To improve self-esteem of members
 To reduce errors on job
 To increase productivity
 To improve communication flow
 To enjoy synergic effect

Structure of quality circle:

A Quality Circle has an appropriate organisational structure for its effective and efficient performance. It
varies from industry to industry, organisation to organisation. But it is useful to have a basic framework
as a model. The structure of a Quality Circle consists of the following elements.
i. A steering committee: This is at the top of the structure. It is headed by a senior executive
and includes representatives from the top management personnel and human resources
development people. It establishes policy, plans and directs the program and meets usually
once in a month.
ii. Co-ordinator: He may be a Personnel or Administrative officer who co-ordinates and
supervises the work of the facilitators and administers the programme.
iii. Facilitator: He may be a senior supervisory officer. He co-ordiates the works of several
quality circles through the Circle leaders.
iv. Circle leader: Leaders may be from lowest level workers or Supervisors. A Circle leader
organises and conducts Circle activities.
v. Circle members : They may be staff workers. Without circle members the porgramme
cannot exist. They are the lifeblood of quality circles. They should attend all meetings as
far as possible, offer suggestions and ideas, participate actively in group process, take

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 training seriously with a receptive attitude.The roles of Steering Committee, Co-0rdinator,
Facilitator, Circle leader and Circle members are well defined.

Advantages:
 Inculcate team spirit among the circle members
 Introduce participative culture in the organization
 Fulfil the higher order psychological needs such as social needs, self esteem needs and self
actualization needs of the members concerned
 Improve the problem solving capacity of members
 Mould the personality of the members in terms of sociability, communication
ability,punctuality,assertiveness,self confidence ,updating of work related knowledge and self
esteem
 Bring in tangible benefits to the organization which in some cases amounts to even lakhs of rupees
of saving per month
 Serve as a venue for “letting off the steam “for employees who are highly stressed
 Proved to be a good channel of upward communication in the organization
 Improve the general morale of the employees
 Cultivate a sense of owing among the employees

BPR(BUSINESS PROCESS REENGINEERING)

Business Process Reengineering means not only change -- but dramatic change. What constitutes
dramatic change is the overhaul of organizational structures, management systems, employee
responsibilities and performance measurements, incentive systems, skills development, and the use of
information technology.
Successful BPR Model can result in enormous reductions in cost or cycle time. It can also potentially
create substantial improvements in quality, customer service, or other business objectives. The promise of
BPR is not empty -- it can actually produce revolutionary improvements for business operations.
On the other hand, BPR projects can fail to meet the inherently high expectations of reengineering.
Recent surveys estimate the percentage of BPR failures to be as high as 70%. Some organizations have
put forth extensive BPR efforts only to achieve marginal, or even negligible, benefits. Others have
succeeded only in destroying the morale and momentum built up over the lifetime of the organization.
Many unsuccessful BPR attempts may have been due to the confusion surrounding BPR, and how it
should be performed. Organizations were well aware that changes needed to be made, but did not know
which areas to change or how to change them. As a result, process reengineering is a management
concept that has been formed by trial and error -- or in other words practical experience. As more and
more businesses reengineer their processes, knowledge of what caused the successes or failures is
becoming apparent.

Common Steps when Performing BPR

Project Phases Required For Successful BPR:

Phase 1: Begin Organizational Change
Phase 2: Build the Reengineering Organization
Phase 3: Identify BPR Opportunities
Phase 4: Understand the Existing Process
Phase 5: Reengineer the Process
Phase 6: Blueprint the New Business System
Phase 7: Perform the Transformation
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Phase 1: Begin Organizational Change
Activities:
- Assess the current state of the organization
- Explain the need for change
- Illustrate the desired state
- Create a communications campaign for change

The first step is to take a long, hard look at how the organization operates. The focus of this examination
is on the operating procedures and the bottom-line results that are generated by them. The purpose of
performing the analysis described below is to determine whether dramatic change by doing BPR is really
necessary. It may be that only marginal change (the result of Continuous Process Improvements, Total
Quality Management, and other similar programs) is needed -- which would expose the change initiative
and the organization to much less risk.

Aspects of the business that need to be evaluated are: how things are currently done, what changes may
be occurring, and what new circumstances exist in our business environment. Next, a look at how certain
operating procedures within the organization have caused or will cause irreparable damage to the
company’s livelihood. What is the source of the organization’s concern? Maybe the demands of the
marketplace are shifting. Perhaps competitors have made significant advancements in products and
services. Regardless of the reasons, it should be clear whether or not the organization, in its current state,
is able to meet the needs of the markets it serves. The consequences of inaction should be identified and
well understood. In most cases, these consequences are the loss of jobs by shutting down portions of the
business, or perhaps the entire business. Finally, the proper future direction of the organization should be
decided. The future

"vision" of how the business must operate will serve as a clear and concise guide with measurable goals
for employees to focus on.

If an organization wishes to change the way it operates, it must turn to its people to make it happen.
People are the agents of change. Creating business plans and strategies are important, but they are only
tools to guide the actions of people.

Phase 2: Build the Reengineering Organization

Activities:
- Establish a BPR organizational structure
- Establish the roles for performing BPR
- Choose the personnel who will reengineer

An infrastructure must be established to support reengineering efforts. Although this phase consists of
only a few tasks, it has a tremendous impact on the success of a BPR endeavor. Who are the people that
will be chartered to reengineer the business? What will their responsibilities be? Who will they report to?
These are the questions that must be answered as the reengineering staff is gathered together to
communicate, motivate, persuade, educate, destroy, create, rebuild, and implement.
One of the most important members of the reengineering effort is the executive leader. The leader must be
a high-level executive who has the authority to make people listen, and the motivational power to make
people follow. Without the commitment of substantial time and effort from executive-level management,
most BPR projects cannot overcome the internal forces against them and will never reach
implementation.
A process owner is responsible for a specific process and the reengineering effort focused on it. There
should be a process owner for each high-level process being reengineered. Allocating the responsibility of
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a process to a specific person ensures that someone is in charge of how that process performs. Process
owners are usually appointed by the executive leader.
The process owner convenes a reengineering team to actually reengineer his or her process. The team
dedicated to the reengineering of a specific process should be made up of current insiders, who perform
the current process and are aware of its strengths and weaknesses, along with outsiders who can provide
objective input to spark creative ideas for redesign. The team should be small, usually five to ten people.
Since they will be the ones who diagnose the existing process, and oversee the redesign and
implementation, they should be credible in their respective areas. This qualification plays an important
role in reducing the resistance by company personnel to the new process.
In some BPR initiatives it is helpful to institute a steering committee. Especially in larger or multiple
reengineering projects, a steering committee can control the chaos by developing an overall reengineering
strategy and monitoring its progress.
Lastly, a reengineering specialist can be an invaluable addition to the overall effort. A reengineering
specialist can assist each of the reengineering teams by providing tools, techniques, and methods to help
them with their reengineering tasks.

Phase 3: Identify BPR Opportunities

Activities:
Identify the core/high-level processes
- Recognize potential change enablers
- Gather performance metrics within industry
- Gather performance metrics outside industry
- Select processes that should be reengineered
- Prioritize selected processes
- Evaluate pre-existing business strategies
- Consult with customers for their desires
- Determine customer's actual needs
- Formulate new process performance objectives
- Establish key process characteristics
- Identify potential barriers to implementation
In this phase, we begin to break away from normal patterns of identifying business opportunities. We start
by dividing the entire organization into high-level processes rather than the usual vertical business areas
such as marketing, production, finance, etc. These processes, usually less than a dozen, are the major or
core processes of the organization. This activity is not a time consuming task, but it is difficult because it
requires a shift in how we think of ourselves. One goal here is to identify the process boundaries (where
the process begins and where it ends), which will help set the project scope for those processes that are to
be reengineered.
In many cases, seeing the company from the customer’s point of view can help identify what these high-
level processes might be. For example, when Texas Instruments outlined their major processes for their
semiconductor business, they came up with only six processes as follows: Strategy Development, Product
Development, Customer Design and Support, Order Fulfillment, Manufacturing Capability Development,
and Customer Communications. Each of these processes converts inputs into outputs.
At this point, it is helpful to begin thinking about potential change levers which may lead to dramatic
changes in the organization’s processes. Change levers usually will fall under one of three categories: the
use of information, the use of information technology, and human factors. What new information is
available and easily accessible to the organization? What new technologies have recently been introduced,
or are on the horizon, that can change how businesses and customers interact? What new ways of
structuring cross-functional work teams, compensation systems, and incentive methods have proven to be
effective in improving operations within other organizations? In many instances, a modification in one of
these areas requires changes in the other two areas to be the most effective.
Once the major processes have been defined, we need to decide which of our high-level processes needs
to be reengineered. The most objective and accurate way is to compare the performance of our high-level
25
processes, identified earlier, with the performance of our competitors as well as organizations outside of
our industry. Even if we outperform our direct competition, there may be companies in other industries
which may be much more effective in performing a similar task -- such as order fulfillment or product
development. If we fulfill orders in six months,
Phase 4: Understand the Existing Process
Activities:
- Understand why the current steps are performed
- Model the current process
- Understand how technology is currently used
- Understand how information is currently used
- Understand the current organizational structure
- Compare current process with the new objectives

Now that we know which process to reengineer, we need to take a look at why we currently perform the
process the way we do. Understand is a key word here. We may not need to scrutinize every detail of how
we are performing the process -- this effort has the potential to go on indefinitely, sometimes referred to
as analysis paralysis, which can weaken the momentum needed to carry the project all the way to
implementation. What we need to do is understand the underlying reasons why the existing process is
carried out the way it is, so that we can question those assumptions during our reengineering sessions later
on. When we have the new process objectives clearly defined (in Phase 3), we can measure our existing
process in terms of the new objectives to see where we are and how far we have to go.

Modeling the current process is an important part of this phase. It not only helps us to better understand
the existing process, but also helps with planning the migration from the old to the new process and
executing the physical transformation of personnel, organizational structures, information requirements,
and how technology is used. Information that should be included in the models are process inputs (such as
task times, data requirements, resources, demand, etc.) and process outputs (such as data outputs, cost,
throughput, cycle time, bottlenecks, etc.).
Understanding how and why the current processes use information is also important. Do staff members
have access to essential information? Are some business areas wasting time and effort by creating
duplicate information when it can be shared across organizational boundaries? Why is technology used to
support some tasks and not others? How effective are the current interfaces? Are they easy to use, or are
they counter-intuitive and thus inhibit the effectiveness of current tasks? In what way does the existing
process take advantage of technology, and in what way has technology imposed artificial restrictions? We
need to end up with an estimate of the current cost, robustness, and functional value of each technology
and information systems currently being used.

Phase 5: Reengineer the Process

Activities:
- Ensure the diversity of the reengineering team
- Question current operating assumptions
- Brainstorm using change levers
- Brainstorm using BPR principles
- Evaluate the impact of new technologies
- Consider the perspectives of stakeholders
- Use customer value as the focal point

During this phase, the actual "reengineering" begins. We’ve moved from strategy and analysis phases into
the redesign phase. The Reengineering Team that was formed to take
part in the reengineering sessions should consist of designers and implementers, including people well
versed in technology. These team members should come from both inside and outside the existing
process.
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The "inside" perspective may reveal information about the existing process that was not uncovered in
Phase 4. Having people who will be the future process owners, or those responsible for the new process,
is a critical component of the Team. Including the future owners will help to ensure that the reengineered
process succeeds once it is implemented.

Equally important is the "outside" perspective of someone who will look at the process with a "fresh eye"
and raise questions about operating assumptions that may not be obvious to the insider who might be too
close to the process to see this.
Lastly, a technologist will provide insight as to how technology can be applied in new and innovative
ways. In other words, the technologist will help to visualize how the process can be performed outside the
boundaries of the current implementation. Including both outsiders and technologists on the team will
help spark "out-of-box" thinking (thinking creatively above and beyond the current restrictions - the walls
of the box).
Having developed a good understanding of how the existing processes work in the previous phase, it is
now necessary to question the operating assumptions underlying the processes. Is there some (outdated)
historical reason why a process has been performed a certain way? Are there customer requirements that
dictate the steps in a process? Many times the operating assumptions can be thrown out and new ones
developed. However, it is important to evaluate the impact the assumptions have outside the process in
question.
The Reengineering Team is now tasked with brainstorming to create new process ideas. According to
Hammer, brainstorming sessions are most successful when BPR principles are considered.

Phase 6: Blueprint the New Business System

Activities:
- Define the new flow of work
- Model the new process steps
- Model the new information requirements
- Document the new organizational structure
- Describe the new technology specifications
- Record the new personnel management systems
- Describe the new values and culture required

Blueprints are detailed plans required to build something in accordance with the designer’s intentions. In
BPR, blueprints must be created to identify all the necessary details of the newly reengineered business
system and ensure it will be built as intended. This phase of the project takes the reengineered process
developed in the previous phase, and provides the details necessary to actually implement it.
Blueprinting involves modeling the new process flow and the information required to support it. Just as
we modeled the "as is" process and information requirements in Phase 4, we need to create "to be" models
to illustrate how the workflow will be different. The information models, or data models, will indicate
where the new process will use information that is shared across functional areas of the business.
The blueprints should also contain models of the redesigned organizational structure. Instead of the
traditional organization chart, a different kind of chart is needed. This chart will show the new process
flow along with the process team members, the process owners, the case managers, the process
facilitators. The chart should also indicate parts of the organization which interact with the process
personnel.
In addition, detailed technology specifications required to support the new process should be defined.
Although minor changes, or fine tuning adjustments to the technical configuration will probably occur
during the implementation phase, an initial physical description of the technologies used and their
physical specifications should be recommended inthis phase, to set the stage for rapid application
development.
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Included in the blueprints should be the new management systems and values or belief systems of this
redesigned area of the business. New management strategies, along with new performance measurements,
compensation systems, and rewards programs should be outlined. The reengineered process may require a
change in the values or belief systems of the company. The redesign may require an entirely different
culture, or atmosphere, than what is prevalent in the organization today. It is critical to have these areas,
and their responsibilities, defined as we go into the implementation phase.

Phase 7: Perform the Transformation

Activities:
- Develop a migration strategy
- Create a migration action plan
- Develop metrics for measuring performance during implementation
- Involve the impacted staff
- Implement in an iterative fashion
- Establish the new organizational structures
- Assess current skills and capabilities of workforce
- Map new tasks and skill requirements to staff
- Re-allocate workforce
- Develop a training curriculum
- Educate staff about the new process
- Educate the staff about new technology used
- Educate management on facilitation skills
- Decide how new technologies will be introduced
- Transition to the new technologies
- Incorporate process improvement mechanisms

Now we are ready to transform the organization. We have communicated, strategized, analyzed,
reengineered, and blueprinted our ideas for the new process. This is where all of the previous efforts are
combined into an actual business system -- something we can see and feel and use to enable our
organization to meet the market demands of today and tomorrow.
The first step in transforming the organization is to develop a plan for migrating to the new process. We
need a path to get from where the organization is today, to where the organization wants to be. Migration
strategies include: a full cutover to the new process, a phased approach, a pilot project, or creating an
entirely new business unit. An important point to consider is the integration of the new process with other
processes. If only one process is reengineered, then it must interact with the other existing processes. If
multiple processes are slated for reengineering, then the new process must not only integrate with existing
processes, but also with the newly reengineered processes that will come on line in the near future;
therefore, the implementation of the new process must be flexible enough to be easily modified later on.
Successful transformation depends on consciously managing behavioral as well as structural change, with
both sensitivity to employee attitudes and perceptions, and a tough minded concern for results. BPR
Implementation requires the reorganization, retraining, and retooling of business systems to support the
reengineered process.
The new process will probably require a new organization, different in structure, skills, and culture. The
new management structure should result in the control paradigm being changed to the facilitation
paradigm. The new process team structure should result in the managed paradigm being changed to the
empowered paradigm. Once the new structures are established, we should map tasks in the process to
functional skill levels, and ultimately to workers.
Transforming the workforce will require an array of activities. It begins with an assessment of the current
skills or capabilities of the workforce to include soft skills, operational skills, and technical skills. This
inventory may require personal evaluations (including areas of interest), peer evaluations, and supervisor
evaluations. Feedback should be provided to all personnel to ensure accuracy of current skills and
interests for all staff. Armed with the new process skill requirements and a current skills inventory, the
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gaps can be assessed. Is the new process feasible with the current skill set? Which are the areas to focus
on to enhance personnel skills to meet the requirements of the new process? An education curriculum
needs to be established to get all employees educated on the business and, most important, on how their
jobs relate to the customer.

Need of BPR

Why do BPR?

·        Defines set of standards and benchmarks for stakeholders to follow

·        Drives out efficiency savings in the business
·        Promotes a higher return on investment on existing IT initiatives
·        Satisfies regulatory and/or risk pressures

Which areas require business processes defined?

·        Parts of business where ownership is confused

·        Processes that require large numbers of collaborators
·        Process that have a high expectation
·        Process to mitigate key risks
·        There is dependency on 3rd parties
·        There are legal or regulatory obligations

Productivity and Production Management

Production is the process of creating, growing, manufacturing, or improving goods and services. It also
refers to the quantity produced.

In economics, productivity is used to measure the efficiency or rate of production. It is the amount of
output (e.g. number of goods produced) per unit of input (e.g. labor, equipment, and capital).

In biology, productivity is a measure of the efficiency with which a biological system converts energy
into growth

By Ismael D. Tabije

In economics, productivity is the amount of output created (in terms of goods produced or services
rendered) per unit input used. For instance, labor productivity is typically measured as output per worker
or output per labor-hour. 

Production, however, is the act of making things; in particular the act of making products that will
be traded or sold commercially. Production decisions concentrate on what goods to produce, how to
produce them, the costs of producing them, and optimizing the mix of resource inputs used in their
production. 

Productivity and production management is the art of conducting and directing, through the
application of frameworks and techniques, all aspects and operations of developing, creating, and
innovating products. 

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 Productivity and production management's ultimate goal is the efficient consumption and allocation
of resource inputs to maximize the quality and quantity of goods produced or services rendered. 

To improve productivity and production management, organizations should use forecasts on

demand to preordain production plans. Through it, miscalculations could be sidestepped. Businesses that
produce to order would be able to supervise the backlog of unfilled orders, while those that produce to
stock would be enabled to observe and control the level of inventory. Forecasting capabilities could be
enhanced by way of incorporating excellent information technology. 

Another tool for enhancement is standardization—a necessary foundation on which innovations can
be focused. Standardizing methods can be implemented by prognosticating revolution on product and on
process. These involve methodologies such as process reengineering and major product redesign, both
requiring process automation. Some enterprises choose to do small upgrading at a time to minimize the
cost of these processes. 

Another way to improve productivity and production management is keeping managers vigilant of
the factors that constitute problems regarding quality, cost and time in the production area. The most
popular approaches are lean manufacturing and workplace improvement. Both approaches encourage
worker and management collaboration emanating mutual respect; and straightforward and transparent
improvement methodologies. 

Lean marketing is the methodical extermination of wastes that are the root of productivity and
production incompetence and slow advancements. These wastes may include: overproduction; inaccurate
inventory; slow-paced transportation; product defects; and unnecessary processes.

Workplace improvement involves activities such as developing good relationships circling around
the workers, management, suppliers and consumers; acquiring proper and state-of-the-art technology;
empowering workers to make improvements; improving production scheduling, quality assurance,
inventory, manufacturing methods and efficiency control; and conserving materials, energy and time. 

To gain productivity and production management advantage, the aforementioned can be

organizationally applied. If not, researching on ways on developing this field could be conducted. One
point is vital: total restructuring of productivity and production ways is harder than maintaining good and
tested practices. 

Productivity of an organization is defined as the ratio of outputs produced by the organization and the
resources consumed in the process. Thus we can describe productivity mathematically as:
Productivity = Output / Inputs
Here the output refers to the quantity of and services produced by the company, and inputs refers to the
quantities of resources such as labor, material, physical facilities, and energy consumed for producing the
same.
Production is the total output produced by an organization in a given period. These outputs consist of the
goods and services that are supplied by a company to its customers.
Productivity is concerned with the inputs used in the process. Thus productivity represents only the
numerator in the above equation for productivity.

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Productivity is used to assess the extent to which certain outputs can be extracted from a given input. We
can measure productivity for a single input resource such as manpower used, or for multiple resources.
There can be many different types of productivity measurement depending on the type of resources
considered. Some of the most common types of productivity measurements include labor productivity,
machine or capital productivity, material productivity, and land productivity. Here the term ‘land’ is used
to denote all natural resources rather than just land.
Managers also need to pay attention to the total production to make sure that a company is meeting the
requirements of products and services required by the customers.
Managers also need to pay attention to production for production planning and scheduling.
Similarly, long term planning of sales volumes and production capacities also requires focusing on
production.
Any  manufacturing  unit would have a production facility where good are produced .Production 
comprises of man , machine and material .Proper allocation of jobs , layout and  material results in 
cost efficient production .

What is productivity

Productivity measures the efficiency with which resources such as labour or capital are
employed in the production process. There are two widely used productivity measures; labour
productivity  and multifactor productivity.

Labour  productivity is measured as real output per hour worked. Multifactor productivity, a 
broader measure of efficiency, is measured as real output per unit of combined inputs (capital, 
labour, etc).In essence, this is the efficiency of all or your factors of production.

A business wishing to improve its profitability must undertake certain steps that can guarantee to 
provide the desired results. One of the things that the management staff must give important 
notice is the production and productivity of the business as a whole. As has been known, to 
increase the profitability of an enterprise, certain things must be improved in the workplace. To 
increase productivity is one of these.

Activity can be identified with production and consumption. Production is a process of combining 
various immaterial and material inputs of production so as to produce tools for consumption. The 
methods of combining the inputs of production in the process of making output are called 
technology. Technology can be depicted mathematically by the production function which 
describes the function between input and output. The production function depicts production 
performance and productivity is the metric for it. Measures may be applied with, for example, 
different technology to improve productivity and to raise production output.

Location:

Companies now days are shifting base to lower cost  of  production which  make sense .
production base in cities or metros have become  non viable as cost  of living  , cost of raw  material
,overhead cost  and tranportation  cost have  gone above the roof . Companies are  moving to low cost
areas  like CHINA , INDIA , UKRAINE ,IRELAND , VIETNAM  ETC .locally  companies have shut
operation  in DELHI , MUMBAI , CHENNAI , KOLKATA   and moved  to areas  like UTTARAKAND ,

31
JHARKHAND , JAIPUR , BADI , etc .

WORK STANDARDS
All standards for operations  should be displayed at working stations  in local language s with
do's and don'ts.

Autonomous  Maintenance

Operators to be trained to do regular maintenance instead of waiting for maintenance personnel to 
come and attend these breakdowns .Preventive maintenance to be  scheduled  for better  performance of
Machines.

Manpower Allocation Per Machine

It has to be ensured that  the manpower deputed per machine should be adequate and is not  low or
high .

Tools
Necessary tools to be placed near work stations

Work And Time Study

Measure the time taken by a worker to complete a job with some industry standards and in case 
execessive labour is employed then the additional one can be relocated .

Reduce Loss Of Time During Shift Change Overs

production boards at each work stations

Labour  Productivity

Handling

The handling of  product and raw material shoudl be reduced to minimum by either putting
of conveyors or automatic transfer to the machine .

Movement

To have  minimum movement  of manpower for getting material , tools and shifting .

Rework

To have zero defective  and rework  as it is nothing but pure waste . The first step towards 
elimination  is to adopt standards like ISO -9000 & GMP or in house  standards.

Physical Stress

Study the positions of worker  while working  and eliminate those position  were  worker feel 
uncomfortable or experience  stress while working .This would   help  in better prod

FACTORS AFFECTING PRODUCTIVITY

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 Productivity is a technique of extracting greater output from the inherent input creativity of
various resources through the conversion efficiency. The conversion efficiency which changes the level of
productivity is largely affected by numerous factors. All these factors affect the level of productivity
either individuality or jointly. Some important are classified as under:

1) Technological;
2) Managerial;
3) Financial
4) Natural
5) Sociological, and
6) Government

Technological factors: The technological advancement always strives to achieve the increased of
production with minimum of costs and efforts, which always result into increased productivity e.g.
application of mechanized power, automation etc

Managerial factors: Progressive and imaginative managerial skill always taps greater output of the
human and nonhuman resources.
Good organizational relationships: Delegation of authority, true recognition of human factor, imaginative
judgment results into increased productivity and contented labor force.

Financial factors: The availability of financial resources enables the organization to spend moneys for
the research and development, employment of professional executives, adaptation of latest technology,
provision of amenities, effective stock piling and material control. All these factors directly affect the
level; of the productivity. The low level of productivity and poor industrial growth of the underdeveloped
countries is due to poor capital formation and constraints on the financial resources.

Natural factors: The natural resources like geographical physical and climatic conditions directly affect
the level of the productivity. The effect of these factors is confined to certain type of industries and the
possibility of bringing them within the control e.g. humidification in textile industry quality thickness ad
depth of the mineral resources; climate effect on the labor efficiency etc.

Sociology factors: The generic characteristics, racial quality etc has a great impact on the productivity of
the labor. The productivity is also affected by the attitude of the workers towards the work and the
approach of the management towards the working force and the provision of working conditions.

Government Policy: The Government policy regarding financial incentives taxation policy, tariff policy,
industrial licensing labor laws etc also affects the productivity e.g. provision of concessional loans for
modernization tax incentives for the expenditures on research and development etc help in increasing the
level of productivity.

Productivity Movement in India:

Productivity in industrial under takings has assumed greater importance in recent years, especially due to
increased national and international competition and limitation of resources. It encourages efficient
utilization of scarce resources.

After independence Government of India intended to increase productivity consciousness in the country.
So in 1952 and 1954 it invited the team of experts of International Labor Organization (ILO) with a view
33
to establishing Productivity Center in the country. In 1957 Government of India appointed a Committee
on Productivity under the Chairmanship of DR Vikram Sarabhai. It visited Japan to study the constitution,
administration and working of Productivity Center of Japan. The Committee submitted its report in March
1957. On the basis of the recommendations of the Committee, the National Productivity Council (NPC)
was established in India in February 1958. NPC is registered as an independent autonomous body under
the Societies Registration Act, 1860.

The main objects of the NPC are:

1) To promote productivity consciousness in all sectors of national economy

2) To disseminate the knowledge of the concepts n techniques of productivity and demonstrates their
values and validity in the practical application.

NPC is an autonomous national body having 75 members representing various groups as under:

a) Central Government (12 members)

b) Representatives of employers (12 members)
c) Representatives of employees (12 members)
d) Representatives of Local Productivity councils (12 members)
e) Representatives of several national, professionals and technical organizations

The administration of the NPC is done by the Governing Body. The Governing Body is elected from
among the members of the NPC with 25 members. It is represented by five members each of Central
Government, employers and employees plus representatives of local Productivity Councils. It is a policy
making body and meets once in a quarter.

UNIT-III

ORGANIZATIONAL BEHAVIOUR

IMPORTANCE OF ORGANISATIONAL BEHAVIOUR

Organisational behaviour offers several ideas to management as to how human factor should be properly
emphasised to achieve organisational objectives. Barnard has observed that an organisation is a conscious
interaction of two or more people. This suggests that since an organisation is Ihe interaction of persons,
they should be given adequate importance in managing the organisation. Organisational behaviour
provides opportunity to management to analyse human behaviour and prescribe means for shaping it to a
particular direction.

Understanding Human Behaviour Organisational behaviour provides understanding the human behaviour
in all directions in which the human beings interact. Thus, organisational behaviour can be understood at
the individual level, interpersonal level, group level and inter-group level.

34
Organisational behaviour helps to analyse 'why' and 'how' an individual behaves in a particular way.
Human behaviour is a complex phenomenon and is affected by a large number of factors including the
psychological, social and cultural implications. Organisational behaviour integrates these factors to
provide* simplicity in understanding the human behaviour.

 Interpersonal Level: Human behaviour can be understood at the level of interpersonal

interaction. Organisational behaviour provides • means for understanding the interpersonal
relationships in an organisation. Analysis of reciprocal relationships, role analysis and
transactional analysis are some of the common methods, which provide such understanding.

 Group Level: Though people interpret anything at their individual level, they are often modified
by group pressures, which then become a force in shaping human behaviour, Thus, individuals
should be studied in groups also.. Research in group dynamics has contributed vitally to
organisational behaviour and shows how a group behaves in its norms, cohesion, goals,
procedures, communication pattern and leadership. These research results are advancing
managerial knowledge of understanding group behaviour, which is very important for
organisational morale and productivity.

 Inter-group Level: The organisation is made up of many groups that develop complex
relationships to build their process and substance. Understanding the effect of group relationships
is important for managers in today's organisation. Inter-group relationship may be in the form of
co-operation or competition.

The co-operative relationships help the organisation in achieving its objectives. Organisational behaviour
provides means to understand and achieve co-operative group relationships through interaction, rotation
of members among groups, avoidance of win-lose situation and focussing on total group objectives.

 Controlling and Directing Behaviour: After understanding the mechanism of human behaviour,
managers are required to control and direct the behaviour so that it conforms to the standards
required for achieving the organisational objectives. Thus, managers are required to control and
direct the behaviour at all levels of individual interaction. Therefore, organisational behaviour
helps managers in controlling and directing in different areas such as use of power and sanction,
leadership, communication and building organisational climate favourable for better interaction.

 Use of Power and Sanction: The behaviours can be controlled and directed by the use of power
and sanction, which are formally defined by the organisation. Power is referred to as the capacity
of an individual to take certain action and may be utilised in many ways. Organisational behaviour
explains how various means of power and sanction can ,be utilised so that both organisational and
individual objectives are achieved simultaneously.

 Leadership: Organisational behaviour brings new insights and understanding to the practice and
theory of leadership. It identifies various leadership styles available to a manager and analyses
which style is more appropriate in a given situation. Thus, managers can adopt styles keeping in
view the various dimensions of organisations, individuals and situations.

 Communication: Communication helps people to come in contact with each other. To achieve
organisational objectives, the communication must be effective. The communication process and
its work in inter-personal dynamics have been evaluated by organisational behaviour.
35
  Organisational Climate: Organisational climate refers to the total organisational situations
affecting human behaviour. Organisational climate takes a system perspective that affect human
behaviour. Besides improving the satisfactory working conditions and adequate compensation,
organisational climate includes creation of an atmosphere of effective supervision; the opportunity
for the realisation of personal goals, congenial relations with others at the work place and a sense
of accomplishment.

 Organisational Adaptation: Organisations, as dynamic entities are characterised by pervasive

changes. Organisations have to adapt themselves to the environmental changes by making
suitable, internal arrangements such as convincing employees who normally have the tendency of
resisting any changes.

THE MAIN ROLES OF A LEADER:

1. Required at all levels- Leadership is a function which is important at all levels of

management. In the top level, it is important for getting co-operation in formulation of plans and
policies. In the middle and lower level, it is required for interpretation and execution of plans and
programmes framed by the top management. Leadership can be exercised through guidance and
counseling of the subordinates at the time of execution of plans.
2. Representative of the organization- A leader, i.e., a manager is said to be the
representative of the enterprise. He has to represent the concern at seminars, conferences, general
meetings, etc. His role is to communicate the rationale of the enterprise to outside public. He is
also representative of the own department which he leads.

3. Integrates and reconciles the personal goals with organizational goals- A leader through
leadership traits helps in reconciling/ integrating the personal goals of the employees with the
organizational goals. He is trying to co-ordinate the efforts of people towards a common purpose
and thereby achieves objectives. This can be done only if he can influence and get willing co-
operation and urge to accomplish the objectives.
4. He solicits support- A leader is a manager and besides that he is a person who entertains and
invites support and co- operation of subordinates. This he can do by his personality, intelligence,
maturity and experience which can provide him positive result. In this regard, a leader has to
invite suggestions and if possible implement them into plans and programmes of enterprise. This
way, he can solicit full support of employees which results in willingness to work and thereby
effectiveness in running of a concern.
5. As a friend, philosopher and guide- A leader must possess the three dimensional traits in him.
He can be a friend by sharing the feelings, opinions and desires with the employees. He can be a
philosopher by utilizing his intelligence and experience and thereby guiding the employees as and
when time requires. He can be a guide by supervising and communicating the employees the plans
and policies of top management and secure their co-operation to achieve the goals of a concern. At
times he can also play the role of a counselor by counseling and a problem-solving approach. He
can listen to the problems of the employees and try to solve them.

THE ROLE OF LEADERSHIP IN AN ORGANIZATION

36
 1. Set the Example: Practice my values and the values of the organization, have a positive attitude
and create a climate of integrity.
2. Communicate: Plan my communications, listen well and select the best medium for
communicating.
3. Provide Clarity: Give clear, well understood instructions and be unambiguous in my vision and
goals for the group.
4. Take Action: Create a sense of urgency, accomplish tasks that move the group forward and take
accountability.
5. Measure: Know what metrics drive performance, quantify my group's performance and use
metrics to understand and improve.
6. Simplify: Sort through the complexity of situations, remove obstacles and focus on the critical
issues. Reduce churn.
7. Manage Risk: Consider what is around the corner, build risk management into all my groups'
activities.
8. Reward Success: Reward the efforts and successes of my people, acknowledge positives and
don't just manage the negatives.
9. Develop Leaders: Support my people to be successful, challenge and trust my people. Take all
opportunities to teach.
10. Create Ownership: Generate commitment from the group, help my people understand "Why"
and let them participate in the planning of tasks.
11. Deliver Results: Lead for results and continuous improvement (performance matters).
12. Think: Make time to think and reflect. Understand the situation beyond my perspective.

PERSONALITY

personality : an individual’s unique pattern of thoughts, feelings & behaviors that persist over time and
across situations
– unique differences
– stable & enduring

Personality Types

You will undoubtedly encounter many different types of personalities in the work place, each with their
own unique blend of nuances. But there are four basic types of personalities from which they are based,
which is commonly referred to as A, B, C, and D. Although volumes have been written on such
personality traits, here is a synopsis:

Type "A" Personality - Is a highly independent and driven personality, typically representing the leaders
in business. They are blunt, competitive, no-nonsense types who like to get to the point. They are also
strong entrepreneurial spirits (risk takers). As such, they embrace change and are always looking for
practical solutions for solving problems.

Type "B" Personality - Represents highly extroverted people who love the spotlight. Because of this,
they are very entertaining and possess strong charisma (everyone likes to be around them). Small wonder
these people are sales and marketing types. They thrive on entertaining people and are easily hurt if they
37
cannot sway someone (such as "bombing" on stage).

Type "C" Personality - The antithesis of Type "B"; they are introverted detailists as represented by such
people as accountants, programmers, and engineers. They may have trouble communicating to other
people, but are a whirlwind when it comes to crunching numbers or writing program code. They tend to
be very cautious and reserved, and will not venture into something until after all the facts have been
checked out.

Type "D" Personality - Is best characterized as those people who resist any form of change and prefer
the tedium of routine, such as in clerical assignments. They are not adventurous, resist responsibility and
prefer to be told what to do.

It is not uncommon to find people with a blend of personalities, particularly A-B and C-D. But these basic
personality types explain why some people work well together and others do not. For example Type-A
clashes with Type-D simply because one is more adventurous than the other, and Type-B clashes with
Type-C as one exhibits an extroverted personality and the other is introverted. Conversely Type-A works
well with Type-B, and Type-C works well with Type-D. 

DETERMINANTS OF PERSONALITY

Biological Factors

Heredity:

• It refers to physical stature, facial attractiveness, sex, temperament, muscle composition  and reflexes,
energy level, and biological rhythms are characteristics that are  considered to be inherent. 
• It plays an important part in determining an individual's personality. 
• Heredity approach argues that the ultimate explanation of an individual's personality  is the molecular
structures of the genes, which are located in the chromosomes. 
• Recent research studies shows that young children lend strong support to the power  of heredity and
finding shows that some personality traits may be built into the same genetic code that affects factors like
height and hair color. 

Brain:

• Brain is the second biological approach to determine personality. 

• It plays an important role in determining personality. 
• Electrical Stimulation of the Brain (ESB) and Split brain psychology results indicates 
that a better understanding of human personality and behavior might come from a  closer study of the
brain. 
• The definite areas of the human brain are associated with pain and pleasure. Research 
study shows that these things are true. 

Biofeedback:

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• It is third biological approach to determine personality. 
• Physiologists and psychologists felt that biological functions like brainwave  patterns, gastric and
hormonal secretions, and fluctuations in blood pressure and  skin temperature were beyond conscious
control. Recent research shows that these  functions can be consciously controlled through biofeedback
techniques. 
• For this purpose, individual can learns the internal rhythms of a particular body  process through
electronic signals that are feedback from equipment which is wired  to body. 
• In this process, the person can learn to control the body process through questions. 
• It is one of the interesting topics to do future research work in personality. 

Physical Features:

• It is third biological approach to determine personality. 

• It is vital ingredient of the personality, it focus an individual person's external appearance which also
determined the personality. 
• Physical features like tall or short, fat or skinny, black or white. These physical features will be
influenced the personal effect on others and also affect self concept of individual. 
• Recent research studies shows that definitely this features influence to individual personality in an
organization.  In totally, heredity would be fixed at birth and no amount of experience can be
altering them through creation of suitable environment. Apart from this, personality characteristics are not
completely dictated by heredity. There are other factors also influenced to determining personality.

Cultural Factors

"Each culture expects, and trains, its members to behave in ways that are acceptable to the group. To a
marked degree, the child's cultural group defines the range of experiences and situations he is likely to
encounter and the values and personality characteristics that will reinforce and hence learned". -Paul H
Mussen 
• Cultural factors are also major factors which influence to determine individual 
personality. 
• It refers to traditional practice, customs, procedure, norms and rules and regulation 
followed by the society. 
• It significantly influence to individual behavior compare to biological factors. 
• Cultural factors determine attitudes towards independence, aggression, competition,  cooperation,
positive thinking, team spirit, and a host of the human being and  discharge his/her duties towards
valuable responsibilities to society. 
• Western culture influence to Indian society. It is best example of the cultural factors  also determine the
personality. 

Family Factors

• Family factors are also major factors which influence to determine individual  personality. 
• Family consists of husband and wife and their children's. 
• Family role is very important for nurturing and personality development of their 
children. 
• Family will be guided, supervised, take care of all family members, cooperation,  Organizational
Behavior  coordination and cooperation in work and also explained the role and responsibilities  towards
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the family, society and real life. 
• Family either directly or indirectly influence to person for development of individual 
personality. 

Social Factors

• Social factors are also major factors which influence to determine individual 
personality. 
• It involves the reorganization of individual's in an organization or society. 
• It refers to acquiring of wide range of personality by acquiring and absorbed by  themselves in the
society or an organization. 
• Socialization process is starting from home and extending to work environment in  an organization or
society. 
• It focuses on good relationships, cooperation, coordination and interaction among  the members in the
society or an organization or a family.  In totally, environment factors consist of cultural factors, family
factors, and social  factors. 

Situational Factors

• Situational factors also influence to determine of personality. 

• Situational factors are very important to change the individual behavior in a  different circumstance at
different situations, it also influence to personality of  individual person. 
• In general term, personality is stable and consistent and it does change in different  situations. 

The Interaction of Personality and Situational Factors are outlined: 

• Strong situational pressures 
• Personality may not predict behavior 
• Example: enforcement of rules 
• Weak Situational pressures 
• Personality may predict behavior 
• Example: Customer sales representative 
• A strong situation can overwhelm the effects of individual personalities by providing  strong cues for
appropriate behavior.

PERCEPTION

Perception is the process of selecting, organizing and interpreting or attaching meaning to the events
happening in the environment.

Robbins has defined perception as follows: “ Perception may be defned as a process by which individuals
organisw and interpret their sensory impressions inorder to give meaning to their environment”.

Perceptual Process:

Perception is a process consisting of several sub-processes.

Perceptual inputs
Stimuli 40
 Perceptual throughputs
Receivingselectingorganizinginterpreting

Perceptual outputs
Actions

The stimuli in the environment – subjects, events, or people can be considered as the perceptual
inputs. The actual transformation of these inputs through the perceptual mechanisms of selection,
organization and interpretation can be treated as the throughputs and the resultant opinion, feeling,
attitudes etc which ultimately influence our behaviour can be viewed as the perceptual outputs.

Perceptual mechanism:

Perceptual mechanism involves 3 elements – selection of stimuli, organization of stimuli and

interpretation of stimuli.

I. Selection of stimuli:

After receiving the stimuli from the environment, some are selected for further processing while others
are screened out because it is not possible for a person to select all stimuli which he sees in the
environment. These are external and related to stimuli and internal related to the perceiver.

II. Organization of stimuli:

After the stimuli are received, these are organized in some form in order to make sense out of that. The
various forms of organizing stimuli are figure-ground, perceptual grouping, simplification and closure.

a. Figure ground: this involves that in perceiving stimuli (or) phenomena, the tendency is to keep
certain phenomena in focus and other phenomena are in background.

More attention is paid to phenomena which have been kept as figure and less attention to
phenomena kept in background. For eg: while reading a book, the letters printed are treated as
figure while the page on which the letters have been printed is taken as ground.

b. Grouping: The grouping principle of perceptual organization states that there is a tendency to
group several stimuli into recognizable pattern. People generally group various stimuli on the
basis of proximity and similarity.

(i) Proximity: The proximity (or) nearness principle of grouping states that a group of stimuli that
are close together will be perceived as a whole of parts or pattern of parts belonging together
For example: all employees working in a particular department may be grouped together
because of physical proximity and are perceived as such.

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 (ii) Similarity: The principle of similarity states that the greater is the tendency to perceive them as
a common group. While proximity principle is based on the similar features of various stimuli
irrespective of nearness.

c. Simplification: Whenever people are overloaded with information, they try to simplify it to make
it more meaningful and understandable. Simplification makes the things more understandable because
the perceiver has been able to reduce the complexity by eliminating some of the things which are less
important.

d. Closure: When faced with incomplete information , people fill up the gaps themselves to make the
information meaningful. This may be done on the basis of past experience past data (or) hunches.

III. Interpretation of stimuli:

The perceptual inputs that have been organized will have to be interpreted by the perceiver so that he can
sense and extract some meaning of what is going on in the situation. People interpret the meaning of what
they have selectively perceived and organized in terms of their own assumptions of people, things and
situations. They also become judgemental as well and tend to interpret the things as good or bad, beautiful
or ugly and so on which are quite relative terms.

IV. Perceptual outputs:

Based on perceptual mechanism which ends with interpretation of stimuli, perceptual output emerge.
These outputs may be in the form of covert action like development of attitudes, opinions, beliefs,
impression about the stimuli under consideration. These outputs along with other factors may result in
overt behavior.

MOTIVATION

Definition:

Motivation is defined as the process that initiates, guides and maintains goal-oriented behaviors.
Motivation is what causes us to act, whether it is getting a glass of water to reduce thirst or reading a book
to gain knowledge.

Motivation concepts

Intrinsic and extrinsic motivation

Intrinsic motivation refers to motivation that is driven by an interest or enjoyment in the task itself, and
exists within the individual rather than relying on any external pressure. Intrinsic motivation has been
studied by social and educational psychologists since the early 1970s. Research has found that it is
usually associated with high educational achievement and enjoyment by students evaluation theory.
[clarification needed]
 Students are likely to be intrinsically motivated if they:

 attribute their educational results to factors under their own control (e.g., the effort expended),

42
  believe they can be effective agents in reaching desired goals (i.e. the results are not determined
by luck),

 are interested in mastering a topic, rather than just rote-learning to achieve good grades.

Extrinsic motivation: It  comes from outside of the individual. Common extrinsic motivations are
rewards like money and grades, coercion and threat of punishment. Competition is in general extrinsic
because it encourages the performer to win and beat others, not to enjoy the intrinsic rewards of the
activity. A crowd cheering on the individual and trophies are also extrinsic incentives.

Social psychological research has indicated that extrinsic rewards can lead to over justification and a
subsequent reduction in intrinsic motivation. In one study demonstrating this effect, children who
expected to be (and were) rewarded with a ribbon and a gold star for drawing pictures spent less time
playing with the drawing materials in subsequent observations than children who were assigned to an
unexpected reward condition and to children who received no extrinsic reward Self-determination
theory proposes that extrinsic motivation can be internalised by the individual if the task fits with their
values and beliefs and therefore helps to fulfill their basic psychological needs.

Self-control

The self-control of motivation is increasingly understood as a subset of emotional intelligence; a

person may be highly intelligent according to a more conservative definition (as measured by
many intelligence tests), yet unmotivated to dedicate this intelligence to certain tasks. Yale School of
Management professor Victor Vroom's "expectancy theory" provides an account of when people will
decide whether to exert self control to pursue a particular goal.

Drives and desires can be described as a deficiency or need that activates behavior that is aimed at a goal
or an incentive. These are thought to originate within the individual and may not require external stimuli
to encourage the behavior. Basic drives could be sparked by deficiencies such as hunger, which motivates
a person to seek food; whereas more subtle drives might be the desire for praise and approval, which
motivates a person to behave in a manner pleasing to others.

By contrast, the role of extrinsic rewards and stimuli can be seen in the example of training animals by
giving them treats when they perform a trick correctly. The treat motivates the animals to perform the
trick consistently, even later when the treat is removed from the process.

Characteristics of Motivation

1. Motivation is a psychological Concept :- Motivation should come from inside each individual. There
are two desiring factors in motivation-(a) Fundamental needs, such as food, clothes and shelter and (b)
Ego-satisfaction including self-esteem, recognition from others, opportunities for achievements, self-
development and self actualization which act as powerful though unconscious, motivator of behaviour.
Inner motivation can be more devisor for behaviour than any external influence.

2. The whole Individual is motivated, not part of Him:-A person's basic needs determine to a great extent
what he will try to do at any given time. All these need are inter-related because each individual is an
integrated organized whole.

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3. Motivation is an unending Process:- Man is a social animal. As a social animal he has innumerable
wants which induce him to work. If one basic need is adequately satisfied for a given individual it loses
power as a motivator and does into determine his current behaviour but at the same time other s needs
continue to emerge. Wants are innumerable and cannot be satisfied at on time. It is an unending process
so the process of motivation is also unending to induce the person to satisfy is innumerable wants.

4. Frustration of Basic Needs Makes a Man Sick:- If anybody fails in trying to mt a need which the feels
is essential for him, he becomes to some extent mentally ill and such frustrated man cannot be motivated
any further until his essential need is satisfied.

5. Goals are Motivators:-Goals and motives are inseparable. Man works to achieve the goals. A soon as
the goal is achieved he would be no longer interested in work. Therefore, it is very essential for the
management to know his goal to push him to work.

6. The self-concept as a Unifying Force :- According to Geller-man unifying forces run through each
individual's history. Unifying force means the drive to actual his our image of himself. The outline of a
person's self image are fairly well checked in early childhood and there after do not act inertly change for
example, a child who easily seems himself as a leader, will if possible try to behave tt way in later life.
Thus, two things that individual is always trying to do are (a) to act like the person, he things he is , and
(b) to get what he things, he can.

ATTITUDE

Defintion: An attitude is the psychological response to a person, an object, to a situation, to society and to
life itself that generally influence our behaviors and actions. Attitudes are either positive or negative.

Attitude Formation

In Social Psychology attitudes are defined as positive or negative evaluations of objects of thought.
Attitudes typically have three components.

 The cognitive component is made up of the thoughts and beliefs people hold about the object of
the attitude.
 The affective component consists of the emotional feelings stimulated by the object of the
attitude.
 The behavioral component consists of predispositions to act in certain ways toward an attitude
object.
The object of an attitude can be anything people have opinions about. Therefore, individual people,
groups of people, institutions, products, social trends, consumer products, etc. all can be attitudinal
objects.

 Attitudes involve social judgments. They are either for, or against, pro, or con, positive, or
negative; however, it is possible to be ambivalent about the attitudinal object and have a mix of
positive and negative feelings and thoughts about it.
 Attitudes involve a readiness (or predisposition) to respond; however, for a variety of reasons we
don’t always act on our attitudes.

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  Attitudes vary along dimensions of strength and accessibility. Strong attitudes are very
important to the individual and tend to be durable and have a powerful impact on behavior,
whereas weak attitudes are not very important and have little impact. Accessible attitudes come to
mind quickly, whereas other attitudes may rarely be noticed.
 Attitudes tend to be stable over time, but a number of factors can cause attitudes to change.
 Stereotypes are widely held beliefs that people have certain characteristics because of their
membership in a particular group.
 A prejudice is an arbitrary belief, or feeling, directed toward a group of people or its individual
members. Prejudices can be either positive or negative; however, the term is usually used to refer
to a negative attitude held toward members of a group. Prejudice may lead to discrimination,
which involves behaving differently, usually unfairly, toward the members of a group.

Psychological factors involved in Attitude Formation and Attitude Change

1. Direct Instruction involves being told what attitudes to have by parents, schools, community
organizations, religious doctrine, friends, etc.
2. Operant Conditioning is a simple form of learning. It is based on the “Law of Effect” and
involves voluntary responses. Behaviors (including verbal behaviors and maybe even thoughts) tend to
be repeated if they are reinforced (i.e., followed by a positive experience). Conversely, behaviors tend
to be stopped when they are punished (i.e., followed by an unpleasant experience). Thus, if one
expresses, or acts out an attitude toward some group, and this is reinforced by one’s peers, the attitude
is strengthened and is likely to be expressed again. The reinforcement can be as subtle as a smile or as
obvious as a raise in salary. Operant conditioning is especially involved with the behavioral
component of attitudes.
3. Classical conditioning is another simple form of learning. It involves involuntary responses and is
acquired through the pairing of two stimuli. Two events that repeatedly occur close together in time
become fused and before long the person responds in the same way to both events. Originally studied
by Pavlov, the process requires an unconditioned stimulus (UCS) that produces an involuntary
(reflexive) response (UCR). If a neutral stimulus (NS) is paired, either very dramatically on one
occasion, or repeatedly for several acquisition trials, the neutral stimulus will lead to the same response
elicited by the unconditioned stimulus. At this point the stimulus is no longer neutral and so is
referred to as a conditioned stimulus (CS) and the response has now become a learned response and so
is referred to as a conditioned response (CR). In Pavlov’s research the UCS was meat powder which
led to an UCR of salivation. The NS was a bell. At first the bell elicited no response from the dog, but
eventually the bell alone caused the dog to salivate. Advertisers create positive attitudes towards their
products by presenting attractive models in their ads. In this case the model is the UCS and our
reaction to him, or her, is an automatic positive response. The product is the original NS which
through pairing comes to elicit a positive conditioned response. In a similar fashion, pleasant or
unpleasant experiences with members of a particular group could lead to positive or negative attitudes
toward that group. Classical conditioning is especially involved with the emotional, or affective,
component of attitudes.
4. Social (Observational) Learning is based on modeling. We observe others. If they are getting
reinforced for certain behaviors or the expression of certain attitudes, this serves as vicarious
reinforcement and makes it more likely that we, too, will behave in this manner or express this attitude.
Classical conditioning can also occur vicariously through observation of others.
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 5. Cognitive Dissonance exists when related cognitions, feelings or behaviors are inconsistent or
contradictory. Cognitive dissonance creates an unpleasant state of tension that motivates people to
reduce their dissonance by changing their cognitions, feeling, or behaviors. For example, a person who
starts out with a negative attitude toward marijuana will experience cognitive dissonance if they start
smoking marijuana and find themselves enjoying the experience. The dissonance they experience is
thus likely to motivate them to either change their attitude toward marijuana, or to stop using
marijuana. This process can be conscious, but often occurs without conscious awareness.
6. Unconscious Motivation. Some attitudes are held because they serve some unconscious function
for an individual. For example, a person who is threatened by his homosexual feelings may employ
the defense mechanism of reaction formation and become a crusader against homosexuals. Or,
someone who feels inferior may feel somewhat better by putting down a group other than her own.
Because it is unconscious, the person will not be aware of the unconscious motivation at the time it is
operative, but may become aware of it as some later point in time.
7. Rational Analysis involves the careful weighing of evidence for, and against, a particular attitude.
For example, a person may carefully listen to the presidential debates and read opinions of political
experts in order to decide which candidate to vote for in an election.

VALUE

Definition: A value is an enduring belief that a specific mode of conduct or end-state of existence is
personally or socially preferable to an opposite or converse mode of conduct or end-state of existence.

VALUES

 Values that a person has are one of the major forces shaping behavior.
 Values are convictions and a framework of philosophy of an individual on the basis of which
he judges what is good or bad, desirable or undesirable, ethical or unethical.
 Rokeach has defined values as “Global beliefs that guide actions and judgements across a
variety of situations”.

CHARACTERISTICS OF VALUE

1. Part of culture: Values are elements of culture and culture is the complex of values,
ideas,attitudes and other meaningful symbols to shape human behavior in the society.
2. Learned responses: Human Behaviour represents learned phenomenon. They have to learn
almost everything about how to be human from experience. This is because human beings live in a
society having certain cultural characteristics which prescribe to behave in a particular way.
3. Inculcated: Values are inculcated and are passed through generation to generation by specific
groups and institutions. Such transmission starts from the family from where the socialistion

46
 process starts. Apart from family, educational, religious and ethnic institutions also transmit
cultural values from generation to another.
4. Social phenomenon: Values are a social phenomenon, that is cultural habits are shared by
aggregates of people living in organized society. An individual’s way of thinking and behaving is
not culture, rather group behavior constitutes culture.
5. Grafting responses: Values exist to meet the biological and other needs of the individuals in the
society. Thus, elements in the culture become extinguished when they no longer are gratifying to
members of the society.
6. Adaptive process: Culture is adaptive, either through a dialectical process or evolutionary
process. Dialectical or sharply discontinuous change occurs when the value system of a culture
becomes associated with the gratification of only one group or class in the environment. In such a
case, other classes of the society reject the logic of the value system and replace it with a new
value system, such as through revolution. In the evolutionary process, the change occurs slowly as
a gradual process, but not through revolution.

TYPES OF VALUES
There are two basic types of values namely

( i) Terminal values
(ii) Instrumental values

 Terminal values reflect what a person is ultimately striving to achieve. ( E.g family security, self-
respect).
 Instrumental values reflect the way to achieving goals. ( E.g ) honesty, helpfulness, forgiving
nature.

1. ALLPORT’s CLASSIFICATION:
Allport and his associates have categorized values into six major types as follows:

a. Theoritical: This shows high importance on the discovery of truth through reasoning and
systematic thinking.

b. Economic: Emphasis on usefulness and practicability, including the accumulation of wealth.

c. Aesthetic: places the top most importance on beauty, form and artistic harmony.
d. Social: Accords the highest value in people and human relationship.
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 e. Political: Assigns importance to the acquisition of power and influence.
f. Religious: Have concernwith the unity of experience and understanding of the cosmos as a whole.

2. GRAVE’S CLASSIFICATION
Graves has classified various personal values into five categories. These are:
a. Existentialism: Orientationof behaviour congruent with existing realities.
b. Conformistic: Orientation towards achievement of material beliefs through control over physical
resources.
c. Sociocentric: Orientation with getting people.
d. Tribalastic: Orientation towards safety by submitting to power.
e. Egocentric: Orientation to survival and power.

3. ENGLAND’S CLASSIFICATION
England has classified personal values into two categories:
a. Pragmatic: A pragmatic is one who takes a pragmatic view of the situation which is stereotyped;
he opts for concepts and actions which appear to him as important and successful irrespective of
good or bad.
b. Moralist: A moralist is one who is guided by the ethical considerations of right or wrong, honest
or dishonest.

SMALL AND MEDIUM ENTERPRISES (SMEs) IN INDIA

SMEs IN INDIA

With the advent of planned economy from 1951 and the subsequent industrial policy followed by
Government of India, both planners and Government earmarked a special role for small-scale industries
and medium scale industries in the Indian economy. Due protection was accorded to both sectors, and
particularly for small-scale industries from 1951 to 1991, till the nation adopted a policy of liberalization
and globalization. Certain products were reserved for small-scale units for a long time, though this list of
products is decreasing due to change in industrial policies and climate.

SMEs always represented the model of socio-economic policies of Government of India which
emphasized judicious use of foreign exchange for import of capital goods and inputs; labour intensive
mode of production; employment generation; non-concentration of diffusion of economic power in the
hands of few (as in the case of big houses); discouraging monopolistic practices of production and
marketing; and finally effective contribution to foreign exchange earning of the nation with low import-
intensive operations. It was also coupled with the policy of de-concentration of industrial activities in few
geographical centers.
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It can be observed that by and large, SMEs in India met the expectations of the Government in this
respect. SMEs developed in a manner, which made it possible for them to achieve the following
objectives:

· High contribution to domestic production

· Significant export earnings
· Low investment requirements
· Operational flexibility
· Location wise mobility
· Low intensive imports
· Capacities to develop appropriate indigenous technology
· Import substitution
· Contribution towards defense production
· Technology – oriented industries
· Competitiveness in domestic and export markets
At the same time one has to understand the limitations of SMEs, which are:

· Low Capital base

· Concentration of functions in one / two persons
· Inadequate exposure to international environment
· Inability to face impact of WTO regime
· Inadequate contribution towards R & D
· Lack of professionalism

In spite of these limitations, the SMEs have made significant contribution towards technological
development and exports.

SMEs have been established in almost all-major sectors in the Indian industry such as:

· Food Processing
· Agricultural Inputs
· Chemicals & Pharmaceuticals
· Engineering; Electricals; Electronics
· Electro-medical equipment
· Textiles and Garments
· Leather and leather goods
· Meat products
· Bio-engineering
· Sports goods
· Plastics products
· Computer Software, etc.

As a result of globalization and liberalization, coupled with WTO regime, Indian SMEs have been
passing through a transitional period. With slowing down of economy in India and abroad, particularly
USA and European Union and enhanced competition from China and a few low cost centers of
production from abroad many units have been facing a tough time.

Those SMEs who have strong technological base, international business outlook, competitive spirit and
willingness to restructure themselves shall withstand the present challenges and come out with shining
colours to make their own contribution to the Indian economy.

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SMEs In Maharashtra

Since its inception in May 1960, (and even earlier as a part of ‘Bombay State’) Maharashtra has been in
the forefront of industrialization. The state has always followed progressive industrial policies and
industry – friendly measures.

Through a network of District Industries Centre (DICs), it offers maximum guidance and assistance to
SMEs. Many SMEs promoted by local entrepreneurs as also by NRIs and foreigners have come up in
Maharashtra covering a broad spectrum of industrial activity.

The quality of products of SMEs from Maharashtra is high. Some of them have acquired technology
from abroad. Adequate budget is provided for R & D operations. Many units are promoted by techno-
entrepreneurs.

In view of the objective of the study, it was considered necessary to undertake a survey of SMEs from
major parts of Maharashtra covering following sectors: Engineering; Electricals; Food Processing;
Chemicals and Pharmaceuticals.

The field survey consisted of visits to industries in the following cities / regions:

Western Konkan Region Marathwada Vidharbha Greater

Maharashtra Mumbai
Pune Ratnagiri Aurangabad Nagpur Mumbai
Kolhapur Sawantwadi Nanded Amaravati Thane
Satara Kudal Latur Belapur
Nasik Beed
Ahmednagar

A total of 40 units in various sectors were contacted and finally 23 units were short-listed for inclusion in
the study report.

While making a final choice of the units from target sectors, following factors were considered.

1. Set up of the unit and management

2. Technology status and product profile
3. Turnover & exports
4. Scientific manpower
Technology / Process / Product

Review of Industrial sectors considered for SMEs in Maharashtra

The industries in Chemical, Engineering, Electrical, Food Processing and Pharmaceutical sector were
contacted during the field survey. A broad outline of these industrial sectors and the list of industries,
which were considered for detailed study, are presented in the following sections.

ELECTRICAL INDUSTRY

The Indian Electrical Industry has a history of more than 100 years advancing through technical
collaborations, joint ventures and indigenous research and development. Today, the industry has a
capacity of manufacturing most of the equipment. The industry largely depends on the power programme,
industrial requirements, urban and rural demand.
50
Maharashtra enjoys a competitive advantage in electrical sector viz. electrical home appliances, electrical
motors, transformers, industrial equipment, switch-gears, circuit breakers, pollution control equipment,
Power Capacitors, Lighting fixtures and lamps, etc.

In Maharashtra, the electrical industry will continue to remain a large and crucial industry segment
catering to vital needs of industry & household (According to industry review of Indian Electrical
Equipment Manufacturers Association [IEEMA]).

Maharashtra and Gujarat will continue to dominate this industry with more than half the nation’s output
and value addition. The Maharashtra Government has taken the right steps by introducing stringent
pollution control laws. The total industries in this sector were scrutinized based on the available data and
the following industries were selected for further detailed study & visits:

1. Filter-On Pvt. Ltd., Pune

2. Seva Engineering Pvt. Ltd., Pune
3. Mahati Electrics, Pune

ENGINEERING INDUSTRY

The engineering industry has been titled the ‘engines of growth’. The tremendous impact and influence it
has on industrialization and consequently the economy can be clearly seen from the economic scenario
the world over. It has catapulted many nations like Japan, Germany, USA, UK, etc into front-line
industrial nations within a very short time. India too has found this industry very responsive and eager to
take up any stimulus to growth. Importance of engineering industry in India can be gauged from the fact
that it employs over 4million people and accounts for nearly one-third each of productive capital, value
added and output in the organized sector that contributes substantially to both the production and exports
of engineering goods.

ENGINEERING INDUSTRY IN MAHARASHTRA

Maharashtra occupies an important place in both production as well as exports of engineering goods from
the country. Engineering industry in the state is highly diversified and produces a large range of parts to
industrial machinery to industrial castings and forging.

The state has a fairly large number of firms in the organized sector possessing world class manufacturing
capabilities and cost structures, besides a vast number of small and medium engineering firms.

The industry, which was initially concentrated in the Mumbai-Pune belt, has spread all over, the State, the
major production centers being Nagpur, Aurangabad, Nasik, and Kolhapur.

The major engineering items of production and exports in Maharashtra are textile mill machinery,
machinery for sugar, cement, and chemical plants, food processing machinery, construction machinery,
tractors for agriculture purposes, electric power machinery, transmission line towers and accessories,
fabricated steel like freight containers, automobiles, steel forging, steel castings, bright steel bars,
stainless steel product, auto parts, cutting tools and files, internal combustion (IC) engines and
compressors, machine tools, mechanical pumps and ship and ship buildings.

Total exports of engineering industry in Maharashtra have been estimated at US$ 900 million during
1996-97. This accounts for over 21 per cent of total export of engineering products in the same year.

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However, the products which have high potential of exports from Maharashtra include industrial castings
forging, complete vehicles including two/three wheelers automobile parts, machine tools, industrial
machinery, steel tubes, diesel engines, pumps, valves, compressors, seamless tubes and switch gears.
These products have been identified considering current and future production technology scenario and
exports.

The major competing countries for most of the engineering products exported from the state are Japan,
South Korea, Taiwan and China besides West European and North American countries.

In overall terms, the export outlook for engineering products is bright. The shift in favour of value added
items is getting pronounced from the fact that export growth of these items is high against negative
growth in respect of prime iron and steel.

Maharashtra and Gujarat will continue to dominate this industry with more than half the nation’s output
and value addition. The Maharashtra Government has taken the right steps by introducing stringent
pollution control laws. The total industries in this sector were scrutinized based on the available data and
the following industries were selected for further detailed study & visits:

FOOD PROCESSING INDUSTRY

The Food Processing Industry is an important sector of the Indian economy. The food processing industry
sector, which leap-frogged during the period 1990-95 has slowed its pace in the past half decade as, the
manufacturers have realized that the consumer is yet to familiarize himself with the products available in
the market.

The food industry contributes about 18% of India’s manufacturing output and around 5% of total
industrial investment. The estimated turnover of this highly heterogeneous food and beverage industry
exceeds Rs. 570 billion. Niche segments comprising packaged and branded food products have recently
witnessed rapid growth accompanied by intense competition. Nearly 52% of the Indian household budget
is spent on food items and the share of processed food entering the market is expected to rise rapidly.

Both in terms of foreign investment and number of joint ventures / foreign collaborations, the consumer
food segment has top priority. By last year, foreign investment of Rs. 20,870 Million had been proposed.
Deep sea fishing and aquaculture, milk and milk products, meat and poultry segments attracted attention
of foreign investors, interest is also growing in fruit and vegetables and grain / cereal based products.

Maharashtra has been one of the major producers of fruits and vegetables, milk and meat products.
Maharashtra has 10 to 15% production share of agro produce related to processed industry.

Major units in a. Fruit and Vegetables

Maharashtra b. Bakery Products
c. Dairy Products
d. Cereals
e. Meat Products
f. Fish Products

Maharashtra and Gujarat will continue to dominate this industry with more than half the nation’s output
and value addition. The Maharashtra Government has taken the right steps by introducing stringent
pollution control laws. The total industries in this sector were scrutinized based on the available data and
the following industries were selected for further detailed study & visits:

52
Sairaja Fruit & Food Processing Pvt. Ltd, Phaltan
Gadre Marine Products, Ratnagiri
Aditi Pectins Private Limited, Islampur, Dist. Sangli
Sushant Bio-Pharmaceuticals Pvt. Ltd., Kolhapur

PHARMACEUTICALS INDUSTRY

India’s pharmaceutical industry is highly fragmented with over 16,000 licensed units and 250 units in the
organized sector. The causes of fragmentation are historic. It was a highly controlled industry. The price
of most of the drugs was regulated. The investments were not only low but also thinly spread out over a
large number of companies. However, in the changing market, there is likelihood of major changes in
years to come. Fragmented industry cannot continue for long and industry is sure to consolidate with
acquisitions and mergers.

Indian pharmaceutical industry has been nurtured to a large extent by Indian patent laws, which
recognized only process patents. Though India could build a strong base and infrastructure for production
of medicines, which is evident from the impressive growth in production of bulk drugs and formulations,
it never cared to spend on Research and development (R & D). Expenditure on R & D in India is still less
than 3 per cent of the industry’s turnover.

It may be seen that the Indian Pharmaceutical Industry has been growing at a healthy 16.7 per cent per
annum over the last one decade. India is able to meet over 70 per cent of its requirement of bulk drugs and
95 per cent of formulations. The industry is well represented in almost all-therapeutic groups.

The industry in India is in a highly competitive market environment. It is also one of those industries
where foreign investment is very high. A number of Transnational Corporation (TNCs) have plants in
India. The country has strong advantage because of availability of relatively low cost skilled labour and a
large domestic market. So far as the future of this industry is concerned, planning commission expects
this industry to grow at 12 per cent per annum.

Exports of drugs and pharmaceuticals from the country are rising very fast. They have increased from Rs.
2256.6 crores in 1994-95 to Rs. 3177.7 crores in 1995-96 to record Rs. 4090.3 crores in 1996-97,
registering an impressive annual growth rate of 34.4 per cent.

More that 20 plants in India have USFDA validation that is considered the strictest in the industry. Many
companies have also been upgrading their facilities to match internationally recognized standards such as
GMP requirements and ISO 9002 certifications.

PHARMACEUTICALS INDUSTRY IN MAHARASHTRA

Maharashtra is a major center for both production as well as exports of basic drugs and pharmaceuticals
in the country. The state accounts for about 40 percent of all India production of bulk drugs and
formulations and its share in all India exports of it, is nearly 33 percent.

According to the business executives in pharmaceutical industry in Maharashtra, their exports may not
receive a setback on account of IPR but instead of the same will have better growth, as 75 percent of the
drugs will be off the patent in value. New molecules can be manufactured competitively because of
availability of relatively low cost technical manpower in the country. It envisages a scenario where the
West will come to East to buy the new molecules.

53
Maharashtra and Gujarat will continue to dominate this industry with more than half the nation’s output
and value addition. The Maharashtra Government has taken the right steps by introducing stringent
pollution control laws. The total industries in this sector were scrutinized based on the available data and
the following industries were selected for further detailed study & visits:

Verma Pharmacy Pvt. Ltd. , Pune

Kevera Herbals (I) Pvt.Ltd., Pune
Nu-Life Pharmaceuticals, Pune
Milan laboratories (I), Thane
Li-taka Pharmaceuticals Ltd., Pune

CHEMICAL INDUSTRY
Maharashtra enjoys a competitive advantage in certain chemicals industries viz. Agro Chemicals,
Fertilizes, Pesticides, Pharmaceuticals, Dyes, Plastic Processing specially chemicals and paints.

In Maharashtra chemical industry will continue to remain a large and a crucial industry segment catering
to vital needs of agriculture, household consumption, industrial uses and other strategic and defense
requirements. This means that chemicals are inevitable in many respects, but at the same time chemicals
are hazardous also in many respects.

Maharashtra and Gujarat will continue to dominate this industry with more than half the nation’s output
and value addition. The Maharashtra Government has taken the right steps by introducing stringent
pollution control laws. The total industries in this sector were scrutinized based on the available data and
the following industries were selected for further detailed study & visits:

Rathi Dye Chem Ltd., Pune

Everest Flavours Ltd., Mumbai
Ajay Metachem Ltd., Pune
Iftex Oil & Chemicals Lt., Mumbai
Suparna Chemicals Ltd., Mumbai

GENERAL FINDINGS OF FIELD SURVEY OF SMALL & MEDIUM INDUSTRIES /

ENTERPRISES

The study that was undertaken by contacting 23 small and medium scale industries from Maharashtra.
These units covered following sectors:

· Electrical
· Engineering
· Food Processing
· Pharmaceuticals
· Chemicals

There was proper coverage of all regions of Maharashtra, except Vidharbha Region, which has two
54
industrial centers namely, Nagpur and Amaravati. These two centers did not have adequate
representations of all sectors as earmarked for the study.

As per the policy in vogue, the small-scale units are defined as those manufacturing units whose
investments in plant and machinery is upto Rs. 10 Million. There is no clear-cut definition of medium
scale units and these are always considered as between small and large-scale units.

By and large, enterprises were found to be organized, professionally managed and aware of their techno-
commercial strength and their core competence.

The units have been successful in domestic market. A few of these have entered overseas markets as well.

The profiles of each industrial unit, which is considered for offering technology, are presented in
‘Annexure’. The profiles include broad details of the probable project, which can be set up. The costing
considered in the profiles is in Indian currency and is based upon the prevailing prices of project
parameters in India. During the detailed project report stage, actual costing pertaining to the relevant
country will have to be carried out.

Large Scale Industries

Large scale industries refers to those industries which require huge infrastructure, man power and
a have influx of capital assets. The term ‘large scale industries’ is a generic one including various types of
industries in its purview. All the heavy industries of India like the Iron and steel industry, textile industry,
automobile manufacturing industry fall under the large scale industrial arena. However in recent years
due to the IT boom and the huge amount of revenue generated by it the IT industry can also be included
within the jurisdiction of the large scale industrial sector. Last but not the least the telecoms industry also
forms and indispensable component of the large scale industrial sector of India. Indian economy is
heavily dependent on these large industries for its economic growth, generation of foreign currency and
for providing job opportunities to millions of Indians.

Glance into the large scale industrial scenario of the southern part of India. Kozhimode district
represents the most industrially advanced district of Tamil Nadu and this site elaborates on the several
medium and large scale industries in that district. So if you are a wannabe entrepreneur who wants to
gauge the prospects of large and medium scale industries in that part of India this site would prove to be a
gem of a site for you. All you have to do is to log into this site to be bombarded with details about the
large scale industries of that area.

From the southern part of India, it is time now to glance at the large scale industries in the western
part of India. This newspaper article delineates information about the large scale industrial scene in Goa.
All these information about the large scale industries of Goa are validated with authentic statistics which
also will help you to form a generic idea about the kind of progress the state is making in the large scale
industrial sector.

Iron and steel industry forms the indispensable part of the large scale industrial sector of India and this
site will help you to form a clear idea about this industry. The iron and steel industry had played a key
role in the industrial development of India from the pre -independence period. It also informs us that India
has seven large integrated iron and steel plants, of which six are owned by the public sector Steel
55
Authority of India Limited (SAIL) and one by the private sector, Tata Iron and Steel Company Limited
(more popularly known as Tata Steel or TISCO). It tries to trace the myriad so factors which augmented
the growth of iron and steel industry in India.

Telecom industry is another key player in the large scale industrial sector of India. This Telecom
industry has underwent stupendous growth in the recent few years and is now poised to be a stalwart of
the Indian industrial arena. A major contributor towards the growth of the Telecom industry in India is the
Association of Unified Telecom Service Providers of India (AUSPI). By the help of their performance in
India, the AUSPI members are also helping to shape the future of CDMA technology evolution. They
advocate that India can and ought to take a leadership role in defining the future evolution of CDMA

Looking for some authentic information on the automobile manufacturing industry of India?
Then hunt no more, for this is the perfect site which will divulge authentic details about the automobile
industry of India which hold a special position in the large scale industrial sector of India. The automobile
industry is poised for a huge growth in the next few years and has already shown an impressive 16.82 %
growth last year. Get hold of much more details on the Indian automobile industry by logging into this
site.

This site brings to you a learned article on the future of IT industry in India. IT industry has
recently made India proud with its tremendous growth and international standards. Millions of jobs are
being generated because of this industry which though a new entrant is a major member of the large scale
industrial arena of India. In this site you will find all the requisite answers about the nature and state of
the IT industry of India and there is also a insightful speculation on the immense growth potential of this
industry.

This site throws the spot light on another big league player of the large scale industrial sector of
India - the Bio-It or the pharmaceutical industry of India. Scientific advancement in discovery of drugs
and advanced researches has propelled forward Indian Bio-IT or pharmaceutical industry. Trace the
growth of this industry with the help of this site which brings you all the pertinent details on the Bio-IT or
pharmaceutical industry of India.

Textile industry is one of the most formidable pillars of the large scale industrial structure of
India. Indian textile industry like the iron and steel industry has a huge contribution in the overall
economic growth of India. Glean information about the pros and cons of the textile industry of India with
the help of this site. This site provides you with a detailed minute on the growth and investment potential
of the Textile industry of India.

Delve into the large scale industrial sector of Indian with this web page which provides you with
ten sites on the various kinds large scale industries in India and their progress through the years.

FORMS OF BUSINESS ORGANIZATION

Introduction: Business concerns are established with the objective of making profits. They can be
established either by one person or by a group of persons in the private sector by the government or other
public bodies in the public sector. A business started by only one person is called sole proprietorship. The
56
business started by a group of persons can be either a Joint Hindu Family or Partnership or Joint Stock
Company or a Co-operative form of organization

Thus there are various forms of business organization

1. Sole Proprietorship
2. Private Limited Company:
3. Partnership Firm
4. Public Limited Company:
5. Co-operative Society

Characteristics of an ideal form of organization

Before we discuss the features, merits and demerits of different forms of organization, let us know the
characteristics of an ideal form of organization. The characteristics of an ideal form of organization are
found in varying degrees in different forms of organization. The entrepreneur, while selecting a form of
organization for his business, should consider the following factors.

 Ease of formation: It should be easy to form the organization. The formation should not involve
many legal formalities and it should not be time consuming.

 Adequacy of Capital: The form of organization should facilitate the raising of the required amount
of capital at a reasonable cost. If the enterprise requires a large amount of capital, the
preconditions for attracting capital from the public are a) safety of investment b) fair return on
investment and c) transferability of the holding.

 Limit of Liability: A business enterprise may be organized on the basis of either limited or
unlimited liability. From the point of view of risk, limited liability is preferable. It means that the
liability of the owner as regards the debts of the business is limited only to the amount of capital
agreed to be contributed by him. Unlimited liability means that even the owners’ personal assets
will be liable to be attached for the payment of the business debts.

 Direct relationship between Ownership, Control and Management: The responsibility for
management must be in the hands of the owners of the firm. If the owners have no control on the
management, the firm may not be managed efficiently.

 Continuity and Stability: Stability is essential for any business concern. Uninterrupted existence
enables the entrepreneur to formulate long-term plans for the development of the business
concern.

 Flexibility of Operations: another ideal characteristic of a good form of organization is flexibility

of operations. Changes may take place either in market conditions or the states’ policy toward
industry or in the conditions of supply of various factors of production. The nature of organization
should be such as to be able to adjust itself to the changes without much difficulty.
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Sole Proprietorship

Meaning: A sole proprietorship or one man’s business is a form of business organization owned and
managed by a single person. He is entitled to receive all the profits and bears all risk of ownership.

Features: The important features of sole proprietorship are:

1. The business is owned and controlled by only one person.

2. The risk is borne by a single person and hence he derives the total benefit.
3. The liability of the owner of the business is unlimited. It means that his personal assets are also
liable to be attached for the payment of the liabilities of the business.
4. The business firm has no separate legal entity apart from that of the proprietor, and so the business
lacks perpetuity.
5. To set up sole proprietorship, no legal formalities are necessary, but there may be legal restrictions
on the setting up of particular type of business.
6. The proprietor has complete freedom of action and he himself takes decisions relating to his firm.
7. The proprietor may take the help of members of his Family in running the business.

Advantages

1. Ease of formation: As no legal formalities are required to be observed.

2. Motivation: As all profits belong to the owner, he will take personal interest in the business.
3. Freedom of Action: There is none to interfere with his authority. This freedom promotes initiative
and self-reliance.
4. Quick Decision: No need for consultation or discussion with anybody.
5. Flexibility: Can adapt to changing needs with comparative ease.
6. Personal Touch: comes into close contact with customers as he himself manages the business.
This helps him to earn goodwill.
7. Business Secrecy: Maintaining business secrets is very important in today’s competitive world.
8. Social Utility: Encourages independent living and prevents concentration of economic power.

Disadvantages

1. Limited resources: one man’s ability to gather capital will always be limited.
2. Limited Managerial Ability
3. Unlimited Liability: Will be discouraged to expand his business even when there are good
prospects for earning more than what he has been doing for fear of losing his personal property.
4. Lack of Continuity: uncertain future is another handicap of this type of business. If the sole
proprietor dies, his business may come to an end.
5. No Economies of Large Scale: As the scale of operations are small, the owner cannot secure the
economies and large scale buying and selling. This may raise the cost of production.
Private Limited Company:

A private limited company is a voluntary association of not less than two and not more than fifty
members, whose liability is limited, the transfer of whose shares is limited to its members and who is not
allowed to invite the general public to subscribe to its shares or debentures.

58
A private company is preferred by those who wish to take the advantage of limited liability but at the
same time desire to keep control over the business within a limited circle and maintain the privacy of their
business.

Advantages

 Continuity of existence
 Limited liability
 Less legal restrictions
 Disadvantages
 Shares are not freely transferable
 Not allowed to invite public to subscribe to its shares
 Scope for promotional frauds
 Undemocratic control

Partnership Firm:

Partnership is defined as a relation between two or more persons who have agreed to share the profits of a
business carried on by all of them or any of them acting for all. The owners of a partnership business are
individually known as the "partners" and collectively as a "firm".

Advantages

 Ease of formation
 Greater capital and credit resources
 Better judgement and more managerial abilities
 Disadvantages
 Absence of ultimate authority
 Liability for the actions of other partners
 Limited life
 Unlimited liability

Partnership is an appropriate form of ownership for medium sized business involving limited capital. This
may include small scale industries, wholesale and retail trade; small service concerns like transport
agencies, real estate brokers; professional firms like charted accountants, doctors' clinic, attorney or law
firms etc.

Public Limited Company:

A public limited company is a voluntary association of members which is incorporated and, therefore has
a separate legal existence and the liability of whose members is limited.

Advantages

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  Continuity of existence
 Larger amount of capital
 Unity of direction
 Efficient management
 Limited liability
 Disadvantages
 Scope for promotional frauds
 Undemocratic control
 Scope for directors for personal profit
 Subjected to strict regulations

S-Corporations have features similar to a partnership. An S-corporation must have at least one

shareholder, and cannot have more than 100 shareholders. If any shareholder provides services to the
business, the S-Corp must pay that shareholder a reasonable salary. This salary is a separate payment
from distributions of profits or losses.

Trusts are usually formed upon the death of an individual and are designed to provide continuity of the
investments and business activities of the deceased individual. We will not discuss trusts further.

RESOURCE MANAGEMENT

Resource management refers to managing the resources of a company, project or department. This
can mean many different things. This can mean managing resources such as finances, human skills and
information technology or in a larger corporation, managing the resources over multiple departments and
projects. Resource management is also commonly known as human resource management, which covers
just one type of resource management.
Resource Management Concepts & Techniques

Resource Leveling
Resource leveling is a technique of resource management which aims to find underused people or
resources within a company and put them to work. Resource leveling looks at all resources, people and
equipment to determine if some of those assets are being underused or could be used more effectively
elsewhere. An example would be a manager of one department who could also oversee another
department, or a person in the accounting department who would actually be very beneficial in the IT
department.

Traditional Approach
The traditional approach to resource management is a concept that has been around for centuries
and has maintained popularity because of its success. The traditional approach to resource management is
a five-step process which includes the initiation stage, planning or design stage, execution or production
stage, monitoring and controlling and the completion stage of the process. Not all processes of resource
management will hit every step of this process. This process is most commonly used when introducing or
creating a new product or service, but can also be used to prioritize and help integrate a new resource into
a company such as a new computer system.

60
Resource Limited Schedule
Another concept of resource management is the use of the resource limited schedule. This
technique is basically creating a road map of a project and pinpointing resources along the way. For
example, each person or employee involved in the project will be pinpointed along the way and all
resources are accounted for along the road map. The schedule will also have a start date and end date, and
corresponding resource information.
Resource Breakfown Structure
The resource breakdown structure technique for resource management is used essentially as a list
of most important resources. In the beginning of the project, a supervisor or any team member for that
matter, will list out all resources in order of their importance, their abundance and their uses

EXTERNAL AND INTERNAL SOURCES

You can narrow down the search for supply sources for a particular article to internal or external
sources of supply and define the sequence in which the system should search:
 The system searches exclusively for an external source of supply (standard).
 The system searches exclusively for an internal source of supply (stock transfer).
 The system first looks for an external and then for an internal vendor (standard and then stock
transfer).
 The system first looks for an internal and then for an external vendor (stock transfer and then
standard).
To determine the sequence in which it should search, the system evaluated the source of supply
field in the logistics data of the article master.
If the site to be supplied with merchandise has been assigned to a supply region, the system only
selects a potential source of supply if the source is valid for the supply region of the site.

Features
Finding external supply sources
In this case, the vendor searches for an external vendor. the following cases can exist:
 only one valid outline agreement is found
The outline agreement is determined as the source of supply.
 several valid outline agreements are found
Since the result is not unique, all outline agreements are possible sources of supply. the system then
searches for a purchasing information record for the vendor.
 only one valid purchasing information record is found
The vendor concerned is determined as the source of supply.
 several valid purchasing information records are found
- The regular vendor indicator has been set in one of the purchasing information records
The vendor concerned is determined as the source of supply.
61
- The regular vendor indicator has not been set in any of the purchasing information records
More than one valid entry is found the system proceeds in the same way as when no valid entry is found.
 no external source of supply is found
Depending on the contents of the source of supply field in the article master, the system either stops
searching or continues searching for an internal source.
If the system finds more than one supply source, outline agreements have priority over information
records.
if the system finds two outline agreements, it checks if any of them are with regular vendors. if there is an
agreement with a regular vendor, it assigns the outline agreement as the unique source of supply. if there
is no agreement with a regular vendor, then no source is found in this step.

Finding internal supply sources

In this case, the vendor searches for an internal vendor, such as a distribution center.
The system first searches for a stock transport scheduling agreement, then for a supplying site at
merchandise category level and finally for a supplying site for the whole assortment.
If the procurement suggestion was generated via a store order, the system can also perform a sourcing
check. If the supplying site found does not have enough stock, for example, or the maximum delivery
quantity is exceeded, the system searches for a different internal source. If no internal source of supply is
found, the system searches for an external source of supply.
The following cases can exist:
 one valid stock transport scheduling agreement exists
The agreement is determined as the source of supply.
 several valid stock transport scheduling agreements exist
Since the result is not unique, all agreements are possible sources of supply.
 a distribution center has been entered for a site and merchandise category in the site master
The dc is determined as the source of supply. This only applies to the merchandise category of the article
to be procured.
 a distribution center has been entered for a site in the site master
The dc is determined as the source of supply. This applies to all merchandise categories unless a different
entry is found.
 no internal source of supply is found
Depending on the contents of the source of supply field in the article master, the system either stops
searching or continues searching for an external source.

IV – Unit
IMPORTANCE AND SCOPE OF MATERIALS MANAGEMENT
62
INTRODUCTION:

Materials management is one of the important activities of business. There is no general agreement about precisely
what activities are embraced by materials management. Some managers would associate materials management
with their material or production control departments, which schedule materials requirements and may also control
inventories of both raw materials and in-process materials. Others would associate it with the activities of their
purchasing departments in dealing with outside suppliers. If we analyze the total cost of any product nearly 60 to
70% is because of materials. Only the rest is for labour, overhead and profit. So any reduction in the material
cost, even by a very less percentage will give rise to a greater profit. Moreover the materials management being a
staff function, the introduction of new techniques to reduce the cost of the product is much easier than in any other
field.

Hence, the rate of return on capital employed is of prime concern and is given by the

Ratio:
Profit
Rate of Return (ROR) = ---------------------------------
Capital employed
Profit Sales
= -------------- X --------------------------------------------------
Sales Fixed Assets + Current Assets
= Profitability X Capital turnover ratio
So as to increase the rate of return on investment, one way is to increase the capital turnover ratio. For this if
capital employed is reduced, naturally capital turnover ratio will go high. Fixed assets constitute capital already
sunk and only scope for improving the Return on Investment (ROI) lies in the efficient management materials
which constitute the bulk of current assets.

As materials constitute the major cost component, large amount of capital is locked up in materials with the
associated burden interest which further increases the cost of the product. So, because of the greatest percentage of
cost associated with materials and also any possible reduction in material cost will result in the increase of profit,
the industries are now thinking of introducing the concept of scientific materials management. If we analyze the
above graph we find that previously the breakeven point was at A. Because of reducing the cost the breakeven
point shifted to B. For the given output ‘C’ the profit margin has increased by X2, from X1 to (X1 – X2) amount.

SCOPE OF MATERIALS MANAGEMENT:

Materials Management strives to ensure that the material cost component of the total product cost be the least. In
order to achieve this, the control is exercised in the

Following fields.

1. Materials Planning.
2. Purchasing.
3. Store Keeping.
4. Inventory Control.
5. Receiving, Inspection and Despatching.
6. Value Analysis, Standardization and Variety Reduction.
7. Materials Handling & Traffic.
8. Disposal of Scrap and Surplus, Material Preservation.

The function of material planning department is to plan for the future procurement of all the required materials as
per the production schedule. At the time of material planning, the budget allocated for the materials will also be
63
critically reviewed, for better control. After material planning, purchasing is to be done. Purchasing department
buys material based on the purchase requisitions from user departments and stores departments and annual
production plan. There are four basic purchasing activities.

a) Selecting suppliers, negotiating and issuing purchase orders.

b) Expediting delivery from suppliers.

c) Acting as liaison between suppliers and other company departments.

d) Looking for new products, materials, and suppliers that can contribute to

Company objectiveness.

At the time of purchase, right quantity and quality of materials must be purchased at right time, at the lowest
possible cost and select the efficient purchasing system, to derive maximum benefit. Purchasing is done based on
‘make or buy’ decisions and also using

PERT / CPM effectively.

When the items are purchased, proper storage facilities must be provided so that, the wastage is reduced to a
minimum. Sometimes to protect the quality, greater care must be taken during storage. The duties of the inventory
control department is to decide about the types of ordering system, fixing the safety stock limits, fixing up the
reorder level & maximum / minimum stock level. The responsibility of Receiving, inspection and dispatching
department is to receive the materials when delivered by the suppliers. After receiving it, the quantity and quality
must be checked. Production parts and materials are checked against blueprints and specifications. Non-
production items are also reviewed. When once it is as per the specifications given, the goods will be accepted.
The Value Analysis and Standardization offer greatest scope, in reducing the materials cost. It also reduce the
number of varieties and also helps in finding the substitute for the materials at lesser cost.

Materials handling section is responsible for the transport of materials to various departments. There are four basic
traffic activities.

a) Selecting common or charter carriers and routings for dispatch / shipments as required.

b) Tracing in-bound shipments of material in short supply as requested by production control or purchasing.
Assisting customers in tracing outbound shipments when asked.

c) Auditing invoices from carriers and filing claims for refunds of excess charges or for damaged shipments when
required.

d) Developing techniques to reduce transportation cost. This may involve negotiation with competing shippers,
special studies n selecting the most advantageous plant location for new products, analysis of tariffs, and
negotiation of any number of special arrangements for handling certain traffic.

e) The activity includes packaging of finished product, labeling and loading of end products in the trades.

Finally the disposal of scrap and surplus must be done periodically to release the capital locked in those items.

NON-PRODUCTION STORES:

Techniques and procedures used to control non-production material (office supplies, perishable tools, and
maintenance, repair, and operating supplies) resemble those used for production material, although they are usually
less elaborate. Specifically, the stores department

64
a) Maintains physical stocks of non-production items to be drawn on as needed for operations or maintenance.

b) Manages inventories of non-production materials and prepares purchase requisitions for needed material when
stocks drop to the re-order point.

c) Keeps records and maintains controls to prevent duplication of inventories, minimize losses from pilferage and
spoilage and prevent stock-outs.

NEED FOR INTEGRATED CONCEPT :

In an integrated set-up, the materials manager is responsible to exercise control and coordinates with an overview
that ensures proper balance of conflicting objectives of the individual functions. Integration also helps in the rapid
transfer of data, through effective and informal communication channels. This is crucial as the materials
management function usually involves handling a vast amount of data. Therefore, integrating the various
functions ensures that message channels are shortened and the various functions identify themselves to a common
materials management department which, in turn, results in greater co-ordination and better control.

ADVANTAGES IN INTEGRATED MATERIALS MANAGEMENT

CONCEPT :

Organizations which have gone in a big way for the integrated materials management

usually enjoy the following advantages :

BETTER ACCOUNTABILITY :

Through centralization of authority and responsibility for all aspects of materials function, a clear cut
accountability is established. This helps in evaluating the performance of materials management in an objective
manner.

BETTER CO-ORDINATION :

When a central materials manager is responsible for all functions, the departments under the materials manager
create an identity which is common. This results in better support and co-operation in the accomplishment of the
materials function. The user departments also find that they have to approach one department for discussing and
solving their materials problems. This creates an atmosphere of trust and generally better relations between the
user departments and the materials management department.

BETTER PERFORMANCE :

As all the inter-related functions are integrated organizationally, greater speed and accuracy results in improved
communication. Need for materials is promptly brought tonotice by materials planning. Purchase department is
fed with stock levels and order status by stores and inventory control departments. All this calls for judicious
decisions leading to lower costs, better inventory in paper work.

ADAPTABILITY TO EDP :

The centralization of the materials function has made it possible to design data processing system. All information
with regard to materials function is centralized under the integrated materials management function. This has
facilitated the collection and analysis of data, leading to better decisions. Advanced and efficient electronic data
processing systems can be economically introduced under in integrated set-up.

MISCELLANEOUS ADVANTAGE :

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Under a Centralized Materials Manager, a team spirit is inculcated and this results in better morale and co-
operation. The opportunities and exposure available for the individuals for growth and development are better in
an integrated set-up.

PURCHASING PROCEDURE

 Preliminary procedure
If you wish to supply products to Osaka Gas for the first time, please apply to the
Purchasing Department. In doing so, please describe your company's financial
status, the product(s) you wish to provide us and the terms of supply. These details
should be provided by using a brochure or company profile statements explaining
the company's financial position, and brochures on the product(s) and technical data.
It is important that you can explain the advantage of your products to Osaka Gas in
the light of our basic purchase policies, and the benefits that a business relationship
with your company could bring to Osaka Gas. You may be required by Osaka Gas
to submit Japanese translation of the foregoing documents if such documents are not
prepared in Japanese. Information and data on your company and your product(s)
will be stored and managed in our files as "Products and Suppliers". The
information will be used for selecting the companies to which we ask to submit
estimates.

Should it be the first time you wish to supply materials or equipment for which
Osaka Gas has clearly defined purchase conditions, such as delivery time and
product specifications, we conduct a preliminary examination of your company and
the product(s) you wish to supply, and make a comprehensive evaluation based on
the following criteria:
･Necessity of the product(s). 
･Whether the product(s) can satisfy the standards set by Osaka Gas regarding
quality, performance, reliability, safety, price, delivery reliability, and
compatibility with existing facilities, as well as the company's financial
condition, supply capacity, facility capacity, technological capacity, maintenance
and service systems.The merit of establishing a business relationship with the
new supplier will also be considered.
Information for the preliminary examination can be in any format as long as it
provides sufficient data for evaluating the above criteria. However, if deemed
necessary, Osaka Gas may request additional information, product samples and/or
explanation. After passing the preliminary examination, the information and data on
your company and products will be stored and managed in our files as "Companies
from Which Estimates Can Be Requested", to be used in selecting those companies
to which we ask to submit estimates. The results of the preliminary examination are
available up on request, although any information considered confidential by Osaka
Gas will be excluded.
Details of purchasing procedure
The specifications and number/quantity and delivery of equipment, devices and
materials are determined by the department(s) that will be using the product(s) or
materials. The Purchasing Department conducts purchase activities based on
purchase requests submitted by the/these department(s).

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The Purchasing Department, at its sole discretion, selects companies from which
estimates will be sought. Suppliers are selected from the files of "Companies with
Previously Established Business Relationships", "Companies from Which
Estimates Can Be Requested" and "Products and Suppliers". Selection is made by
comprehensivly evaluating such factors as the quality and performance of the
equipment, device(s) or materials to be purchased, compatibility with existing
facilities, degree of reliability, product requirements including safety, delivery
time, the scale of the order, after-sale service and the company's previous business
record. As a rule, Osaka Gas asks several companies to submit estimates.
However, only one company may be specified for estimate submission in such
special cases as those concerned with industrial property rights, those requiring
maximum levels of safety that only one specific supplier can ensure, cases where
only one specific supplier can assure compatibility with existing facilities, or in
case of urgency.
　
As a rule, when requesting an estimate from a company that it has selected, Osaka
Gas will set out a specification from listing Osaka Gas's requirements in respects
of quality, performance standard, size, inspection and method of inspection. The
selected companies will be asked to submit cost estimates and specifications to
Osaka Gas prior to a specified date.
　
Specification sheets submitted by potential suppliers at their own expense are
checked by the Purchasing Department and the department(s) that will be using
the product(s), in order to determine whether the required standards are met by the
product(s). All products must pass this examination. During this process, Osaka
Gas may request additions or changes to the specifications.
　
After valid cost estimates and specifications have been comprehensively evaluated
in respect of price, technical requirements, etc. Osaka Gas will commence
negotiation with the company with the most attractive proposal to discuss the
amount of the contract and other terms and conditions. The selection of such a
company shall be made by Osaka Gas at its sole discretion. Contract terms and
conditions will be decided upon mutual agreement.
　

The business will be established upon conclusion of a contract, in the form of a

written document if necessary. The obligations and liabilities of Osaka Gas arise
only when such contract is concluded.

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 Delivery dates specified in the contract must be strictly observed. Precise details
of the delivery schedule will be agreed between the supplier and the relevant
department(s) of Osaka Gas. Delivered equipment, device(s) or materials must
pass inspections conducted by the relevant department(s) of Osaka Gas. When
deemed significant, an interim inspection may be conducted during the
manufacturing process.
　

Payment will be made according to the payment terms specified in the contract.

INVENTORY CONTROL
TYPES OF INVENTORIES

Inventories may be classified as under:-

(1) Raw materials and production inventories:

These are raw - materials, parts and components which enter into the product Direct during the production process
and generally form part of the product.

(2) In-process inventories:

Semi-finished parts, work-in-process and partly finished products formed at various stages of production.

(3) M.R.O. Inventories:

Maintenance, repairs and operating supplies which are consumed during the production process and generally do
not form part of the prod.uct itself (e.g. POL, Petroleum products like petrol, kerosene, diesels, various oils and
lubricants, machinery and plant spares, tools, jibs and fixtures, etc.)

(4) Finished goods inventories:

Complete finished products ready for sale.
Inventories may also be classified according to the function they serve, such as,

(a) Movement and transit inventories:

This arises because of the time necessary to move stocks from one place to another. The average amount can be
determined mathematically thus- I=S x T Where, S represents the average rate of sales (say, weekly or monthly
average) and T the transit time required to move from one place to another, and I the movement inventory needed.

As for example, if it takes three weeks to move materials to aware house from the plant and if the warehouse sells
110 per week, then the average inventory needed will be 110 units x 3 weeks = 330 units. In fact, when a unit of
finished product is manufactured and ready for sale, it must remain idle for three weeks for movement to
warehouse. Therefore, the plant stock on an average must be equal to three weeks' sale in transit.

(b) Lot-size inventories:

In order to keep costs of buying, receipt, inspection and transport and handing charge slow, larger quantities are
bought than are necessary for immediate use. It is common practice to buy some raw materials in large quantities in
order to avail of quantity discounts.

(c) Fluctuation inventories:

In order to cushion against unpredictable demands these are maintained, but they are not absolutely
essential in the sense that such stocks are always uneconomical. Rather than taking what they can get, general
practice of serving the customer better is the reason for holding such type of inventories.

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(d) Anticipation inventories:
Such inventories are carried out to meet predictable changes in, demand. In case of seasonal variations in
the availability of some raw materials, it is of inventory and also to some extent economical to build up stocks
where consumption pattern may be reasonably uniform and predictable. of the types of inventories discussed above,
the Lot-size, Fluctuation and Anticipation Inventories may be said to he 'Organization Inventories'. As more of
these, basic types of inventories are carried into stock, less coordination and planning are required. Also less
clerical and administrative efforts are needed and greater economies can be obtained in handling, manufacturing
and dispatching.
But the difficulty is that gains are not directly proportional to the size of inventories maintained.

As the size increases, even if they are efficiently maintained, handled and properly located, gains from additional
stock become less and less prominent The cost of warehousing, obsolescence and capital costs associated with
maintenance of large quantities grow at a faster rate than the inventories themselves. As such, the basic problem is
to strike a balance between the increase in costs and the decline in return from holding additional inventories.
Striking a balance in a complex business situation through intuition alone is not easy. Costs, and to be sure, the
balancing of opposite costs, lie at the heart of all inventory control problems, for which cost analyses are necessary
to which we shall turn in this chapter now.

Meaning of Inventory Control

Inventory control is a planned approach of determining what to order, when to order and how much to order and
how much to stock so that costs associated with buying and storing are optimal without interrupting production and
sales. Inventory control basically deals with two problems: (i) When should an order be placed? (Order level), and
(ii) How much should be ordered? (Order quantity). These questions are answered by the use of inventory models.
The scientific inventory control system strikes the balance between the loss due to non-availability of an item and
cost of carrying the stock of an item. Scientific inventory control aims at maintaining optimum level of stock of
goods required by the company at minimum cost to the company.

Objectives of Inventory Control

1. To ensure adequate supply of products to customer and avoid shortages as far as possible.

2. To make sure that the financial investment in inventories is minimum (i.e., to see that the working capital is
blocked to the minimum possible extent).

3. Efficient purchasing, storing, consumption and accounting for materials is an important objective.

4. To maintain timely record of inventories of all the items and to maintain the stock within the desired limits.

5. To ensure timely action for replenishment.

6. To provide a reserve stock for variations in lead times of delivery of materials.

7. To provide a scientific base for both short-term and long-term planning of materials.

Benefits of Inventory Control

It is an established fact that through the practice of scientific inventory control, following are the benefits of
inventory control:

1. Improvement in customer’s relationship because of the timely delivery of goods and service.

2. Smooth and uninterrupted production and, hence, no stock out.

3. Efficient utilisation of working capital. Helps in minimising loss due to deterioration, obsolescence damage and
pilferage.
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4. Economy in purchasing.

5. Eliminates the possibility of duplicate ordering.

INVENTORY CONTROL SYSTEMS

Inventory control (also known as inventory management) refers to the systems and strategies businesses use to
ensure that they have adequate supplies of raw materials for production and finished goods for shipment to
customers, while also minimizing their inventory carrying costs. Storing excess inventory is costly, because the
space and financial resources invested in the goods can often be put to better use elsewhere. At the same time,
however, inadequate inventory stores can result in costly production shutdowns or delays in filling customer orders.
Inventory control systems help companies to find the delicate balance between too little and too much inventory.

"It is nearly impossible to overemphasize the importance of keeping inventory levels under control," Ronald
Pachura wrote in an article for IIE Solutions. "Whether the problems incurred are caused by carrying too little or
too much inventory, manufacturers need to become aware that inventory control is not just a materials management
or warehouse department issue. The purchasing, receiving, engineering, manufacturing, and accounting
departments all contribute to the accuracy of the inventory methods and records."

Pachura created a checklist to aid companies in assessing their inventory controls. He recommended that business
managers examine the accuracy and effectiveness of their: bills of materials (BOM); receiving policies; engineering
changes; scrap reporting; vendor lead times; reorder triggers; and warehouse locator systems. The inventory
turnover ratio is a tool that can help companies to determine whether they are producing and carrying too much
inventory. The basic measure of inventory turnover is defined as cost of goods sold divided by average inventory
on hand. But Pachura noted that managers may gain more information by segmenting average inventory into raw
materials, work in process inventory, and finished goods, and then computing a separate turnover figure for each.
Comparing these figures often reveals opportunities for improving inventory controls.

Economic ordering quantity(EOQ): Economic ordering quantity is that quantity of material which are to be
ordered in one time in order to minimize ordering cost, carrying cost as well as cost of holding stock.

Perpetual inventory system: Perpetual inventory system is defined as "a system of records maintained by the
controlling department which reflects the physical movement of stocks and their current balances."

Bin card and store ledger constitute the bedrock of perpetual inventory system. It is a method of recording store
after every receipt & every issue and their current balances to avoid closing down the firm for stock taking. To
ensure accuracy the physical verification may be made which must have to agree with the balance of Bin Card &
store ledger. If there is any discrepancy between the two, it may be adjusted by preparing debit note and credit note.

Re-order level (ROL):

Receiving and issuing of inventories are the common and recurring phenomena in a manufacturing
organization. When the inventories fall below a particular level, they are replenished by the fresh purchases. The
prescription of re-order level (ROL) is an important technique of inventory control. It fundamentally deals with

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‘when to order’ to replenish the inventories. Re-order level is predetermined point, and when the existing stock of
inventories reaches this point of falls below it, the purchase action is initiated to replenish them. The ROL is
mentioned in the bin-card of each inventory item. What should be the quantity of replenishment order is also a
matter of policy. Generally, size of the order is determined on the basis of the economic ordering quantity (EOQ)
which is also an important technique of inventory control. Detailed treatment is given to this technique separately.

The re-order level is decided for each important item of inventory on the basis of following considerations: 

1) Lead time
2) Average periodic consumption (daily consumption) 
3) Safety stock 

Re-order level is decided as under: 

ROL= (Lead time x average daily consumption) + safety stock

Re-order level is the point of remaining stock when the new order is to be send. In order to calculate the reorder
pint, following term should be known: 

 Lead Time: Lead time is the time normally takes by the supplier in sending goods after placing the order.

 Average Usage: Average usage means average consumption in a particular time period.

 EOQ (Economic Order Quantity): EOQ is the level of inventory order that minimizes the total cost
associated with inventory management.

 Safety Stock: Safety stock is the minimum level of stock that is to be maintained to avoid delay.

Economic order quantity (EOQ):

Learning Objective:

1. Definite and explain economic order quantity (EOQ).

2. How is economic order quantity (EOQ) calculated?

1. Definition of EOQ

2. Formula

3. Example:

Definition and Explanation:

Economic order quantity (EOQ) is that size of the order which gives maximum economy in purchasing any
material and ultimately contributes towards maintaining the materials at the optimum level and at the minimum
cost.

In other words, the economic order quantity (EOQ) is the amount of inventory to be ordered at one time for
purposes of minimizing annual inventory cost.

The quantity to order at a given time must be determined by balancing two factors: (1) the cost of possessing or
carrying materials and (2) the cost of acquiring or ordering materials. Purchasing larger quantities may decrease the

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unit cost of acquisition, but this saving may not be more than offset by the cost of carrying materials in stock for a
longer period of time.

The carrying cost of inventory may include:

 Interest on investment of working capital

 Property tax and insurance
 Storage cost, handling cost
 Deterioration and shrinkage of stocks
 Obsolescence of stocks.
Formula of Economic Order Quantity (EOQ):

The different formulas have been developed for the calculation of economic order quantity (EOQ). The following
formula is usually used for the calculation of EOQ.

 A  =  Demand for the year

 Cp   =  Cost to place a single order

 Ch  =  Cost to hold one unit inventory for a year

 *=×

Example:

Pam runs a mail-order business for gym equipment.  Annual demand for the TricoFlexers is 16,000.  The annual
holding cost per unit is $2.50 and the cost to place an order is $50. 

Calculate economic order quantity (EOQ)

Calculation:

Materials Requirements Planning (MRP)

MRP is a planning tool geared specifically to assembly operations. The aim is to allow each manufacturing unit to
tell its supplier what parts it requires and when it requires them. The supplier may be the upstream process within
the plant or an outside supplier. Together with MRP II it is probably the most widely used planning and scheduling
tool in the world. MRP was created to tackle the problem of 'dependent demand'; determining how many of a
particular component is required knowing the number of finished products. Advances in computer hardware made
the calculation possible.

Master Production Schedule

The process starts at the top level with a Master Production Schedule (MPS). This is an amalgam of known
demand, forecasts and product to be made for finished stock. The phasing of the demand may reflect the
availability of the plant to respond. The remainder of the schedule is derived from the MPS. Two key
considerations in setting up the MPS are the size of `time buckets' and the `planning horizons'. A `time bucket' is
the unit of time on which the schedule is constructed and is typically daily or weekly. The `planning horizon' is

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how far to plan forward, and is determined by how far ahead demand is known and by the lead times through the
operation. There are three distinct steps in preparing an MRP schedule:

1. exploding
2. netting
3. offsetting.
Exploding
Explosion uses the Bill of Materials (BOM). This lists how many, of what components, are needed for each item
(part, sub assembly, final assembly, finished product) of manufacture. Thus a car requires five wheels including the
spare. BOM's are characterised by the number of levels involved, following the structure of assemblies and sub
assemblies. The first level is represented by the MPS and is 'exploded' down to final assembly. Thus a given
number of finished products is exploded to see how many items are required at the final assembly stage.

Netting

The next step is 'netting', in which any stock on hand is subtracted from the gross requirement determined through
explosion, giving the quantity of each item needed to manufacture the required finished products.

Offsetting

The final step is 'offsetting'. This determines when manufacturing should start so that the finished items are
available when required. To do so a 'lead time' has to be assumed for the operation. This is the anticipated time for
manufacturing.

The whole process is repeated for the next level in the BOM and so on until the bottom is reached. These will give
the requirements and timings to outside suppliers.

There are three major assumptions made when constructing an MRP schedule:

 The first, and possibly the most important, is that there is sufficient capacity available. For this reason MRP
is sometimes called infinite capacity scheduling.

 The second is that the lead times are known, or can be estimated, in advance.

 The third is that the date the order is required can be used as the starting date from which to develop the
schedule.

Material Requirements Planning:

MRP calculates and maintains an optimum manufacturing plan based on master production schedules, sales
forecasts, inventory status, open orders and bills of material.  If properly implemented, it will reduce cash flow and
increase profitability.  MRP will provide you with the ability to be pro-active rather than re-active in the
management of your inventory levels and material flow.

Implementing or improving Material Requirements Planning can provide the following benefits for your company:

1 Reduced Inventory Levels

2 Reduced Component Shortages
3 Improved Shipping Performance
4 Improved Customer Service
5 Improved Productivity
6 Simplified and Accurate Scheduling
7 Reduced Purchasing Cost
8 Improve Production Schedules
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9 Reduced Manufacturing Cost
10 Reduced Lead Times
11 Less Scrap and Rework
12 Higher Production Quality
13 Improved Communication
14 Improved Plant Efficiency
15 Reduced Freight Cost
16 Reduction in Excess Inventory
17 Reduced Overtime
18 Improved Supply Schedules
19 Improved Calculation of Material Requirements
20 Improved Competitive Position
The consultants at Inventory Solutions can provide an un-biased review of your operations and make suggestions
on how you can improve your process.  If you want the productivity improvements that MRP can deliver, 

MRP uses the following elements to plan optimal inventory levels, purchases, production schedules and more:

Master Production Schedule (MPS)

Bill of Materials (BOM)
Quantity on Hand (QOH)
Part Lead Times
Sales Order Quantities / Due Dates
Scrap Rate
Purchase Order Quantities / Due Dates
Lot Sizing policies for All Parts
Safety Stock Requirements
MRP will plan production so that the right materials are at the right place at the right time.  MRP determines the
latest possible time to product goods, buy materials and add manufacturing value.  Proper Material Requirements
Planning can keep cash in the firm and still fulfill all production demands.   It is the single most powerful tool in
guiding inventory planning, purchase management and production control.  MRP is easy to operate and adds
dramatically to profits.

A.B.C. Analysis: A. B. C. analysis is always a better control system. Under this method inventory items are
classified in to three categories such as A. B. C. basing upon its value and cost significance. The number of items
and the value of each class is expressed as percentage of the total and categorize as under.

Items of high value and small in numbers termed as 'A'

Items of moderate value and moderate in number is termed as 'B'

Items of small in value and large in number is termed as 'C'

V.E.D. Analysis: This method is used for control of spare parts. VED is the symbol of

1. Vital spare parts: Are those spares whose cost of stock out is very high.
2. Essential spare parts: Are those spares which are essential for the production to continue.
3. Desirable spare parts: Are those spares which are needed but their absence even a week or more will not
lead to stoppage of production.
Inventory turn over ratio: Inventory turn over ratio is one of the method of store control. it indicates how quickly
the stocks are converted in to sale. Low inventory turn over ratio indicates  the inefficient management in inventory
& high inventory turn over ratio is always implies favorable situation.

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ValueAnalysis:

Value analysis is a systematic effort to improve upon cost and/or performance of products (services), either
purchased or produced. It examines the materials, processes, information systems, and the flow of materials
involved. Value Analysis efforts began in earnest during WW II. GE, concerned with the difficulties in obtaining
critical listed materails to produce war material, assigned an engineer, Lawrence D Miles to the Purchasing
department. His mission was to find adequate material and component substitutes for critical listed material to
manufacture needed war equipment. In his search, Miles found that each material has unique properties that could
enhance the product if the design was modified to take advantage of those properties.

Miles discovered that he could meet or improve product performance and reduce its production cost by
understanding and addressing the intended function of the product. His method was - Blast (dissecting products to
discern key competitive advantages), Create (detailed analysis of the disassembled products, identifying those
functions of concern and soliciting ideas for improving), Refine (selecting the most value adding, cost-effective
ideas and preparing a business case for the implementation of the proposals) - the VA Tear Down Analysis. The
key element in Miles' work is that he separated Function (what it must do) from the characteristics of the design
(how it does it). Value = Function/Cost (esteem value - want, exchange value - worth, utility value - need).

US Navy adopted this in 1945 as Value Engineering. The Defense Department described Value
Engineering as a "before the fact" activity applying the value methodology during the product design phase and
Value Analysis as "after the fact" activity, practicing the value process following design release, during the
production of the product.

Importance

Implemented diligently, value analysis can result in - 

  reduced material use and cost
  reduced distribution costs 
  reduced waste
  improved profit margins 
  increased customer satisfaction 
increased employee morale

FSN ANALYSIS:

All items are not required with the same frequency – some are required regularly, some occasionally and
some once in a while. FSN Analysis places the items in three categories: Fast Moving (F), Slow Moving (S) and
Non-Moving (N). Inventory policies and models for these three groups are different.

Theoretical models have validity for F items with regular consumption. Spare are slow moving (S), and require
special management. Disposal policies are designed to control dead stock.

MARKETING MANAGEMENT

Definition: Marketing management is a business discipline which is focused on the practical application
ofmarketing techniques and the management of a firm's marketing resources and activities. 

Marketing definition : Marketing is the social process by which individuals and groups obtain what they need
and want through creating and exchanging products and value with others.

-Kotler.
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Marketing is the management process that identifies, anticipates and satisfies customer requirements profitably.

-The Chartered Institute of Marketing (CIM).

MARKETING ENVIRONMENT

The marketing environment surrounds and impacts upon the organization. There are three key perspectives
on the marketing environment

MACRO ENVIRONMENT

This includes all factors that can influence an organization, but that are out of their direct control.

 A company does not generally influence any laws .It is continuously changing, and the company needs to be
flexible to adapt.

There may be aggressive competition and rivalry in a market.

Globalization means that there is always the threat of substitute products and new entrants.

The wider environment is also ever changing, and the marketer needs to compensate for changes in culture,
politics, economics and technology.

Competitive Environment

Adopting the marketing concept means that an organization must provide greater customer value than its
competitors. Being good is not good enough if a competitor is better. It is impossible for an organization to develop
strong competitive positioning strategies without a good understanding of its competitors and the strengths and
weaknesses of the competitors.

Three levels of competition exist. 

1. Direct competitors are firms competing for the same customers with the similar products (ex. grocery stores). 
2. Competition exists between products that can be substituted for one another (ex. margarine for butter). 
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3. Competition exists among all organizations that compete for the consumer's purchasing power (ex.
entertainment).

Economic Environment

The economic environment consists of factors that affect consumer purchasing power and spending patterns.
Economic factors include business cycles, inflation, unemployment, interest rates, and income. Changes in major
economic variables have a significant impact on the marketplace. For example, income affects consumer spending
which affects sales for organizations. According to Engel's Laws, as income rises, the percentage of income spent
on food decreases, while the percentage spent on housing remains constant.

People spend, save, invest and try to create personal wealth with differing amounts of money. How people deal
with their money is important to marketers. Trends in the economic environment show an emphasis on global
income distribution issues, low savings and high debt, and changing consumer-expenditure patterns. If you consider
access to telephones, clothes washers, dryers, microwaves, etc., there is little visible difference between the poor
and nonpoor. Indeed, recent figures indicate that the affluent are shopping at discount stores, having adopted some
of the shopping habits of those with less income.

Technological Environment

The technological environment refers to new technologies, which create new product and market opportunities.
Technological developments are the most manageable uncontrollable force faced by marketers. Organizations need
to be aware of new technologies in order to turn these advances into opportunities and a competitive edge.
Technology has a tremendous effect on life-styles, consumption patterns, and the economy. Advances in
technology can start new industries, radically alter or destroy existing industries, and stimulate entirely separate
markets. The rapid rate at which technology changes has forced organizations to quickly adapt in terms of how they
develop, price, distribute, and promote their products.

Political and Legal Environment

Organizations must operate within a framework of governmental regulation and legislation. Government
relationships with organizations encompass subsidies, tariffs, import quotas, and deregulation of industries.

The political environment includes governmental and special interest groups that influence and limit various
organizations and individuals in a given society. Organizations hire lobbyists to influence legislation and run
advocacy ads that state their point of view on public issues. Special interest groups have grown in number and
power over the last three decades, putting more constraints on marketers. The public expects organizations to be
ethical and responsible. An example of response by marketers to special interests is green marketing, the use of
recyclable or biodegradable packing materials as part of marketing strategy.

Demographic Environment

Demographics tell marketers who current and potential customers are; where they are; and how many are likely to
buy what the marketer is selling. Demography is the study of human populations in terms of size, density, location,
age, sex, race, occupation, and other statistics. Changes in the demographic environment can result in significant
opportunities and threats presenting themselves to the organization. Major trends for marketers in the demographic
environment include worldwide explosive population growth; a changing age, ethnic and educational mix; new
types of households; and geographical shifts in population.

Cultural Environment

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Social/cultural forces are the most difficult uncontrollable variables to predict. It is important for marketers to
understand and appreciate the cultural values of the environment in which they operate. The cultural environment is
made up of forces that affect society's basic values, perceptions, preferences, and behaviors. U.S. values and beliefs
include equality, achievement, youthfulness, efficiency, practicality, self-actualization, freedom, humanitarianism,
mastery over the environment, patriotism, individualism, religious and moral orientation, progress, materialism,
social interaction, conformity, courage, and acceptance of responsibility. Changes in social/cultural environment
affect customer behavior, which affects sales of products. Trends in the cultural environment include individuals
changing their views of themselves, others, and the world around them and movement toward self-fulfillment,
immediate gratification, and secularism.

Ecosystem Environment

The ecosystem refers to natural systems and its resources that are needed as inputs by marketers or that are affected
by marketing activities. Green marketing (the greening of America) or environmental concern about the physical
environment has intensified in recent years. Environmental consciousness has a strong presence in Western Europe
and Japan, as well as in the United States. To avoid shortages in raw materials, organizations can use renewable
resources (such as forests) and alternatives (such as solar and wind energy) for nonrenewable resources (such as oil
and coal). Organizations can limit their energy usage by increasing efficiency. Goodwill can be built by voluntarily
engaging in pollution prevention activities and natural resource

MICRO ENVIRONMENT

The Market

Organizations closely monitor their customer markets in order to adjust to changing tastes and preferences.
Amarket is people or organizations with wants to satisfy, money to spend, and the willingness to spend it. Each
target market has distinct needs, which need to be monitored. It is imperative for an organization to know their
customers, how to reach them and when customers' needs change in order to adjust its marketing efforts
accordingly. The market is the focal point for all marketing decisions in an organization.

Consumer markets are individuals and households that buy goods and services for personal consumption.Business
markets buy goods and services for further processing or for use in their production process. Reseller markets buy
goods and services in order to resell them at a profit. Government markets are agencies that buy goods and services
in order to produce public services or transfer them to those that need them. The federal government is the largest
buyer in the United States. International markets consist of buyers in other countries.

Suppliers

Suppliers are organizations and individuals that provide the resources needed to produce goods and services. They
are critical to an organization's marketing success and an important link in its value delivery system. Marketers
must watch supply availability and monitor price trends of key inputs. If there is a breakdown in the link between
the organization and its suppliers, the result will be delays and shortages that can negatively impact the
organization's marketing plans. On the other hand, positive and cooperative relationships between the organization
and its suppliers can lead to enhanced service and customer satisfaction.

Marketing Intermediaries

Like suppliers, marketing intermediaries are an important part of the system used to deliver value to
customers. Marketing intermediaries are independent organizations that aid in the flow of products from the
marketing organization to its markets. The intermediaries between an organization and its markets constitute a
channel of distribution. These include middlemen (wholesalers and retailers who buy and resell merchandise).
Physical distribution firms help the organization to stock and move products from their points of origin to their

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destinations. Warehouses store and protect the goods before they move to the next destination. Marketing service
agencies help the organization target and promote its products and include marketing research firms, advertising
agencies, and media firms. Financial intermediaries help finance transactions and insure against risks and include
banks, credit unions, and insurance companies.

THE INTERNAL ENVIRONMENT.

All factors that are internal to the organization are known as the ‘internal environment’. They are generally audited
by applying the ‘Five Ms’ which are Men, Money, Machinery, Materials and Markets. The internal environment is
as important for managing change as the external. As marketers we call the process of managing internal
change ‘internal marketing.’

Essentially we use marketing approaches to aid communication and change management.

ADVERTISING

Advertising is a form of communication used to persuade an audience (viewers, readers or listeners) to take some
action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior
with respect to a commercial offering, although political and ideological advertising is also common. Advertising
messages are usually paid for by sponsors and viewed via various traditional media; including mass media such
as newspaper, magazines, television commercial, radio advertisement, outdoor advertising or direct mail; or new
media such as websites and text messages.

Definition:
1. The non-personal communication of information usually paid for & usually persuasive in nature, about
products (goods & services) or ideas by identified sponsor through various media. (Arenes 1996)
2. Any paid form of non-personal communication about an organization, product,service, or idea from an
identified sponsor. (Blech & Blech 1998)
3. Paid non-personal communication from an identified sponsor using mass media to persuade influence an
audience. (Wells, Burnett, & Moriaty 1998)
4. The element of the marketing communication mix that is non personal paid for an identified sponsor, &
disseminated through channels of mass communication to promote the adoption of goods, services, person
or ideas. (Bearden, Ingram, & Laforge 1998)
5. An informative or persuasive message carried by a non personal medium & paid for by an identified
sponsor whose organization or product is identified in some way. (Zikmund & D'amico 1999)
6. Impersonal; one way communication about a product or organization that is paid by a marketer. (Lamb,
Hair & Mc.Daniel 2000)
7. Any paid form of non-personal presentation and promotion of ideas,goods or services by an identified
sponsor. (Kotler et al., 2006)

Importance of Advertising

Advertising has become an indispensable function in modern business due to cut-throat competition and
mass production. It pervades our economic and social life. It helps to disseminate information which is useful to
businessmen, consumers and the society in general. Through it one can create an indirect and impersonal link with
his prospects easily, quickly and economically. The importance of advertising can be classified into three different
heads:

• Importance of Advertising to producers and Traders,

• Importance of Advertising to customers,
• Importance of Advertising to society,
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We will precisely deal with Importance of Advertising to producers and traders in this topic. Let us now discuss

the Importance of Advertising to Producers and Traders.

Advertising provides various benefits to the producers and traders and it can be summed up under the following

head;

Meeting competition: Advertising is an important means for facing competition. By creating brand loyalty, it helps
to maintain sales and market share. It supplements personal selling and sales promotion. The importance of
Advertising lies in the fact that it creates preference for a particular product opens doors for salesmen and
reinforces point of purchase display, thereby reducing the costs of creating and maintaining demand. Dealers prefer
to handle well advertised products.

Steady demand: Advertising creates regular demand by smoothening out seasonal and other fluctuations. For
instance, advertising is used to emphasize hot and cold uses of coffee to maintain regular sales both during summer
and winter. By suggesting new and more frequent uses of product, advertising helps to maintain demand,
throughout the year. Steady demand enables regular production.

Higher sales volume: Advertising helps to increase demand, expand markets and enhance sales of existing
products. Through repeated advertising, a producer can create new customers and enter new markets. It creates new
wants and increases sales. Advertising is an essential technique of mass selling.

Introduction of new product: Advertising is helpful in introducing new products by creating awareness and
gaining their acceptance. By informing consumers about the new product, advertising stimulates their interest and
persuades them to buy it. Effective advertising helps in overcoming consumers’ resistance to new products.

Economies of scale: Advertising facilitates mass distribution of goods. It reduces dependence on middlemen as
dealers are more willing to stock and sell well advertised goods. Direct distribution and rapid sales turnover help to
reduce costs of distribution. Mass distribution and steady demand lead to large scale and regular production. As a
result, several economies of scale become available and cost of production per unit is reduced. Investment in
inventories can be reduced.

Goodwill : Advertising helps in creating a good image of the firm and reputation for its products. A favorable
image increases the capacity of the firm to survive competition and depression. It is through effective advertising
that Tatas, Birlas, etc., have become household names. It has rightly been observed that "doing business without
advertising is like winking at a girl in the dark. You know what you are doing but the targets do not know." By
building goodwill advertising enables business firms to obtain repeat orders.

Employee morale: By building reputation of the firm, advertising provides a sense of security to employees and
improves their morale. Salesmen feel happy as their task becomes easier when the product and its producer are
known to customers. In a well reputed firm, executive have a feeling of pride and job satisfaction which is
necessary for better performance.

DIFFERENT TYPES OF ADVERTISING

Advertising is the promotion of a company's products and services carried out primarily to drive sales of
the products and services but also to build a brand identity and communicate changes or new product /services to
the customers. Advertising has become an essential element of the corporate world and hence the companies allot a

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considerable amount of revenues as their advertising budget. There are several reasons for advertising some of
which are as follows:

 Increasing the sales of the product/service

 Creating and maintaining a brand identity or brand image.
 Communicating a change in the existing product line.
 Introduction of a new product or service.
 Increasing the buzz-value of the brand or the company.

Thus, several reasons for advertising and similarly there exist various media which can be effectively used for
advertising. Based on these criteria there can be several branches of advertising. Mentioned below are the various
categories or types of advertising: 

Print Advertising Newspapers, Magazines, Brochures, Fliers 

The print media have always been a popular advertising medium. Advertising products via newspapers or
magazines is a common practice. In addition to this, the print media also offers options like promotional brochures
and fliers for advertising purposes. Often the newspapers and the magazines sell the advertising space according to
the area occupied by the advertisement, the position of the advertisement (front page/middle page), as well as the
readership of the publications. For instance an advertisement in a relatively new and less popular newspaper would
cost far less than placing an advertisement in a popular newspaper with a high readership. The price of print ads
also depend on the supplement in which they appear, for example an advertisement in the glossy supplement costs
way higher than that in the newspaper supplement which uses a mediocre quality paper. 

Outdoor Advertising - Billboards, Kiosks, Tradeshows and Events

Outdoor advertising is also a very popular form of advertising, which makes use of several tools and techniques to
attract the customers outdoors. The most common examples of outdoor advertising are billboards, kiosks, and also
several events and tradeshows organized by the company. The billboard advertising is very popular however has to
be really terse and catchy in order to grab the attention of the passers by. The kiosks not only provide an easy outlet
for the company products but also make for an effective advertising tool to promote the company's products.
Organizing several events or sponsoring them makes for an excellent advertising opportunity. The company can
organize trade fairs, or even exhibitions for advertising their products. If not this, the company can organize several
events that are closely associated with their field. For instance a company that manufactures sports utilities can
sponsor a sports tournament to advertise its products.
 

Broadcast advertising - Television, Radio and the Internet 

Broadcast advertising is a very popular advertising medium that constitutes several branches like
television, radio or the Internet. Television advertisements have been very popular ever since they have been
introduced. The cost of television advertising often depends on the duration of the advertisement, the time of
broadcast (prime time/peak time), and of course the popularity of the television channel on which the advertisement
is going to be broadcasted. The radio might have lost its charm owing to the new age media however the radio
remains to be the choice of small-scale advertisers. The radio jingles have been very popular advertising media and
have a large impact on the audience, which is evident in the fact that many people still remember and enjoy the
popular radio jingles. 

Covert Advertising - Advertising in Movies 

Covert advertising is a unique kind of advertising in which a product or a particular brand is incorporated in some
entertainment and media channels like movies, television shows or even sports. There is no commercial in the
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entertainment but the brand or the product is subtly( or sometimes evidently) showcased in the entertainment show.
Some of the famous examples for this sort of advertising have to be the appearance of brand  Nokia which is
displayed on Tom Cruise's phone in the movie Minority Report, or the use of Cadillac cars in the movie Matrix
Reloaded.
 
Surrogate Advertising - Advertising Indirectly
 
Surrogate advertising is prominently seen in cases where advertising a particular product is banned by law.
Advertisement for products like cigarettes or alcohol which are injurious to health are prohibited by law in several
countries and hence these companies have to come up with several other products that might have the same brand
name and indirectly remind people of the cigarettes or beer bottles of the same brand. Common examples include
Fosters and Kingfisher beer brands, which are often seen to promote their brand with the help of surrogate
advertising.

Public Service Advertising - Advertising for Social Causes 

Public service advertising is a technique that makes use of advertising as an effective communication
medium to convey socially relevant messaged about important matters and social welfare causes like AIDS, energy
conservation, political integrity, deforestation, illiteracy, poverty and so on. David Oglivy who is considered to be
one of the pioneers of advertising and marketing concepts had reportedly encouraged the use of advertising field for
a social cause. Oglivy once said, "Advertising justifies its existence when used in the public interest - it is much too
powerful a tool to use solely for commercial purposes.". Today public service advertising has been increasingly
used in a non-commercial fashion in several countries across the world in order to promote various social causes. In
USA, the radio and television stations are granted on the basis of a fixed amount of Public service advertisements
aired by the channel. 

Celebrity Advertising

Although the audience is getting smarter and smarter and the modern-day consumer getting immune to the
exaggerated claims made in a majority of advertisements, there exist a section of advertisers that still bank upon
celebrities and their popularity for advertising their products. Using celebrities for advertising involves signing up
celebrities for advertising campaigns, which consist of all sorts of advertising including, television ads or even print
advertisements.

SALES PROMOTION

Sales promotion is the process of persuading a potential customer to buy the product.  Sales promotion is designed
to be used as a short-term tactic to boost sales – it is not really designed to build long-term customer loyalty.

Some sales promotions are aimed at consumers.  Others are targeted at intermediaries (such as agents and
wholesalers) or at the firm’s sales force.

When undertaking a sales promotion, there are several factors that a business must take into account:

 What does the promotion cost – will the resulting sales boost justify the investment?

 Is the sales promotion consistent with the brand image?  A promotion that heavily discounts a product with
a premium price might do some long-term damage to a brand

 Will the sales promotion attract customers who will continue to buy the product once the promotion ends,
or will it simply attract those customers who are always on the look-out for a bargain?
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There are many methods of sales promotion, including:

 Money off coupons – customers receive coupons, or cut coupons out of newspapers or a products
packaging that enables them to buy the product next time at a reduced price
 Competitions – buying the product will allow the customer to take part in a chance to win a prize
 Discount vouchers – a voucher (like a money off coupon)
 Free gifts – a free product when buy another product
 Point of sale materials – e.g. posters, display stands – ways of presenting the product in its best way or
show the customer that the product is there.
 Loyalty cards – e.g. Nectar and Air Miles; where customers earn points for buying certain goods or
shopping at certain retailers – that can later be exchanged for money, goods or other offers
Loyalty cards have recently become an important form of sales promotion.  They encourage the customer to return
to the retailer by giving them discounts based on the spending from a previous visit. Loyalty cards can offset the
discounts they offer by making more sales and persuading the customer to come back.  They also provide
information about the shopping habits of customers – where do they shop, when and what do they buy?  This is
very valuable marketing research and can be used in the planning process for new and existing products.

The main advantages and disadvantages of sales promotion are:

Advantages of Sales Promotion

Sales promotions have a significant effect on the behaviour of consumers and trades people.  Such promotions can
bring in more profits for the manufacturers because they permit price discrimination.

1. Price discrimination:

Producers can introduce price discrimination through the use of sales promotions.  They can charge different prices
to different consumers and trade segments depending on how sensitive each segment is
to particular prices.Coupons, special sales events, clearance sales anddiscounts are examples to explain the
phenomenon.

Often such price discrimination are offered in specific cities in the country,Bajaj Auto Ltd. started the scheme on
20th august 2001, where by if you buy a Bajaj Spirit two-wheeler you get Rs.3000/- off, valid only in Ahmedabad.

2. Effect on consumer behaviour:

As sales promotions are mostly announced for a short period, customers may feel a sense of urgency and stop
comparing the alternatives.  They are persuaded to act now rather than later.With every 500g pack of Tang, you get
a free Tang glass. Offer valid only till stocks last.

3. Effect on trade behaviour:

Short-term promotions present an opportunity and encourage dealers to forward buy. This forward buying ensures
that retailers won’t to go out of stocks.  As dealers have more than the normal stocks, they think it advisable to
advertise in local media, arranged displays and offer attractive promotion deals to consumers.  These actions help in
increasing the store traffic. Buy 2 dozen shampoo sachets & get 2 sachets free.

4. Regional Differences:

The South is generally characterised by greater degree of going out and people tend to drink outside the house. The
Tamilian, consumer in particular, is value oriented, rational and looks up to film stars, while the Keralite is more
international in his outlook. The Bangalorean is as Cosmopolitan as his Mumbai or Delhi counterpart. Such factors
have to be taken into consideration while providing incentives to the customers.

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In mid 80s, Philips decided to launch a special project in Tamil Nadu and Andhra Pradesh for their rural buyers. So,
for the Tamil Nadu market, they created a special campaign “The Super Star of the House” and made the cine idol
Rajnikant their brand ambassador as in that state he is popularly known as “Superstar”. Whereas, in Andhra
Pradesh, they launched their brand as “Mega Star of the House” as Chiranjeevi was taken as their brand
representative. Sales promotion was done by organizing various ‘super shows’ and ‘mega-shows’ for the masses in
states of Tamil Nadu and Andhra Pradesh respectively. Both these campaigns became a major success.

Disadvantages of Sales Promotion

While sales promotion is a powerful and effective method to produce immediate short termpositive results, it is not

a cure for a bad product or bad advertising.  In fact, a promotion is speed up the killing of a bad product.

1. Increased price sensitivity

Consumers wait for the promotion deals to be announced and then purchase the product.  This is true even for
brands where brand loyalty exists.  Customers wait and time their purchases to coincide with promotional offers on
their preferred brands. Thus, the routine sales at the market price are lost and the profit margin is reduced because
of the discounts to be offered during sale-season. ‘The Diwali Bonanza Offers’ on electronic goods.

2. Quality image may become tarnished:

If the promotions in a product category have been rare, the promotions could have a negative effect about
its quality image. Consumers may start suspecting that perhaps the product has not been selling well, the quality of
the product is true compared to the price or the product is likely to be discontinued because it has become outdated.

The Smyle Powder offer of “Buy 1 and get 2 free” went on and on. Ultimately people stopped asking for the
product as the on-going sales promotion strategy made the customers perceive it to be a cheap and an inferior
product.

3. Merchandising support from dealers is doubtful:

In many cases, the dealers do not cooperate in providing the merchandising support nor do they pass on any benefit
to consumers. The retailer might not be willing to give support because he does not have the place, or the product
does not sell much in his shop, or may be he thinks the effort required is more than the commission/benefit derived.

4. Short-term orientation:

Sales promotions are generally for a short duration.  This gives a boost to sales for a short period.  This short-term
orientation may sometimes have negative effects on long-term future of the organization.  Promotions mostly build
short-term sales volume, which is difficult to maintain.  Heavy use of sales promotion, in certain product
categories, may be responsible for causing brand quality image dilution.

Difference Between Advertising and Sales Promotion

Advertising and Sales Promotion are different. They have differences in there use and utility. WIll try to explain it
with example of  HUTCH (Orange) to facilitate our understanding.

ADVERTISING SALES PROMOTION

By using a variety of persuasive appeals, it offers reasons Besides giving reasons in the form of different appeals,
to buy a product or service. they offer incentive to the consumers to buy the product

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 Eg: Good Network, Promises and Delivers. or service now.

For new users, 1HUTCH no is given free for 1 month &

sms is free for 3 months.

Appeals are emotional or functional in nature. Appeals are rational

Eg: the current ad of “Wherever you go, our network  It justifies whatever it says.
follows”

Time-frame is long term. Time frame is short term.

The primary objective is to create an enduring brand To get sales quickly or to induce trial.

image.

Indirect and subtle approach towards persuading Direct in approach to induce consumers to buy a product
customers to buy a product or service. or service immediately by temporarily changing the
existing price-value relationship of the product or
service.

What is Consumer Behavior?

Definition of Buying Behavior:

Buying Behavior is the decision processes and acts of people involved in buying and using products.

Need to understand:

 why consumers make the purchases that they make?

 what factors influence consumer purchases?
 the changing factors in our society.

Consumer Buying Behavior refers to the buying behavior of the ultimate consumer. A firm needs to analyze buying
behavior for:

 Buyers reactions to a firms marketing strategy has a great impact on the firms success.
 The marketing concept stresses that a firm should create a Marketing Mix (MM) that satisfies (gives utility
to) customers, therefore need to analyze the what, where, when and how consumers buy.
 Marketers can better predict how consumers will respond to marketing strategies.

Stages of the Consumer Process

Six Stages to the Consumer Buying Decision Process (For complex decisions). Actual purchasing is only one stage
of the process. Not all decision processes lead to a purchase. All consumer decisions do not always include all 6
stages, determined by the degree of complexity...discussed next.

The 6 stages are:

1. Problem Recognition(awareness of need)--difference between the desired state and the actual condition.
Deficit in assortment of products. Hunger--Food. Hunger stimulates your need to eat.
Can be stimulated by the marketer through product information--did not know you were deficient? I.E., see
a commercial for a new pair of shoes, stimulates your recognition that you need a new pair of shoes.
2. Information search--
o Internal search, memory.
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 o External search if you need more information. Friends and relatives (word of mouth). Marketer
dominated sources; comparison shopping; public sources etc.

A successful information search leaves a buyer with possible alternatives, the evoked set.

Hungry, want to go out and eat, evoked set is

o chinese food
o indian food
o burger king
o klondike kates etc
3. Evaluation of Alternatives--need to establish criteria for evaluation, features the buyer wants or does not
want. Rank/weight alternatives or resume search. May decide that you want to eat something spicy, indian
gets highest rank etc.
If not satisfied with your choice then return to the search phase. Can you think of another restaurant? Look
in the yellow pages etc. Information from different sources may be treated differently. Marketers try to
influence by "framing" alternatives.
4. Purchase decision--Choose buying alternative, includes product, package, store, method of purchase etc.
5. Purchase--May differ from decision, time lapse between 4 & 5, product availability.
6. Post-Purchase Evaluation--outcome: Satisfaction or Dissatisfaction. Cognitive Dissonance, have you made
the right decision. This can be reduced by warranties, after sales communication etc.
After eating an indian meal, may think that really you wanted a chinese meal instead.

Types of Consumer Behavior

Types of consumer buying behavior are determined by:

 Level of Involvement in purchase decision. Importance and intensity of interest in a product in a particular
situation.
 Buyers level of involvement determines why he/she is motivated to seek information about a certain
products and brands but virtually ignores others.

High involvement purchases--Honda Motorbike, high priced goods, products visible to others, and the higher the
risk the higher the involvement. Types of risk:

 Personal risk
 Social risk
 Economic risk

The four type of consumer buying behavior are:

 Routine Response/Programmed Behavior--buying low involvement frequently purchased low cost items;
need very little search and decision effort; purchased almost automatically. Examples include soft drinks,
snack foods, milk etc.
 Limited Decision Making--buying product occasionally. When you need to obtain information about
unfamiliar brand in a familiar product category, perhaps. Requires a moderate amount of time for
information gathering. Examples include Clothes--know product class but not the brand.
 Extensive Decision Making/Complex high involvement, unfamiliar, expensive and/or infrequently bought
products. High degree of economic/performance/psychological risk. Examples include cars, homes,
computers, education. Spend alot of time seeking information and deciding.
Information from the companies MM; friends and relatives, store personnel etc. Go through all six stages
of the buying process.
 Impulse buying, no conscious planning.

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The purchase of the same product does not always elicit the same Buying Behavior. Product can shift from one
category to the next.
For example:
Going out for dinner for one person may be extensive decision making (for someone that does not go out often at
all), but limited decision making for someone else. The reason for the dinner, whether it is an anniversary
celebration, or a meal with a couple of friends will also determine the extent of the decision making.

Categories that Effect the Consumer Decision Process

A consumer, making a purchase decision will be affected by the following three factors:

1. Personal
2. Psychological
3. Social

The marketer must be aware of these factors in order to develop an appropriate MM for its target market.
PERSONAL

Unique to a particular person. Demographic Factors. Sex, Race, Age etc.

Who in the family is responsible for the decision making?
Young people purchase things for different reasons than older people.

PSYCHOLOGICAL FACTORS
Psychological factors include:

 Motives--

A motive is an internal energizing force that orients a person's activities toward satisfying a need or achieving a
goal.
Actions are effected by a set of motives, not just one. If marketers can identify motives then they can better develop
a marketing mix.
MASLOW hierarchy of needs!!

 Physiological
 Safety
 Love and Belonging
 Esteem
 Self Actualization

Need to determine what level of the hierarchy the consumers are at to determine what motivates their purchases.

 Perception

What do you see?? Perception is the process of selecting, organizing and interpreting information inputs to produce
meaning. IE we chose what info we pay attention to, organize it and interpret it.
Information inputs are the sensations received through sight, taste, hearing, smell and touch.

Selective Exposure-select inputs to be exposed to our awareness. More likely if it is linked to an event, satisfies
current needs, intensity of input changes (sharp price drop).

Selective Distortion-Changing/twisting current received information, inconsistent with beliefs.

Advertisers that use comparative advertisements (pitching one product against another), have to be very careful that
consumers do not distort the facts and perceive that the advertisement was for the competitor. A current
example...MCI and AT&T...do you ever get confused?
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  Ability and Knowledge

Need to understand individuals capacity to learn. Learning, changes in a person's behavior caused by
information and experience. Therefore to change consumers' behavior about your product, need to give them new
information re: product...free sample etc.

When making buying decisions, buyers must process information.

Knowledge is the familiarity with the product and expertise. Inexperience buyers often use prices as an
indicator of quality more than those who have knowledge of a product. Non-alcoholic Beer example: consumers
chose the most expensive six-pack, because they assume that the greater price indicates greater quality. Learning is
the process through which a relatively permanent change in behavior results from the consequences of past
behavior.

 Attitudes
Knowledge and positive and negative feelings about an object or activity-maybe tangible or intangible,
living or non- living.....Drive perceptions

Individual learns attitudes through experience and interaction with other people.
Consumer attitudes toward a firm and its products greatly influence the success or failure of the firm's marketing
strategy.

 Personality

All the internal traits and behaviors that make a person unique, uniqueness arrives from a person's heredity and
personal experience. Examples include:

 Workaholism
 Compulsiveness
 Self confidence
 Friendliness
 Adaptability
 Ambitiousness
 Dogmatism
 Authoritarianism
 Introversion
 Extroversion
 Aggressiveness
 Competitiveness.

Traits effect the way people behave. Marketers try to match the store image to the perceived image of their
customers. There is a weak association between personality and Buying Behavior, this may be due to unreliable
measures. Nike ads. Consumers buy products that are consistent with their self concept.

 Lifestyles

Recent US trends in lifestyles are a shift towards personal independence and individualism and a preference for a
healthy, natural lifestyle. Lifestyles are the consistent patterns people follow in their lives. EXAMPLE healthy
foods for a healthy lifestyle. Sun tan not considered fashionable in US until 1920's. Now an assault by the
American Academy of Dermatology.

SOCIAL FACTORS

Consumer wants, learning, motives etc. are influenced by opinion leaders, person's family, reference groups, social
class and culture.

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  Opinion leaders

Spokespeople etc. Marketers try to attract opinion leaders...they actually use (pay) spokespeople to market their
products. Michael Jordon (Nike, McDonalds, Gatorade etc.)

 Roles and Family Influences—

Role...things you should do based on the expectations of you from your position within a group.
People have many roles. Husband, father, employer/ee. Individuals role are continuing to change therefore
marketers must continue to update information.

Family is the most basic group a person belongs to. Marketers must understand:

o that many family decisions are made by the family unit

o consumer behavior starts in the family unit
o family roles and preferences are the model for children's future family (can reject/alter/etc)
o family buying decisions are a mixture of family interactions and individual decision making
o family acts an interpreter of social and cultural values for the individual.

The Family life cycle: families go through stages, each stage creates different consumer demands:

o bachelor stage...most of BUAD301

o newly married, young, no children...me
o full nest I, youngest child under 6
o full nest II, youngest child 6 or over
o full nest III, older married couples with dependant children
o empty nest I, older married couples with no children living with them, head in labor force
o empty nest II, older married couples, no children living at home, head retired
o solitary survivor, in labor force
o solitary survivor, retired
o Modernized life cycle includes divorced and no children.
 Reference Groups

Individual identifies with the group to the extent that he takes on many of the values, attitudes or behaviors of the
group members.

Families, friends, sororities, civic and professional organizations. Any group that has a positive or negative
influence on a persons attitude and behavior. Membership groups (belong to) Affinity marketing is focused on the
desires of consumers that belong to reference groups. Marketers get the groups to approve the product and
communicate that approval to its members. Credit Cards etc.!!

Aspiration groups (want to belong to)

Disassociate groups (do not want to belong to).

The degree to which a reference group will affect a purchase decision depends on an individuals susceptibility to
reference group influence and the strength of his/her involvement with the group.

 Social Class

An open group of individuals who have similar social rank. US is not a classless society. US criteria; occupation,
education, income, wealth, race, ethnic groups and possessions.

Social class influences many aspects of our lives. IE upper middle class Americans prefer luxury cars Mercedes.

o Upper Americans-upper-upper class, .3%, inherited wealth, aristocratic names.

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 o Lower-upper class, 1.2%, newer social elite, from current professionals and corporate elite
o Upper-middle class, 12.5%, college graduates, managers and professionals
o Middle Americans-middle class, 32%, average pay white collar workers and blue collar friends
o Working class, 38%, average pay blue collar workers
o Lower Americans-lower class, 9%, working, not on welfare
o Lower-lower class, 7%, on welfare

Social class determines to some extent, the types, quality, quantity of products that a person buys or uses.

Lower class people tend to stay close to home when shopping, do not engage in much prepurchase information
gathering. Stores project definite class images. Family, reference groups and social classes are all social influences
on consumer behavior. All operate within a larger culture.

 Culture and Sub-culture--

Culture refers to the set of values, ideas, and attitudes that are accepted by a homogenous group of people and
transmitted to the next generation.

Culture also determines what is acceptable with product advertising. Culture determines what people wear, eat,
reside and travel. Cultural values in the US are good health, education, individualism and freedom. In american
culture time scarcity is a growing problem. IE change in meals. Big impact on international marketing.

Culture can be divided into subcultures:

o geographic regions
o human characteristics such as age and ethnic background.

Culture effects what people buy, how they buy and when they buy.Understanding Consumer Buying Behavior
offers consumers greater satisfaction (Utility). We must assume that the company has adopted the Marketing
Concept and are consumer oriented.

Unit -V

HUMAN RESOURCE MANAGEMENT

Definition

Human resources may be defined as the total knowledge, skills, creative abilities, talents and
aptitudes of an organization's workforce, as well as the values, attitudes, approaches and beliefs of the
individuals involved in the affairs of the organization. It is the sum total or aggregate of inherent abilities,
acquired knowledge and skills represented by the talents and aptitudes of the persons employed in the
organization.

The human resources are multidimensional in nature. From the national point of view, human
resources may be defined as the knowledge, skills, creative abilities, talents and aptitudes obtained in the
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population; whereas from the viewpoint of the individual enterprise, they represent the total of the
inherent abilities, acquired knowledge and skills as exemplified in the talents and aptitudes of its
employees.

Human Resource Management: Nature

Human Resource Management is a process of bringing people and organizations together so that the goals
of each are met. The various features of HRM include:
• It is pervasive in nature as it is present in all enterprises.
• Its focus is on results rather than on rules.
• It tries to help employees develop their potential fully.
• It encourages employees to give their best to the organization.
• It is all about people at work, both as individuals and groups.
• It tries to put people on assigned jobs in order to produce good results.
• It helps an organization meet its goals in the future by providing for competent and well-motivated
employees.
• It tries to build and maintain cordial relations between people working at various levels in the
organization.
• It is a multidisciplinary activity, utilizing knowledge and inputs drawn from psychology, economics, etc.

Human Resource Management: Scope

The scope of HRM is very wide:
1. Personnel aspect-This is concerned with manpower planning, recruitment, selection, placement,
transfer, promotion, training and development, layoff and retrenchment, remuneration, incentives,
productivity etc.
2. Welfare aspect-It deals with working conditions and amenities such as canteens, creches, rest and lunch
rooms, housing, transport, medical assistance, education, health and safety, recreation facilities, etc.
3. Industrial relations aspect-This covers union-management relations, joint consultation, collective
bargaining, grievance and disciplinary procedures, settlement of disputes, etc.

Why Is HRM IMPORTANT to The Organization? 

It costs approximately three times more to recruit and train a new employee than it does to retain
and develop an existing employee. And this doesn't even take into account the hidden costs associated
with misdirected management time spent on recruiting activities rather than effectively managing existing
staff. 
The fact is, employees are the lifeblood of every organization. The better they are—the better
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qualified, trained, and managed the more effective and profitable your organization will be. 
HRM   management solutions can help you manage your employees for greater profit with processes that
help ensure: 
HRM  can align itself with the organization objectives/strategies. 
HRM  can make contribution to the organization's effectiveness 
HRM  can make contribution to the organization's efficiency 
HRM  can make contribution to the organization's productivity improvements 
HRM  can help to set up/ manage the succession planning program. 
HRM   can help to set up/ manage the talent management program. 
HRM   can help to set up/ manage the career planning/ development program. 
HRM  can manage the organization development programs 
HRM  can manage the organization change management programs. 
HRM  can a vital role in mergers/acquisitions programs of the company. 
HRM   can offer a market oriented compensation advice. 
HRM  can develop the organization's core competencies. 
HRM  can help to set up/ manage the organization's performance management programs 
HRM  can lead the way in changing the organization culture 
HRM  can help to set up / manage the organizations training/ management development programs 

Human Resource Management: Objectives

• To help the organization reach its goals.

• To ensure effective utilization and maximum development of human resources.
• To ensure respect for human beings. To identify and satisfy the needs of individuals.
• To ensure reconciliation of individual goals with those of the organization.
• To achieve and maintain high morale among employees.
• To provide the organization with well-trained and well-motivated employees.
• To increase to the fullest the employee's job satisfaction and self-actualization.
• To develop and maintain a quality of work life.
• To be ethically and socially responsive to the needs of society.
• To develop overall personality of each employee in its multidimensional aspect.
• To enhance employee's capabilities to perform the present job.
• To equip the employees with precision and clarity in transaction of business.
• To inculcate the sense of team spirit, team work and inter-team collaboration.

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Human Resource Management: Functions
In order to achieve the above objectives, Human Resource Management undertakes the following
activities:
1. Human resource or manpower planning.
2. Recruitment, selection and placement of personnel.
3. Training and development of employees.
4. Appraisal of performance of employees.
5. Taking corrective steps such as transfer from one job to another.
6. Remuneration of employees.
7. Social security and welfare of employees.
8. Setting general and specific management policy for organizational relationship.
9. Collective bargaining, contract negotiation and grievance handling.
10. Staffing the organization.
11. Aiding in the self-development of employees at all levels.
12. Developing and maintaining motivation for workers by providing incentives.
13. Reviewing and auditing manpower management in the organization
14. Potential Appraisal. Feedback Counseling.
15. Role Analysis for job occupants.
16. Job Rotation.
17. Quality Circle, Organization development and Quality of Working Life.

JOB ANALYSIS

Job Analysis is a process to identify and determine in detail the particular job duties and
requirements and the relative importance of these duties for a given job. Job Analysis is a process where
judgments are made about data collected on a job.

The Job; not the person an important concept of Job Analysis is that the analysis is conducted of
the Job, not the person. While Job Analysis data may be collected from incumbents through interviews or
questionnaires, the product of the analysis is a description or specifications of the job, not a description of
the person.

What is job analysis?

 A systematic approach to collect information about a job such as tasks, responsibilities and
the skills required to perform those tasks
 An important part of Human Resources (HR) planning

What is analyzed?
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 1) Work activities
2) Working conditions
 Supervisors
 Location
 Schedule
3) Machines and equipment
4) Job performance
 Operations
 Standards
 Time

5) Experience, training, and skills

6) Supervision and promotion patterns
7) Products/services completed

Who is involved in the job analysis?

 Management
 Supervisors
 Job analysts
 Job incumbent
 Unions
 Consultants

Uses of Job Analysis in Human Resource Management (HRM)

The information produced by job analysis is used extensively in HRM.  It is difficult to imagine
how an organisation could effectively hire, train, appraises, compensate or utilise its human resources
without the kinds of information derived from job analysis”

1. Job Descriptions – job descriptions define what a job is by identifying its content, requirements
and context.  Because job descriptions provide a written summary of the duties and
responsibilities of the job, they help managers and current and prospective employees understand
what the job is and how it is to be performed.
2. Job Specification – job specifications focus on the personal characteristics and qualifications that
an employee must possess to perform the job successfully.
3. Job Design – job design identifies what work must be performed, how it will be performed, where
it is to be performed and who will perform it.  Job analysis information is invaluable in
determining which tasks should be grouped together to form a job and structuring jobs so that
employee satisfaction and performance can be enhanced.
4. Organisational Structure and Design – job analysis by clarifying job requirements and the inter
relationships among jobs means content and tasks duties and responsibilities at all levels can be
specified, thus promoting efficiency by minimising overlap or duplication. Job analysis
information is invaluable in determining which tasks should be grouped together to form a job and
structuring jobs so that employee satisfaction and performance can be enhanced.
5. HR Planning – HR or personnel planning involves “getting the right number of qualified people
into the right job at the right time”.  Job analysis information is essential for this if the number and
types of employees to be recruited or exited from the organisation are to be accurately determined.
6. Recruitment – job analysis information helps the HR Manager attract better qualified candidates
by identifying who to recruit and how and where to recruit them by establishing the job
requirements that must meet.  In addition, job analysis permits the HR Manager to provide
realistic job previews by highlighting irrelevant and or distorted job information.
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 7. Selection – job analysis information identifies what the job is by defining what duties and
responsibilities must be performed.  This facilitates the development of job related selection
techniques, helps ensure that EEO requirements are met, and increases the likelihood of a proper
matching of an applicant with a job.  Finally, job analysis information can be used to validate the
selection techniques.
8. Orientation – Effective job orientation requires a clear understanding of the work to be
performed.  A new employee cannot be properly taught how to do a job if job duties and
responsibilities are not clearly defined.
9. Performance Appraisal – Job analysis information is essential to the establishment of
performance standards.  Through job analysis a thorough understanding of what the employee is
supposed to do is obtained.  Without this, acceptable levels of performance cannot be determined
or an accurate measure of actual performance obtained.
10. Training and Development – Job analysis information is used to design and implement training
and development programs.  The job specification defines the knowledge, skills and abilities
required for successful job performance.  This allows the HR Manager to establish training and
development objectives, design programs and determine whether or not a current or potential
employee requires training.
11. Career planning and Development – HR Managers are better placed to offer career guidance
when they have a good understanding of the types of jobs existing in an organisation.  Similarly,
by identifying jobs and job requirements, employees become aware of their career options and
what constitutes a realistic career objective for them in the organisation.
12. Compensation and Benefits – the job description is the foundation of job evaluation.  It
summarises the nature and requirements of the job and permits its evaluation relative to other
jobs.  Once the relative worth of a job has been determined an equitable level of compensation and
benefits can be assigned.
13. Health & Safety – job analysis information helps create a healthy and safe working environment. 
Jobs with hazardous conditions methods or procedures can be identified and redesigned to
eliminate or reduce exposure to health and safety hazards.
14. Industrial Relations – Misunderstandings and disagreement among managers, employees and
unions over job content is a major source of grievance and demarcation disputes.  Job analysis
information can help avoid such disputes by providing a clear description of tasks and
responsibilities and identifying the formal qualifications, skills, abilities, knowledge and
experience required to successfully perform the work

Methods of Job Analysis

Observation Method

 Analyst observes incumbent

 Directly
 Videotape
 Useful when job is fairly routine
 Workers may not perform to expectations

Interview Method

 Individual
• Several workers are interviewed individually
• The answers are consolidated into a single job analysis

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  Group
• Employees are interviewed simultaneously
• Group conflict may cause this method to be ineffective

Questionnaires

 Employees answer questions about the job’s tasks and responsibilities

 Each question is answered using a scale that rates the importance of each task
 Position Analysis Questionnaire (PAQ)

• A structured, behavioral questionnaire

• 194 items in 6 categories
• Information input
• Mental processes
• Work output
• Relationships
• Job context
• Other characteristics

Diary Method

 Employees record information into diaries of their daily tasks

• Record the time it takes to complete tasks

 Must be over a period of several weeks or months

Technical Conference Method

 Uses experts to gather information about job characteristics

Critical Incident Technique (CIT)

 Takes past incidents of good and bad behavior

 Organizes incidents into categories that match the job they are related to

Involves 4 steps

 Brainstorm and create lists of dimensions of job behaviors

 List examples of effective and ineffective behavior for each dimension
 Form a group consensus on whether each incident is appropriately categorized
 Rate each incident according to its value to the company

Conducting the job analysis

 Know the purpose

 Gather Information about jobs to be analyzed
• Books
• Charts
• Trade union literature
• Government agency literature
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  Use employee input
 Choose an efficient method of collecting information
 Gather information from employee/supervisor about the job
 Draft a job description
 Obtain supervisor approval

The Department of Labor

 Job analyst uses observation and interview methods to gather information about an
employee
 Information organized into 3
1) Categories ,2) Data , 3) People Things

RECRUITMENT

Definition: “It is the process of finding and attracting capable applicants for the employment. The process
begins when new recruits are sought and ends when their applicants are submitted. The result is a pool of
applicants from which new employees are selected”. In this, the available vacancies are given wide
publicity and suitable candidates are encouraged to submit applications so as to have a pool of eligible
candidates for scientific selection.

According to EDWIN FLIPPO, “Recruitment is the process of searching for prospective

employees and stimulating them to apply for jobs in the organization.”

Internal Sources

Internal recruitment seeks applicants for positions from within the company. The various internal
sources include:

 Promotions and Transfers : Promotion is an effective means using job posting and personnel
records. Job posting requires notifying vacant positions by posting notices, circulating
publications or announcing at staff meetings and inviting employees to apply. Personnel records
help discover employees who are doing jobs below their educational qualifications or skill levels.
Promotions has many advantages like it is good public relations, builds morale, encourages
competent individuals who are ambitious, improves the probability of good selection since
information on the individual’s performance is readily available, is cheaper than going outside to
recruit, those chosen internally are familiar with the organization thus reducing the orientation
time and energy and also acts as a training device for developing middle-level and top-level
managers. However, promotions restrict the field of selection preventing fresh blood & ideas from
entering the organization. It also leads to inbreeding in the organization. Transfers are also
important in providing employees with a broad-based view of the organization, necessary for
future promotions.
 Employee referrals: Employees can develop good prospects for their families and friends by
acquainting them with the advantages of a job with the company, furnishing them with
introduction and encouraging them to apply. This is a very effective means as many qualified
people can be reached at a very low cost to the company.  The other advantages are that the
employees would bring only those referrals that they feel would be able to fit in the organization

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 based on their own experience. The organization can be assured of the reliability and the character
of the referrals. In this way, the organization can also fulfill social obligations and create goodwill.
 Former Employees : These include retired employees who are willing to work on a part-time
basis, individuals who left work and are willing to come back for higher compensations. Even
retrenched employees are taken up once again. The advantage here is that the people are already
known to the organization and there is no need to find out their past performance and character.
Also, there is no need of an orientation programme for them, since they are familiar with the
organization.
 Dependents of deceased employees: Usually, banks follow this policy. If an employee dies, his /
her spouse or son or daughter is recruited in their place. This is usually an effective way to fulfill
social obligation and create goodwill.
 Recalls : When management faces a problem, which can be solved only by a manager who has
proceeded on long leave, it may de decided to recall that persons after the problem is solved, his
leave may be extended.
 Retirements : At times, management may not find suitable candidates in place of the one who
had retired, after meritorious service. Under the circumstances, management may decide to call
retired managers with new extension.
 Internal notification (advertisement): Sometimes, management issues an internal notification
for the benefit of existing employees. Most employees know from their own experience about the
requirement of the job and what sort of person the company is looking for. Often employees have
friends or acquaintances who meet these requirements. Suitable persons are appointed at the
vacant posts

External sources

External recruitment seeks applicants for positions from sources outside the company. They have
outnumbered the internal methods. The various external sources include:

Thus the firm has a number of outside sources available, among which are the following:

1. Advertising: There is a trend toward more selective recruitment in advertising. This can be

affected in at least two ways. First, advertisements can be placed in media read only by particular
groups. Secondly, more information about the company, the job, and the job specification can be
included in the ad to permit some self-screening.
2. Employment Agencies: Additional screening can be affected through the utilization of
employment agencies, both public and private. Today, in contrast to their former unsavoury
reputation, the public employment agencies in several States are well-regarded, particularly in the
fields of unskilled semi-skilled and skilled operative jobs. In the technical and professional areas,
however, the private agencies appear to be doing most of the work. Many private agencies tend to
specialize in a particular type of worker and job, such as sales, office, executive or engineer.
3. Labour unions: Firms with closed or union shops must look to the union in their recruitment
efforts. Disadvantages of a monopolistically controlled labour source are offset, at least
particularly, by savings in recruitment costs. With one-fifth of the labour force organized into
unions, organized labour constitutes an important source of personnel.

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4. Casual applicants: Unsolicited applications, both at the gate and through the mail, constitute a
much-used source of personnel. These can be developed through provision of attractive
employment office facilities and prompt and courteous replies to unsolicited letters.
5. Professional organizations or recruiting firms or executive recruiters: maintain complete
information records about employed executives. These firms are looked upon as ‘head hunters’,
‘raiders’ and ‘pirates’ by organizations which lose personnel through their efforts. However, these
same organizations may employ “executive search firms” to help them find talent. These
consulting firms recommend persons of high calibre for managerial, marketing and production
engineers’ posts.
6. Indoctrination seminars for colleges professors: are arranged to discuss the problem of
companies and employees. Professors are invited to take part in these seminars. Visits to plants
and banquets are arranged so that the participant professors may be favourably impressed. They
may later speak well of a company and help it in getting the required personnel.
7. Unconsolidated applications: For positions in which large numbers of candidates are not
available from other sources, the companies may gain keeping files of applications received from
candidates who make direct enquiries about possible vacancies on their own, or may send
unconsolidated applications. The information may be indexed and filed for future use when there
are openings in these jobs.
8. Leasing: To adjust to short-term fluctuations in personnel needs, the possibility of leasing
personnel by the hour or day should be considered. This practice has been particularly well-
developed in the office administration field. The firm not only obtains well-trained and selected
personnel but avoids any obligation in pensions, insurance, and other fringe benefits.
9. Voluntary organizations: such as private clubs, social organizations might also provide
employees – handicaps, widowed or married women, old persons, retired hands, etc., in response
to advertisements.
10. Computer data banks: When a company desires a particular type of employee, job specifications
and requirements are fed into a computer, where they are matched against the resume data stored
therein. The output is a set of resumes for individuals who meet the requirements. This method is
very useful for identifying candidates for hard-to-fill positions which call for an unusual
combination of skills
11. Professional or Trade Associations : Many associations provide placement service to its
members. It consists of compiling job seeker’s lists and providing access to members during
regional or national conventions. Also, the publications of these associations carry classified
advertisements from employers interested in recruiting their members. These are particularly
useful for attracting highly educated, experienced or skilled personnel. Also, the recruiters can
zero on in specific job seekers, especially for hard-to-fill technical posts.
12. Employment Exchanges : Employment Exchanges have been set up all over the country in
deference to the provision of the Employment Exchanges (Compulsory Notification of Vacancies)
Act, 1959. The Act applies to all industrial establishments having 25 workers or more each. The
Act requires all the industrial establishments to notify the vacancies before they are filled. The
major functions of the exchanges are to increase the pool of possible applicants and to do the
preliminary screening. Thus, employment exchanges act as a link between the employers and the

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 prospective employees. These offices are particularly useful to in recruiting blue-collar, white
collar and technical workers.
13. Campus Recruitments : Colleges, universities, research laboratories, sports fields and institutes
are fertile ground for recruiters, particularly the institutes. Campus Recruitment is going global
with companies like HLL, Citibank, HCL-HP, ANZ Grindlays, L&T, Motorola and Reliance
looking for global markets. Some companies recruit a given number of candidates from these
institutes every year. Campus recruitment is so much sought after that each college; university
department or institute will have a placement officer to handle recruitment functions. However, it
is often an expensive process, even if recruiting process produces job offers and acceptances
eventually. A majority leave the organization within the first five years of their employment. Yet,
it is a major source of recruitment for prestigious companies.
14. Walk-ins, Write-ins and Talk-ins : The most common and least expensive approach for
candidates is direct applications, in which job seekers submit unsolicited application letters or
resumes. Direct applications can also provide a pool of potential employees to meet future needs.
From employees’ viewpoint, walk-ins are preferable as they are free from the hassles associated
with other methods of recruitment. While direct applications are particularly effective in filling
entry-level and unskilled vacancies, some organizations compile pools of potential employees
from direct applications for skilled positions. Write-ins are those who send written enquiries.
These jobseekers are asked to complete application forms for further processing. Talk-ins involves
the job aspirants meeting the recruiter (on an appropriated date) for detailed talks. No application
is required to be submitted to the recruiter.
15. Contractors : They are used to recruit casual workers. The names of the workers are not entered
in the company records and, to this extent; difficulties experienced in maintaining permanent
workers are avoided.
16. Consultants : They are in the profession for recruiting and selecting managerial and executive
personnel. They are useful as they have nationwide contacts and lend professionalism to the hiring
process. They also keep prospective employer and employee anonymous. However, the cost can
be a deterrent factor.
17. Head Hunters : They are useful in specialized and skilled candidate working in a particular
company. An agent is sent to represent the recruiting company and offer is made to the candidate.
This is a useful source when both the companies involved are in the same field, and the employee
is reluctant to take the offer since he fears, that his company is testing his loyalty.
18. Radio, Television and Internet : Radio and television are used to reach certain types of job
applicants such as skilled workers. Radio and television are used but sparingly, and that too, by
government departments only. Companies in the private sector are hesitant to use the media
because of high costs and also because they fear that such advertising will make the companies
look desperate and damage their conservative image. However, there is nothing inherently
desperate about using radio and television. It depends upon what is said and how it is delivered.
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 Internet is becoming a popular option for recruitment today. There are specialized sites like
naukri.com. Also, websites of companies have a separate section wherein; aspirants can submit
their resumes and applications. This provides a wider reach.
19. Competitors : This method is popularly known as “poaching” or “raiding” which involves
identifying the right people in rival companies, offering them better terms and luring them away.
For instance, several executives of HMT left to join Titan Watch Company. There are legal and
ethical issues involved in raiding rival firms for potential candidates. From the legal point of view,
an employee is expected to join a new organization only after obtaining a ‘no objection certificate’
from his/ her present employer. Violating this requirement shall bind the employee to pay a few
months’ salary to his/ her present employer as a punishment. However, there are many ethical
issues attached to it.
20. Mergers and Acquisitions : When organizations combine, they have a pool of employees, out of
whom some may not be necessary any longer. As a result, the new organization has, in effect, a
pool of qualified job applicants. As a result, new jobs may be created. Both new and old jobs may
be readily staffed by drawing the best-qualified applicants from this employee pool. This method
facilitates the immediate implementation of an organization’s strategic plan.

The merits are;

 The organization will have the benefit of new skills, new talents and new experiences, if people
are hired from external sources.
 The management will be able to fulfill reservation requirements in favour of the disadvantaged
sections of the society.
 Scope for resentment, heartburn and jealousy can be avoided by recruiting from outside.

The demerits are;

 Better motivation and increased morale associated with promoting own employees re lost to the
organization.
 External recruitment is costly.
 If recruitment and selection processes are not properly carried out, chances of right candidates
being rejected and wrong applicants being selected occur.
 High training time is associated with external recruitment.

SELECTION

Definition

Selection is defined as the process of differentiating between applicants in order to identify (and
hire) those with a greater likelihood of success in a job.

Selection is basically picking an applicant from (a pool of applicants) who has the appropriate
qualification and competency to do the job.

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The difference between recruitment and selection:

Recruitment is identifying n encouraging prospective employees to apply for a job.

And
Selection is selecting the right candidate from the pool of applicants.

SELECTION PROCESS

Selection is a long process, commencing from the preliminary interview of the

applicants and ending with the contract of employment.

The following chart gives an idea about selection process: -

External Environment

Internal Environment
Rejected Application

Preliminary Interview

Selection Tests

Employment Interview

Reference and Background

Analysis

Selection Decision

Physical Examination

Job Offer

Employment102
Contract

Evaluation
Environment factor affecting selection: -

Selection is influenced by several factors. More prominent among them are supply and demand
of specific skills in the labour market, unemployment rate, labour- market conditions, legal and
political considerations, company’s image, company’s policy, human resources planning and cost
of hiring. The last three constitute the internal environment and the remaining form the external
environment of selection process.

Preliminary interview

The applicants received from job seekers would be subject to scrutiny so as to eliminate
unqualified applicants. This is usually followed by a preliminary interview the purpose of which is
more or less the same as scrutiny of application, that is, eliminate of unqualified applicants.
Scrutiny enables the HR specialists to eliminate unqualified jobseekers based on the information
supplied in their application forms. Preliminary interview, on the other hand, helps reject misfits for
reason, which did not appear in the application forms. Besides, preliminary interview, often called
‘courtesy interview’, is a good public relation exercise.

Selection test:

Job seekers who pass the screening and the preliminary interview are called for tests.
Different types of tests may be administered, depending on the job and the company. Generally,
tests are used to determine the applicant’s ability, aptitude and personality.

1). Ability tests: -

Assist in determining how well an individual can perform tasks related to the job. An excellent
illustration of this is the typing tests given to a prospective employer for secretarial job. Also called
as ‘ACHEIVEMENT TESTS’. It is concerned with what one has accomplished. When applicant
claims to know something, an achievement test is taken to measure how well they know it. Trade
tests are the most common type of achievement test given. Questions have been prepared and tested
for such trades as asbestos worker, punch-press operators, electricians and machinists. There are, of
course, many unstandardised achievement tests given in industries, such as typing or dictation tests
for an applicant for a stenographic position.

2). Aptitude test: -

Aptitude tests measure whether an individuals has the capacity or latent ability to learn a given
job if given adequate training. The use of aptitude test is advisable when an applicant has had little
or no experience along the line of the job opening. Aptitudes tests help determine a person’s
potential to learn in a given area. An example of such test is the general management aptitude tests
(GMAT), which many business students take prior to gaining admission to a graduate business
school programme.

Aptitude test indicates the ability or fitness of an individual to engage successfully in any
number of specialized activities. They cover such areas clerical aptitude, numerical aptitude,
mechanical aptitude, motor co-ordination, finger dexterity and manual dexterity. These tests help to
detect positive negative points in a person’s sensory or intellectual ability. They focus attention on
a particular type of talent such as learning or reasoning in respect of a particular field of work.

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INTERVIEW:

The next step in the selection process is an interview. Interview is formal, in-depth
conversation conducted to evaluate the applicant’s acceptability. It is considered to be excellent
selection device. It is face-to-face exchange of view, ideas and opinion between the candidates and
interviewers. Basically, interview is nothing but an oral examination of candidates. Interview can
be adapted to unskilled, skilled, managerial and profession employees.

Objectives of interview: -

Interview has at least three objectives and they are a follows: -

1) Helps obtain additional information from the applicants

2) Facilitates giving general information to the applicants such as company policies, job,
products manufactured and the like
3) Helps build the company’s image among the applicants.

Types of interview: -

1. Informal interview
2. Formal interview
3. Non-directive Interview
4. Depth Interview
5. Stress Interview
6. Group Interview
7. Panel Interview
8. Sequential Interview
9. Structures Interview
10. Unstructured Interview
11. Mixed Interview
12. Impromptu Interviews
13. Dinner Interviews
14. Telephone Interviews
15. Second Interviews

REFERENCE CHECK:-

Many employers request names, addresses, and telephone numbers of references for
the purpose of verifying information and perhaps, gaining additional background information on an
applicant. Although listed on the application form, references are not usually checked until an
applicant has successfully reached the fourth stage of a sequential selection process. When the
labour market is very tight, organisations sometimes hire applicants before checking references.

Previous employers, known as public figures, university professors, neighbours or friends

can act as references. Previous employers are preferable because they are already aware of the
applicant’s performance. But, the problem with this reference is the tendency on the part of the
previous employers to over-rate the applicant’s performance just to get rid of the person.

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 Organisations normally seek letters of reference or telephone references. The latter is
advantageous because of its accuracy and low cost. The telephone reference also has the advantage
of soliciting immediate, relatively candid comments and attitude can sometimes be inferred from
hesitations and inflections in speech.

SELECTION DECISION:-

After obtaining information through the preceding steps, selection decision- the most critical of all
the steps- must be made. The other stages in the selection process have been used to narrow the
number of the candidates. The final decision has to be made the pool of individuals who pas the
tests, interviews and reference checks.

The view of the line manager will be generally considered in the final selection because it is he/she
who is responsible for the performance of the new employee. The HR manager plays a crucial role
in the final selection.

PHYSICAL EXAMINATION: -

After the selection decision and before the job offer is made, the candidate is required to
undergo a physical fitness test. A job offer is, often, contingent upon the candidate being declared
fit after the physical examination. The results of the medical fitness test are recorded in a statement
and are preserved in the personnel records. There are several objectives behind a physical test.
Obviously, one reason for a physical test is to detect if the individual carries any infectious disease.
Secondly, the test assists in determining whether an applicant is physically fit to perform the work.
Thirdly, the physical examination information can be used to determine if there are certain physical
capabilities, which differentiate successful and less successful employees. Fourth, medical check-
up protects applicants with health defects from undertaking work that could be detrimental to them
or might otherwise endanger the employer’s property. Finally, such an examination will protect the
employer from workers compensation claims that are not valid because the injuries or illness were
present when the employee was hired.

JOB OFFER: -

The next step in the selection process is job offer to those applicants who have crossed all
the previous hurdles. Job offer is made through a letter of appointed. Such a letter generally
contains a date by which the appointee must report on duty. The appointee must be given
reasonable time for reporting. Thos is particularly necessary when he or she is already in
employment, in which case the appointee is required to obtain a relieving certificate from the
previous employer. Again, a new job may require movement to another city, which means
considerable preparation, and movement of property.

The company may also want the individual to delay the date of reporting on duty. If the new
employee’s first job upon joining the company is to go on company until perhaps a week before
such training begins. Naturally, this practice cannot be abused, especially if the individual is
unemployed and does not have sufficient finances.

Decency demands that the rejected applicants be informed about their non-selection. Their
applicants may be preserved for future use, if any. It needs no emphasis that the applications of
selected candidates must also be preserved for the future references.

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CONTRACT OF EMPLOYMENT: -

After the job offer has been made and candidates accept the offer, certain documents need
to be executed by the employer and the candidate. One such document is the attestation form. This
form contains vital details about the candidate, which are authenticated and attested by him/her.
Attestation form will be a valid record for the future reference.

There is also a need for preparing a contract of employment. The basic information that
should be included in a written contract of employment will vary according to the level of the job,

Alternatively called employment agreements or simply bonds, contracts of employment

serve many useful purposes. Such contracts seek to restrain job-hoppers, to protect knowledge and
information that might be vital to a company’s healthy bottom line and to prevent competitors from
poaching highly valued employees.

Most employers insist on agreements being signed by newly hired employees. But high
turnover sectors such as software, advertising and media are more prone to use contracts.

The drawback with the contracts is that it is almost to enforce them. A determined employee
is bound to leave the organisation, contract or no contract. The employee is prepared to pay the
penalty for breaching the agreement or the new employer will provide compensations. It is the
reason that several companies have scrapped the contracts altogether.

CONCLUDING THE SELECTION PROCESS: -

Contrary to popular perception, the selection process will not end with executing the
employment contract. There is another step – amore sensitive one reassuring those candidates who
have not selected, not because of any serious deficiencies in their personality, but because their
profile did not match the requirement of the organisation. They must be told that those who were
selected were done purely on relative merit.

EVALUATION OF SELECTION PROGRAMME: -

The broad test of the effectiveness of the selection process is the quality of the personnel
hired. An organisation must have competent and committed personnel. The selection process, if
properly done, will ensure availability of such employees. How to evaluate the effectiveness of a
selection programme? A periodic audit is the answer. People who work independent of HR
department must conduct audit. The table below contains an outline that highlights the areas and
questions to be covered in a systematic evaluation.

PLACEMENT

“Placement refers to the allocation of people to jobs. It includes initial assignment of new
employees and promotion, transfer or demotion of present employees.”

PLACEMENT PROBLEMS

• Should look at the individual and not the job

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 • The individual does not work independent
• We must be careful while placing the individuals

Orientation – Definition

“ Orientation is the planned introduction of new employees to their jobs, their co-workers and the
organisation.”

Purpose

• Making employees comfortable

• Reduce their anxiety
• Adjust themselves to the new environment
• Providing them information about their job

Orientation Programme

Formal : the management has a structured programme which is executed when new employees
join the firm.
Informal : new hires are directly put into job and they are expected to do the work themselves.
Individual : It is orienting each person individually. It is more likely to preserve individual
differences and perspectives.
Collective : It is orienting people in a group. Most of the large firms tend to do this approach.
Serial : orientation becomes serial when an experienced person inducts a new hire.
Disjunctive : It becomes disjunctive when the new hire do not have any predecessors available for
them.
Investiture : It seeks to ratify the usefulness of the characteristics that the person brings to the new
job.
Divestiture : It seeks to make minor modifications in the characteristics of the new hire, though he
or she was selected based on his or her potential.

Topics Covered In Orientation Programme

• Organisational issues
• Employment benefits
• Introduction
• Job duties

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Requisities of an Effective Programme

• Prepare for new employees

• Determine information new employees want to know
• Determine how to present information
• Completion of paper work

Problems of Orientation

1. Employee is overwhelmed with too much of information.

2. Employee is overwhelmed with too much of information.
3. Employee is given a menial task that discourages him.
4. Employee is forced to fill the gaps
5. Employee is thrown into action too soon
6. Employee’s mistakes can damage the company
7. Employees may develop wrong perception

Definition of Training:

According to Edwin Flippo, training is “the act of increasing the knowledge and skill of an
employee for doing a particular job.”

Training may be defined as “a planned programme designed to improve performance and to being
about measurable changes in technical knowledge and skills of employees for doing a particular
job.”

A formal definition of training is, “it is an attempt to improve current or future employee
performance by increasing an employee’s ability to perform through learning, usually by changing
the employee’s attitude or increasing his or her skills and knowledge. The need for training is
determined by the employee’s performance deficiency, computed as follows:

Training need = standard performance – actual performance.

Difference between training and development:

Training Development
Nature Tangible in nature. Intangible in nature.

Training is more specific, job- Development is more general

related information. in nature, especially at the top
level management level.
Importance Training is important because Development is important to
technology is improving and adapt to new technology and
changing. changing patterns in
organization.
Skills Training deals with non- Development deals with
human skills. human skills.

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 Directed towards Training is normally directed It is directed at managerial
at operative employees and personnel to acquire
relates to technical aspects. conceptual and human skills.
Methodology Greater emphasis on ON-JOB Greater emphasis on OFF the
methods Job methods.
Frequency Training is less frequent; it is It is more frequent and
carried out mostly at induction continuous in nature.
and every succeeding stage of
the job.
Who imparts Mostly the supervisors impart Supervisors, external experts
training and self undertake
development.
Relevance Training is of more relevance Development is of higher
at junior-levels. relevance at middle and senior
levels.
Cost involved Imparting is less expensive Imparting development is more
expensive.
Duration Training courses are designed It involves a broader long-term
mostly for short term. education for a long run term.

Importance of training:

 Growth of organization: Training contributes to employee stability in at least two ways.

Employees become efficient after undergoing training. Efficient employees contribute to
growth of organization. Trained employees would be valuable assets to an organization.
Organizational efficiency, productivity, and progress to a greater extent depend on training.
 Flexibility: Training makes the employees versatile in operations. All rounder can be
transferred to any job. Flexibility is therefore ensured.
 Efficient utilization of resources: Accidents scrap and damaged to machinery and
equipment can be avoided or minimized through training. Training enables employees to
make better usage of resources- men, materials and machinery which helps in reducing the
cost and time wastage.
 Recruitment: Training serves as an effective source of recruitment. It is an investment in
human resources with a promise.

Need for training:

The need for training of employees is universally accepted and practical training in the form of
information, instructions and guidance is given to all categories of employees. It is a must for
raising efficiency of employees. Training is necessary in present competitive and ever changing
industrial world. The following points (reasons) justify the need for training:

 Training is needed as a good supplement to school/college education. Training at the

industry level is practical and is needed for creating confidence among employees. It is also
needed for personal growth and development of employees.

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  Training is needed due to continuous changes in the field of science and technology.
Workers can work as per new methods or can use new machines only when suitable
practical training is given to them. Training is the only method by which the knowledge and
skills of workers are updated.
 Training is needed in order to introduce modern methods or for the introduction of
rationalization and computer technology in the industrial units.
 Training is needed for raising the efficiency and productivity of industrial employees.
 It is needed for improving the quality of production and also for avoiding accidents and
wastages of all kinds in the industrial units.
 Training is needed for personal safety of employees and also for avoiding damage to
machines and property of the company.
 Training is needed as it creates highly skilled manpower in an organization. Such skilled
manpower is the real asset of an industrial unit.
 Training is needed for preventing manpower obsolescence, for improving health and safety
of workers, for improving organizational climate and finally for meeting future personnel
needs of the organization.

Objectives of training:

 To enhance technical skill and thus productivity:

 Knowledge and skill in the special field.
 Use of systems and OR techniques for assessing technical feasibility and economic
viability of project and proposals.
 Coordination and control of resources and use of ergonomics, work study to
improve working conditions.

Training increases the level of learning and understanding the job. This in turn, results in
over-all improvement in the performance and productivity.

 To enhance employee growth: A trained and experienced employee is more competent in

specialized areas like production, finance, marketing etc. and stands better chances for
promotion, higher earnings and up graduation in status.
 To improve the quality of workforce : A trained person makes less operational mistakes
and at the same time takes less time to adjust to new operations, hence an improvement in
quality and quantity of work performance. Better informed workers are less likely to make
operational mistakes. Organizations that have a training programmed will have to make less
drastic manpower changes and adjustments.
 To prevent obsolescence of technical skills and competencies : Training and development
programmers foster the initiative and creativity of employees and help to prevent manpower
obsolescence, which may be due to age, temperament or motivation, or the inability of a
person to adapt him to technical changes.
 To improve Health and Safety: Proper training can help prevent industrial accidents. A
safer work environment leads to more stable mental attitudes on the part of employees.
Managerial mental state would also improve if supervisors know that they can better
themselves through company-designed development programmers. Physical fitness is also
an important aspect for shop-floor workers. For e.g.: At Mahindra & Mahindra six day
training programmed is conducted for staff level called STRIDE. Out of these three days are

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 dedicated to training, which mainly comprises programmers stressing on hygiene, safety,
fitness etc. all workers are supposed to undergo these programmers.
 To develop cordial labour-management relations and thereby to improve the organizational
environment.
 To develop certain personal qualities among employees which can serve as personal assets
on long term basis.
 To prevent manpower obsolescence in an organisation which is quite possible if employees
are not given training facilities periodically to update their knowledge and skills.

The Training Process:-

Training Process

Assessment of training needs

Establishment of Training goals

Designing Training Programme

Implementation of Training Programme

Following Up & evaluation of Programme

1. Assessment of Training Needs:-

Identifying the training needs of an organization is the first step in the systematic training
process. All training needs should be related to the specific needs of the organization and also of
the individual employees. For the identification of training needs, the gap between the existing
level of knowledge, skills, performance and aptitudes of employees and the required levels of the
knowledge, skills performance and aptitude should be clearly specified. Training needs can be
identified clearly through the following types of analysis.

a) Organizational Analysis.
b) Operational Analysis.
c) Manpower Analysis.

a) Organizational Analysis:- it relates to the determination of the organisation’s goals, its

resources and the allocation of the resources as they relate to the organizational goals. The
analysis of the organizational goals establishes the framework within which training needs
can be defined more clearly. The purpose of the organizational analysis is to determine
where training emphasis should be placed within the organization.
b) Operational Analysis:- it focuses on the task or job regardless of the employee doing the
job. This type of analysis includes the determination with which the worker must perform
the job and the specific worker behavior required in order to perform the job effectively.
The jobs are also analyzed in order to identify job contents, the knowledge, skills and
aptitudes required and the work behavior.

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 c) Manpower Analysis:- it reviews the knowledge, attitudes and skills of the workers in each
position and determines what knowledge, attitude he must acquire and what adjustments in
his behavior he must introduce if he is to contribute substantially to the attainment of
organizational objectives.

Training can be effective if the three types of analysis are carried on continuously. In addition
the conclusions from this analysis should be integrated in a properly designed and executed training
programme.

2. Establishment of Training Goals:-

After deciding the training needs, the logical steps in the training process is to set training and
development objectives in concrete terms. In fact, without clearly set objectives/goals, it is not
possible to design a well planed training programme which is to be executed and also evaluated for
judging its effectiveness. Training objectives decided should be tangible, verifiable and measurable.
Some objectives are tangible while some others are difficult to state.

The overall training objective is to fill in the gap between the existing and the desired pool of
knowledge, skills and aptitudes. Defining training objectives in quantitative and qualitative terms
is useful for designing, executing and also for evaluation of the training programme.

3. Designing Training Programme:-

After finalizing the objectives of training, the next step in the training programme is designing a
training programme which acts as a base of actual training to employees. For achieving training
objectives, an appropriate training policy is absolutely essential. This policy represents the
commitment of top management to employee training and development. Training policy involves
rules and procedures relating to training activity.

Every training and development programme must address certain vital issues- who participates
in programme?, who are the trainers?, what methods of techniques are to be used for training?,
what should be the level of training?, what learning principles are needed? And where is the
programme conducted?

Who are the trainees?

Trainees should be selected on the basis of self nomination, recommendations of supervisors or

by the HR department itself. Whatever the base, it is advisable to have two or more target
audiences. Bringing several target audience together can also facilitate group processes such as
problem solving and decision making, elements useful in quality circle projects.

Who are the trainers?

Training and development programme can be conducted by several people, including the
following:

i. Immediate supervisors.
ii. Co-workers as in buddy systems.
iii. Members of the personnel staff.
iv. Specialist in other parts of the company.

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 v. Outside consultants.
vi. Industry associations
vii. Faculty members at universities.

4. Implementation of training Programme:-

After designing training programme, the same is to be implemented as per the details decided.
This means actual imparting training to trainees who may be workers, supervisors or executives.
Programme implementation involves concrete action on the following points.

a) Organizing training and other facilities and deciding the location of training where training
activity is to be arranged.
b) Arranging the schedule of training programme which will make training effecting and also
offer convenience to participants and trainers.
c) Conducting training programme as per the designed prepared.
d) Monitoring the process of the training programme as well as the progress of trainees.

In the execution of training programme, time factor is one more difficulty. Training for
executives needs to be arranged without disturbing their busy schedule. It is also not possible to
keep them away from the regular work during the training period.

It is desirable to have separate administrative machinery for the execution of training

programme. This ensures orderly conduct of training and maintaining records, follow-up and
evaluation. Moreover, the efforts made and money invested on trainin will be wasted if the training
programme is not implemented in a disciplined manner.

5. Evaluation of Training Programme:-

Since the huge amounts of money are spent on training and development, how far the
programme has been useful must be judged/determined. Evaluation helps in determine the results
of the training and development programme

HOW TO MAKE TRAING EFFECTIVE?

Actions on the following lines need to be initiated to make training practice effective:

1. Ensures that the management commits itself to allocate major resources and adequate time
to training.
2. Ensures that training contributes to competitive strategies of the firm. Let training help
employees at all levels acquire the needed skills.
3. Ensure that a comprehensive and systematic approach to training exists, and training and
retraining are done at all levels on a continuous and ongoing basis.
4. Make learning one of the fundamental values of the company.
5. Ensure that there is proper linkage among organizational, operational and individual
training needs.
6. Create a system to evaluate the effectiveness of training.

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METHODS OF TRAINING .

Two methods of training.

1 ON THE JOB TRAINING: This type of training is also known as job instruction training,
is the most commonly used method. Under this method the individual is placed on a regular
job and certain skills are taught that are necessary to perform that job. The trainee learns
under the supervision and guidance of a qualified worker or instructor. On the job training
has the advantage of giving first hand knowledge and experience under the actual working
conditions. On the job training method include job rotation, coaching, job instruction or
training through step-by-step and committee assignments.

a) Job rotation: Job rotation involves movement of trainee from one job to another.
The trainee receives job knowledge and gains experience from the supervisors or
trainers in each of different job assignment. This method gives on opportunity to the
trainee to understand the problems of employees on other jobs and respect them.
b) Coaching: In coaching superior plays an active role in training the subordinate by
assigning him challenging tasks. The superior acts as a coach in training the
subordinate by assisting and advising him to complete the assigned task.
c) Job instruction: This method is known as training through step by step. Under
“trainer explains trainee the way of doing job, job knowledge and skills and allows
him to do the job. The trainer appraises the performance of the trainee, provides
feedback information and corrects the trainee. The process or the steps under job
instruction method are as follows
Step1: Prepare the employee for instruction. Put him at ease. Explain the job and its
importance. Get him interested in learning the job.

Step 2: Present the job. Follow your breakdowns. Explain and demonstrate one step at a time – tell
why and how? Stress key points. Instruct clearly and patiently. Give everything you will want back,
but no more.

Step 3: have him do the job. Have him tell why and how and stress key points. Correct errors and
omissions as he makes them. Encourage him. Get back everything you gave him in the step 2.
Continue until you know he knows.

Step 4: Follow through. Put him on his own. Encourage questions. Check frequently. Let him
know how he is doing.

If the learner has not learnt, correct him and teach him repeatedly.

d) Committee assignment: Under committee assignment group of trainees are given

and asked to solve an actual organizational problems. The trainee solves the problem
jointly. It develops teamwork.

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2) OFF THE JOB TRAINING: Under this method of training, trainee is separated from the job
situation and his attention is focused upon learning the material related to his future job
performance. Since the trainee is not distracted by the job requirements, he can place his entire
concentration on learning the job rather than spending his time in performing it. Off – field job
training methods are as follows:

1. Classroom method:

Classroom method for training personnel includes lectures, discussions, role-playing

and case study.

Lectures: It is common method to impart facts, concepts, principles etc to a large group at one
time. The main advantage of lectures is that it can be used for a very large group at one time and
there is low cost per trainee.

Discussion: Combining lectures with discussion eliminate the limitation of one-way

communication. In this method the trainees interact with the lecturer and any doubts or
misunderstanding of the concept and principles are cleared.

Case study: In this technique, an actual or hypothetical problem is presented to a training group for
discussion and solution. It is important to note that the problem presented in cases usually do not
have a single solution, but narrow mindedness of trainees is reduced as problem-solving ability is
increased.

2.Vestibule training: In this method, actual work conditions are simulated in the classroom.
Material, files and equipments those are used in actual job performance are also used in training.
This type of training is commonly used for training personnel for clerical and semi-skilled jobs.
The duration of this training ranges from days to a few weeks.

Committee conference: Committees can be a method of training. The junior members of the
committee can learn from the discussion and interaction with the senior member of the committee.
The senior member can also learn from the opinions and views expressed by the junior members.
Committees can serve the purpose of developing good social relations. In the case of conference,
group discussions and the meetings are held to discuss various issues and to provide solutions to
various problems. The chairperson leads the discussion and then the participants attempt to provide
solutions. The conferences act as a group interaction and exchange of views and idea. It reshapes
thinking and attitudes of the participants.

Reading, television and video instructions: Planned reading of relevant and current management
literature is one of the best methods of management development. It is essentially a self-
development programme. A manager may be aided by training department, which often provide a
list of valuable books. Also there are television programme that are features towards management
development. Videotapes are also available whereby important managerial discussions, debates and
talks can be viewed and listened.

Role playing: It is defined as a method of human interaction that involves realistic behavior in
imaginary situations. this method of training involves actions, doing and practice. The participants
play the role of certain characters, such as production manager, mechanical engineer,
superintendents, maintenance engineers, quality control inspectors, foreman, workers and the like.
This method is mostly used for developing interpersonal interactions and relations.

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Requirements of successful training programme (principles of training):

1) Training should be exactly as per the training needs: The training needs should be identified
clearly and precisely before deciding the details of training programme. It is also necessary
to identify the organizational constraints that are creating roadblocks in the performance. It
deals with the problems due to which production efficiency reduces. Identifying training
needs are the basic requirements of successful training programme.
2) Elaborate and systematic: The training programme should be elaborate and systematic. It
should be directly related to specific training needs of the organization.
3) Motivation of trainees: Training programme should motivate trainees to take interest and
initiative in the training process. For this some attraction should be created. This may be
like pay increase, promotion or delegation of authority.
4) Theoretical and practical character: Training should be theoretical as well as practical. The
contents of training programme should be prepared with the help of experts. This will make
training purposeful/ result-oriented.
5) Superior in quality: The training programme should be superior in quality. There should be
proper balance between theory and practice. Expert trainers should be appointed for giving
training. Suitable materials and facilities such as books, workshops must be provided.
6) Provision of periodical tests for evaluation: There should be periodical test and evaluation
of candidate. Progress report should be given to trainee. This facilitates the learning and
encourages the trainee to take interest in training programmes.
7) Longer period training: Training programme should be of a reasonable longer duration. It
should not be too short or too long as both these extremes are undesirable.
8) Training by experts: Experts with suitable qualification, qualities, experience and maturity
should provide training. Professional field trainer should be invited for giving additional
information and guidance to trainee.
9) Involvement of trainees: Industrial training should not be like spoon-feeding. Effective
participation of trainees should be encouraged. Training should act as a tool for self-
learning and self-development.
10) Periodical updating: Training programme should be reviewed periodically for updating the
course content. It is necessary for removing deficiencies in the training programme and also
making it result oriented. Training should be made interesting with use of films, audio-
visuals and visit to industrial estate etc.
11) Provision for rewards and penalties: Rewards should be given those who show satisfactory
progress and punishments to those who do not take active interest in training programme.
For this instructor should maintain progress report of trainees.
12) Convenient place: The place of training should be peaceful with necessary facilities and
conveniences to instructor and trainees. On the job training has certain limitation as it is
given in factory premises where as off the job training is always better as the place is
convenient.
13) Reinforcement of trainees: Training should be followed by promotion to higher position
where practical application of training can be done. There should be suitable increase in pay
and status of a trained employee. In the absence of such training will be wasted and trained
person will face frustration.
14) Efficient training administration: This is also one more essential requirement of training. It
includes deciding training content, types of training programmes, location of training
activities and the general administration of training. For decision making proper planning
and efficient execution is required by the managers. Suitable administrative machinery must
be created.

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Job Evaluation

Learning Objectives:

· To know basic approach to Job Evaluation.

· To importance of Job Evaluation and its effectiveness.
· To know the important methods of Job Evaluation.

Job evaluation is the process of analyzing and assessing the various jobs systematically to
ascertain their relative worth in an organization. Job is evaluated on the basis of their content and is
placed in the order of their importance.

It should be noted that in a job evaluation programme, the jobs are ranked and not the jobholders.
Jobholders are rated through performance appraisal.

“Job evaluation is a process of finding out the relative worth of a job as compared to other jobs”

The following objectives are derived from the analysis of the above-
mentioned definitions: -

· To gather data and information relating to job description, job specification and employee
specifications for various jobs in an organization.
· To compare the duties, responsibilities and demands of a job with that of other jobs.
· To determine the hierarchy and place of various jobs in an organization.
· To determine the ranks or grades of various jobs.
· To ensure fair and equitable wages on the basis of relative worth or value of jobs. In other words
equal wages are fixed to the jobs of equal worth or value.
· To minimize wage discrimination based on sex, age, caste, region, religion etc.

Job evaluation programme should be implemented carefully. The following principles help in
successful implementation of the programme:

· Rate the job but not the employee. Rate the elements on the basis of the job demands.
· The elements selected for rating should be easily understood.
5. The elements should be defined clearly and properly selected.
6. Employees concerned and the supervisors should be educated and convinced about the
programme.
7. Supervisors should be encouraged to participate in rating the jobs.
8. Secure employee cooperation by encouraging them to participate in the rating programme.
9. Discuss with the supervisors and employees about rating but not about assigning money values
to the points.
10. Do not establish too many occupational wages.
For, better understanding let us look at the flowchart given below:

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 Job Evaluation Process

Objectives of Job Evaluation

Job Analysis

Job Description
Job Specification

Job Evaluation Programme

Wage Survey

Employee Classification

Job Evaluation Process:

The job-evaluation process starts defining objectives of evaluation and ends with establishing wage
and salary differentials.

The main objective of job evaluation, as was stated earlier, is to establish satisfactory wage and
salary differentials. Job analysis should precede the actual program of evaluation. Job analysis, as
was discussed earlier, provides job-related data, which would be useful in drafting job description
and job specification.

A job-evaluation program involves answering several questions:

The major ones are:

• Which jobs are to be evaluated?

• Who should evaluate the jobs?
• What training do the evaluation need?
• How much time is involved?
• What should be the criteria for evaluation?
• What methods of evaluation are to be employed?

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 Which jobs are to be evaluated in any exercise, where there are more than 30 or 40 jobs to be
evaluated, it is necessary to identify and select a sample of benchmark jobs, which can be used
for comparisons inside and outside the organs. The benchmark jobs should be so selected to
achieve representative sample of each of the main levels of jobs in each of the principal
occupations.

The size of the sample depends on the number of different jobs to be covered. It is likely to be
less than about five percent of the total number of employees in the organization and it would be
difficult to produce a balanced sample unless at least 25 percent of the distinct jobs at each level
of the organization were included.

Staffing the Evaluation exercise:

A committee, which consists of Head of several of department’s, as was pointed out earlier, does
representatives of employee unions and specialist drawn from the National Productivity council
Job evaluation. HR specialists will be normally the chairmen of the committee.
Responsibility for the overall coordination of the job-evaluation programme should be in the
hands of a senior executive who can then report its progress to the board, and advise it on
ensuring wage and salary development.
Training for the Committee:

Members of the job-evaluation committee should be trained in its procedure so as to make the
program successful.

Time Factor:

Job evaluation should not be conducted in haste. Any rushing through will lead to appeals
against the grading of jobs. Eight jobs in a day can be the ideal pace. After this, the quality of
evaluation tends to drop, and more time has to spend later in checking and assessing the validity
of the grading. The final review of all the time should be allowed for re-evaluation, if necessary.

Isolating Job-evaluation criteria:

The heart of job evaluation is the determination of the criteria for evaluation. Most job
evaluations use responsibility, skill, effort and working conditions as major criteria. Other
criteria used are difficulty, time -span of discretion, size of subordinate staff, and degree of
creativity needed. It needs no emphasis that job evaluation criteria vary across jobs.

Methods of Job Evaluation:

Job-evaluation methods are of two categories-Analytical and Non Analytical

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 Job Evaluation

Analytical Non – Analytical

Point Factor Comparison Ranking Job-grading Banding

Method Method

Analytical:

1. Point Method
2.Factor Comparison Method

Point Method

The system starts with the selection of job factors, construction of degrees for each factor, and
assignment of points to each degree. Different factors are selected for different jobs, with
accompanying differences in degrees and points.

Let us discuss the different factors with an example:

The National Electrical Manufacturing Association (NEMA), USA has suggested the factors,
degrees and point for hourly rated and salaried jobs. The job factors taken into consideration by
NEMA for hourly rated jobs are:

Skill
Education
Experience
Initiative & ingenuity

Effort
Physical demand
Mental and / or visual demand

Responsibility
Responsibility for equipment or process
Responsibility for materials or product
Responsibility for safety of others
Responsibility

Job Conditions

Factors: -
Education

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Experience
Complexity of duties
Monetary responsibility
Working Condition
Contacts
Types of Supervision
Extent of Supervision

Factor-Comparison Method:

The factor-comparison method is yet another approach for job evaluation in the analytical group
Under this method, one begins with the selection of factors; usually five of them-is assumed to
be constant for all the jobs. Each factor is ranked individually with other jobs. For example, all
the jobs may be compared first by the factor ‘mental requirements.’ the skills factor, physical
requirements, responsibility, and working conditions are ranked. The total points are then
assigned to each factor. The worth of a job is then obtained by adding together all the point
values.

Non-Analytical:

Ranking Method
Banding Method
Job-Grading Method

Non-analytical methods: Ranking and job classification methods come under this category
because they make no use of detailed job factors. Each job is treated as a whole in determining its
relative ranking.

Ranking method: this is the simplest, the most inexpensive and the most expedient method of
evaluation. The evaluation committee assesses the worth of each job on the basis of its title or on
its contents, if the latter is available. But the job is not broken down into elements or factors. Each
job is compared with others and its place is determined.

The method has several drawbacks. Job evaluation may be subjective, as the jobs are not broken
into factors. It is hard to measure whole jobs.

Ranking is the most straightforward method of work evaluation. Jobs, people, or even teams can
be ranked from the ones adding most value to least value to the organization. Criteria for the
ranking are not made explicit. Jobs rather than people are easier to rank when there are a large
number of people in jobs. Teams can be ranked in a team-based environment as a substitute for or
addition to the ranking of jobs and people. When a larger number of jobs, people, or teams are to
be ranked, the method of paired comparisons can be used. With this approach each entity is
compared to every other entity in terms of value to the organization.

Overall value of the entity is determined by the number of times that the entity is evaluated as
being of greater value then the entity being compared against. If an extremely large number of
comparisons need to be made, statistical formulas are available to reduce the number of
comparisons required using sampling theory.

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 1. Simple to use if there is a small number of jobs, people, or teams to evaluate
2. Requires little time
3. Minimal administration required

Disadvantages:

1. Criteria for ranking not understood

2. Increases possibility of evaluator bias
3. Very difficult to use if there is a large number of jobs, people, or teams to
evaluate
4. Rankings by different evaluators are not comparable
5. Distance between each rank is not necessarily equal
6. May invite perceptions of inequity

Banding

A banding procedure takes place when jobs are grouped together by common characteristics.
Characteristics used to group jobs follow: exempt versus nonexempt, professional versus non
professional, union versus non union, key contributor versus non-key contributor, line versus
staff, technical versus non-technical, value-added versus non-value-added, and classified versus
non- classified. Often these groups are then rank ordered and each group is then placed in a pay
band.

Advantages:

1. Quick and easy procedure

2. Has initial face validity to employees
3. Allows for organizational flexibility
4. Minimal administration required

Disadvantages:

1. Subtle, but important, differences between groups ignored

2. Subtle, but important, differences within groups ignored
3. May invite inequity perceptions

Classification:

Classification systems define the value of jobs, people, or teams with written standards for a
hierarchy of classification level. Each classification level may be defined by a number of factors
that need to be present for a job, person, or team to be slotted into a particular classification level.
These factors are usually blended together resulting in one standard for each classification level.

Advantages

1. Jobs, people, and teams can be quickly slotted into the structure
2. Classification levels have face validity for employees
3. Standards to establish value are made explicit

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 Disadvantages

· Many jobs, people, or teams do not fit neatly into a classification level
· Extensive judgment is required because standards used to define each factor are
blended together
· Differences between classification levels may not be equal
· Creates status hierarchies within organizations
· Extensive administration required

Job-grading Method:

As in the ranking method, the job-grading method (or job- classification method) does not call for a
detailed or quantitative analysis of job factors. It is based on the job as a whole. The difference
between the two is that in the ranking method, there is no yardstick for evaluation, while in the
classification method, there is such a yardstick in the form of job classes or grades. Under the
classification method, the number of grades is first decided upon, and the factors corresponding to
these grades are then determined.

The advantages of the method are; I) job grade descriptions are vague and are not quantified; ii)
difficulty in convincing employees about the inclusion of a job in a particular grade because of
vagueness of grade descriptions; and iii) more job classification schedules need to be prepared
because the same schedule cannot be used for all types of jobs.
HOW TO IMPROVE JOB EVALUATION: -
Following measures and steps for improving the work of evaluation programmes;

• A job evaluation scheme should be chosen cautiously. It should be devised and administered on
the basis of employment market, demand for labour, bargaining power of the parties & job
conditions.
• The details of the scheme should be drawn up in such a way that they do not conflict with other
provision of a collective agreement.
• The scheme should be sold to all concerned and suggestions sought.
• Give major importance that the number of job titles and classification be kept to a minimum.
• Any anticipated changes in methods should be carried out before a scheme is installed and all
modifications in it should be resisted until it becomes fully established.
•In preparing job descriptions it is a sound practice to emphasis in them the things which makes one
job different from another rather than to find a comprehensive statement of all the duties of the job.
• The better the state of industrial relations the easier it is to introduce a
job evaluation scheme.

Essentials for the success of a Job Evaluation Programme

Following are the essential for the success of Job Evaluation:

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1. Compensable factors should represent all of the major aspects of job content.
Compensable factors selected should:
• Avoid excessive overlapping or duplication,
• Be definable and measurable,
• Be easily understood by employees and administrators,
• Not cause excessive installation or admin cost and
• Be selected with legal considerations in mind.

Operating managers should be convinced about the techniques and programme of evaluation. They
should also be trained in fixing and revising the wages based on job evaluation. All the employees
should be provided with complete information about job Evaluation techniques and programme.

PERFORMANCE APPRAISAL

Performance appraisal can be viewed as the process of assessing and recording staff
performance for the purpose of making judgments about staff that lead to decisions. Performance
appraisal should also be viewed as a system of highly interactive processes which involve
personnel at all levels in differing degrees in determining job expectations, writing job descriptions,
selecting relevant appraisal criteria, developing assessment tools and procedures, and collecting
interpreting, and reporting results.

Objectives of Performance Appraisal

The main objectives of Performance Appraisal are as follows:-

1. To provide feedback to employees so that they come to know where they stand and can
improve their job performance.

2. To provide a valid database for personnel decisions concerning placements, pay, promotion,
transfer, punishment, etc.

3. To diagnose the strength and weakness of individuals so as to identify further training

needs.

4. To improve coaching, counseling, career planning and motivation to subordinates.

5. To develop positive superior-subordinate relations and thereby reduces grievances.

6. To facilitate research in personnel management.

7. To test the effectiveness of recruitment, selection, placement and induction programmers.

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Thus, Performance Appraisal aims at both judgment and developmental efforts. The first two
objectives are judgmental whereas the remaining is developmental. Under developmental efforts
employees are helped to identify their weakness and take steps to overcome them.

Performance appraisal are considered to be the vital tool, to measure the performance of an
employee and use the information collected, to optimize the resource of individuals in an
organization.  It is systematic evaluation of individuals with respect to their task performance and
their potential for development individually and collectively.  It refers to the assessments of an
employee’s actual performance, behaviour on jobs and his/her potential for further performance. 
The main purposes of appraisal are to assess training need to effect promotion and to give high pay.

We may say that appraising the performance of an individual has been known as merit rating, but in
recent years, we may closure different terminologies have been used to denote this process such as
performance appraisal, performance review, performance evaluation, employee appraisal, progress
appraisal report, personal preview and so on.

METHODS OF PERFORMANCE APPRAISAL.

1. Forced-Choice Rating

This technique was developed to reduce bias and establish objective standards of comparison
between individuals, but it does not involve the intervention of a third party. Although there are
many variations of this method, the most common one asks raters to choose from among groups of
statements those which best fit the individual being rated and those those which least fit him. The
statements are then weighted or scored, very much the way a psychological test is scored. People
with high scores are, by definition, the better employees; those with low scores are the poorer ones.
Since the rater does not know what the scoring weights for each statement are, in theory at least, he
cannot play favorites. He simply describes his people, and someone in the personnel department
applies the scoring weights to determine who gets the best rating.

The rationale behind this technique is difficult to fault. It is the same rationale used in developing
selection test batteries. In practice, however, the forced choice methods tend to irritate raters, who
feel they are not being trusted. They want to say openly how they rate someone and not be second-
guessed or tricked into making “honest” appraisals.

2. Field Review

When there is reason to suspect rater bias, when some raters appear to be using higher standards
than others, or when comparability of ratings is essential, essay or graphic ratings are often
combined with a systematic review process. The field review is one of several techniques for doing
this. A member of the personnel or central administrative staff meets with small groups of raters
from each supervisory unit and goes over each employee’s rating with them to (a) identify areas of
inter-rater disagreement, (b) help the group arrive at a consensus, and (c) determine that each rater
conceives the standards similarly.

This group-judgment technique tends to be fairer and more valid then individual ratings and
permits the central staff to develop an awareness of the varying degrees of leniency or severity-as
well as bias- exhibited by raters in different departments. On the negative side, the process is very
time consuming.

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3. Essay Appraisal

In its simplest form, this technique asks the rater to write a paragraph or more covering an
individual’s strengths, weaknesses, potential, and so on. In most selection situations, particularly
those former employers, teachers, or associates carry significant weight. The assumptions seems to
be that an honest and informed statement –either by word of mouth or in writing form someone
who knows a man well, is fully as valid as more formal and more complicated methods.

The biggest drawback to essay appraisals is their variability in length and content. Moreover, since
different essays touch on different aspects of a mans performance or personal qualifications, essay
ratings are difficult to combine or compare. For comparability, some type of more formal method,
like the graphic rating scale, is desirable.

4. Management By Objectives

To avoid, or to deal with, the feeling that they are being judged by unfairly high standards,
employees in some organizations are being asked to set-or help set-their own performance goals.
Within the last five or six years, MBO has become something of a fad and is so familiar to most
managers that I will not dwell on it here.

It should be noted, however, that when MBO is applied at lower organizational levels, employees
do not always want to be involved in their own goal setting. As Arthur N. Turner and Paul R.
Lawrence discovered, many do not want self-direction or autonomy. As a result, more coercive
variations of MBO drifting into a kind of manipulative form of management in which pseudo-
participation substitutes for the real thing. Employees are consulted, but management ends up
imposing its standards and its objectives.

Some organizations, therefore, are introducing a work-standards approach to goal setting in which
management openly sets the goals. In fact, there appears to be something of a vogue in the setting
of such work standards in white-collar and service areas.

5. Assessment Centers

So far, we have been talking about assessing past performance. What about the assessment of
future performance or potential? In any placement decision and even more so in promotion
decisions, some prediction of future performance is necessary. How can this kind of prediction be
made most validly and most fairly?

One widely used rule of thumb is that “what a man has done is the best predictor of what he will do
in the future”. But suppose you are picking a man to be a supervisor and this person has never held
supervisory responsibility? Or suppose you are selecting a man for a job from among a group of
candidates, none of who has done the job or one like it? In these situation, many organizations use
assessment centers to predict future performance more accurately.

Typically, individuals from different departments are brought together to spend two or three days
working on individual and group assignments similar to the ones they will be handling if they are
promoted. The pooled judgment of observers – sometimes derived by paired comparison or
alternation ranking – leads to an order –of-merit ranking for each participant. Less structured,
subjective judgment is also made.

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There are good deals of evidence that people chosen by assessment center methods work out better
than those not chosen by these methods. The center also makes it possible for people who are
working for departments of low status or low visibility in an organization to become visible and, in
the competitive situation of an assessment center, show how they stack up against people from
better-known departments. This has the effect of equalizing opportunity, improving morale, and
enlarging the pool of possible promotion candidates.

6. Graphic Rating Scale

This method is more consistent and reliable. Typically, a graphic scale assesses a person on the
quality and quantity of his work and on a variety of other factors that vary with the job but usually
include personal traits like reliability and cooperation. It may also include specific performance
items like oral and written communication.

The graphic scale has come under frequent attack, but remains the most widely used rating method.
In a classic comparison between the “old-fashioned” graphic scale and the much more sophisticated
force-choices technique, the former proved to be fully as valid as the best of the forced-choice
forms, and better than most of them. It is also cheaper to develop and more acceptable to raters than
the forced-choice form. For many purposes there is no need to use anything more complicated than
a graphic scale supplement by a few essay questions.

7. Ranking Mathods

For comparative purposes, particularly when it is necessary to compare people who work for
different supervisors, individual statements, ratings, or appraisal forms are not particularly useful.
Instead, it is necessary to recognize that comparisons involve an overall subjective judgment to
which a host of additional facts and impressions must somehow be added. There is no single form
or way to do this.

 Alternation ranking: In this method, the names of employees are listed on the left-hand side
of the sheet of paper – preferably in random order. If the rankings are for salary purposes, a
supervisor is asked to choose the “most valuable” employee on the list, cross his name off,
and put it at the top of the column on the right-hand side of the sheet. Next, he selects the
“least valuable” employee on the list, cross his name off, and puts it at the bottom of the
right-hand column. The ranker then selects the most valuable person from the remaining
list, crosses his name off and enters it below the top name on the right-hand list, and so on.
 Paired – comparison ranking: This technique is probably just as accurate as alternation
ranking and might be more so. But with large numbers of employees it becomes extremely
time consuming and cumbersome.

Certain techniques in performance appraisal have been thoroughly investigated, and some have
been found to yield better results than others.

Encourage Discussion

Research studies show that employees are likely to feel more satisfied with their appraisal result if
they have the chance to talk freely and discuss their performance. It is also more likely that such
employees will be better able to meet future performance goals. Employees are also more likely to

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feel that the appraisal process is fair if they are given a chance to talk about their performance. This
especially so when they are permitted to challenge and appeal against their evaluation.

Constructive Intention

It is very important that employees recognize that negative appraisal feedback is provided with a
constructive intention, i.e., to help them overcome present difficulties and to improve their future
performance. Employees will be less anxious about criticism, and more likely to find it useful,
when the believe that the appraiser’s intentions are helpful and constructive. In contrast, other
studies have reported that “destructive criticism” – which is vague, ill-informed, unfair or harshly
presented – will lead to problems such as anger, resentment, tension and workplace conflict, as well
as increased resistance to improvement, denial of problems, and poorer performance.

Set Performance Goals

It has been shown in numerous studies that goal setting is an important element in employee
motivation. Goals can stimulate employee effort, focus attention, increase persistence, and
encourage employees to find new and better ways to work. The useful of goals as a stimulus to
human motivation is one of the best-supported theories in management. It is also quite clear that
goals which are “…specific, difficult and accepted by employees will lead to higher levels of
performance than easy, vague goals (such as do your best) or no goals at all.

Appraiser Credibility

It is important that the appraiser (usually the employee’s supervisor) be well informed and credible.
Appraisers should feel comfortable with the techniques of appraisal, and should be knowledgeable
about the employee’s job and performance. When these conditions exist, employees are more likely
to view the appraisal process as accurate and fair. They also express more acceptances of the
appraiser’s feedback and a greater willingness to change.

Factories Act 1948

1.      Government regulation o the working condition in factories begins in India in 1881 when the
first Indian factories Act was passed.
2.      This act was substantially amended in 1934 on the basis ob the recommendations of the Royal
commission on labour.
3.      The act of 1934 dividend factories into two categories-seasonal and perennial.
4.      This act was amended several times.
5.      On the eve of independence the national government announced far reaching legislative
program for the welfare of workers.
6.      As a part of this program, the factories act 1948 was passed.
7.      The factories act 1948 is comprehensive in nature and through it the government has tried to
implement as many provisions of the ILO code of industrial hygiene as were practicable under
Indian conditions.
8.      The factories act was substantially amended in 1976.
9.      Since then there has been substantial modernization and innovation in the industrial field.
10.  Provisions have also been made for the workers participation in safety management.
Objectives:
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 The main objective of the factories act is to regulate conditions of work in manufacturing
establishing and to ensure adequate safety sanitation, health, working hours, leave with wages and
weekly holidays for workers employed in such establishment.
 The act is a protective legislation.  It also regulates employment of women and young
persons in factories.
 The factories ac 1948 came into force on April 1st, 1948.  It applies to factories all over
India.
 Unless otherwise stated this act shall apply to factories belonging to central and state
governments.
Definition of Factory
According to Sec 2 (m) factory means:
In simple words, a factory is a premise whereon 10 or more persons are engaged if power is used,
or 20 or more persons are engaged if power is not used, in a manufacturing process.
Whereon 10 or more workers are working or were working on any day of the preceding 12 months,
and in any part of which a manufacturing process is being carried on with the aid of power, or is
ordinarily so carried on.
The first Factories Act in India was passed in 1881. It was designed primarily to protect children
and to provide for some health and safety measures. It was followed by new Acts in 1891, 1911 &
1934. The act of 1934 was passed to implement the recommendations of the Royal Commission on
Labour in India & the conventions of the International Labour Organization.
Hence the Factories Act of 1948. The Act makes detailed provisions regarding health, safety and
welfare of workers, working hours of adults, employment of young persons (which includes
children & adolescents), annual leave with wages, and so on.
The Act of 1948 not only consolidated but also amended the law regulating labour in factories. It
came into force on 1st April, 1949. In farming the new Act, the labour Minister stated in the
Legislature on 30thJanuary, 1948 that the Government had tried to implement as many of the
provisions of the I.L.O code of industrial hygiene as were practicable under Indian conditions and
the provisions relating to periodical medical examination of young persons and the submission of
plans of factory buildings recommended under the International Labour Conventions.
Its objective is to regulate the conditions of work in manufacturing establishment which come
within the definition of the term ‘factory’ as used in the Act. Unless otherwise provided, it also
applies to factories belonging to the central or state Government (sec. 116).
The Act was substantially amended in 1987. Some provisions of the Amending Act came into force
with effect from 1st Dec, 1987 & others from 1st June, 1988.
Objects of the Acts:
The Act is a piece of social welfare legislation. It governs working conditions of workmen in
factories. It deals mainly with:
1. Health, welfare and safety of workmen: The Act aims to protect workers employed in
factories against industrial and occupational hazards and to ensure safe and healthy conditions of
life and work. It makes detail provisions regarding health, safety and welfare of workers in order
to provide good working conditions and other facilities to enhance their welfare.
2. Working hour’s of adults and annual leave with wages: the Act imposes certain restriction
as to hour’s of work and also makes provision for leave and rest.

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3. Employment of women and young persons: the Act makes stringent provisions, particularly
with regard to length of working hours, in regard to women and young persons.
Health, Safety and Welfare:
The Act makes detailed provisions in regard to various matters relating to health, safety and welfare
of the worker.  These provisions impose upon the occupiers or managers certain obligations:-
1. To protect workers, unwary as well as negligent, from accident, and
2. To secure for them in employment, conditions conducive to their health, safety, and
welfare. These provisions also require the occupiers or managers to maintain inspection staff and
to make provision for maintenance of health, cleanliness, prevention for over crowding and
amenities like lighting, ventilation, drinking water, etc.
The factories act with regard to the Health of workers:
The Act deals with the provisions ensuring the health of the workers in the conditions under which
work is carried on in factories. These provisions are as follows:
1. Cleanliness (Sec.11): Factory to be kept clean and free from effluvia and dirt.
 Every factory shall be kept clean and free from effluvia arising from any drain, privy, or
other nuisance. Accumulation of dirt and refuse shall be removed daily by some effective method.
 Effective means of drainage.  Where a floor is liable to become wet in the course of any
manufacturing process to such an extent as is capable of being drained, effective means of
drainage shall be provided.
 Use of disinfectants, etc., painting and varnishing.  Use of disinfectants, detergents,
painting, repainting and varnishing, revarnishing, whitewashing or colourwashing shall be
resorted to.
1. All inside walls and partitions, all ceilings or tops of rooms and all walls, sides and tops of
passages and staircases where they are painted otherwise than with washable water-paint or
varnished, shall be repainted at least once in every 5 years.
2. The dates on which these processes are carried out shall be entered in the prescribed
register.
3. Further all doors and window frames and other wooden or metallic framework and shutters
shall be kept painted or varnished and the painting or varnishing shall be carried out at least once
in every 5 years.
 Exemption: If, in view of the nature of the operations carried on in a factory or class or
description of factories, it is not possible for the occupier to comply with the above provisions, the
state government may by order exempt such factory or class or description of factories or part of a
factory from any of these provisions and specify alternative methods for keeping the factory in a
clean state.
2. Disposal of wastes and effluents (Sec.12):
1. Treatment of wastes and effluents and their disposal.  Effective arrangements shall be made
in every factory for the treatment of wastes and effluents due to the manufacturing process carried
on therein, so as to render them innocuous, and for their disposal.
2. Rules by the State Government prescribing arrangements.  The state Government may make
rules prescribing the arrangements to be made in this regard.  It may also require that such
arrangements shall be approved by such authority as may be prescribed.
3. Ventilation and temperature: (Sec.13)

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 1)      Maintenance of adequate ventilation and temperature.  Effective and suitable provision shall
be made in every factory for securing and maintaining in every workroom-
 Adequate ventilation by the circulation of fresh air, and
 Such a temperature as will secure to workers there in reasonable conditions of comfort and
prevent injury to health.
2)      Process producing high temperature to be separated.  The walls and roofs shall be of such
materials and so designed that the temperature shall not be exceeded but kept as low as practicable. 
The process which produces high temperatures shall be separated from the workroom, by insulating
the hot parts or by other effective means.
3)      Standard of adequate ventilation and temperature to be prescribed and provision of measuring
instruments.  The State Government may prescribe a standard of adequate ventilation and
reasonable temperature for any factory.  It may further direct that proper measuring instruments
shall be provided and such records as may be prescribed shall be maintained.
The walls and roofs must be of such material and so designed that the temperature shall not exceed
but kept as law as practicable.  The process which products high temperatures shall be separated
from the work room, by insulating the hot part or by other effective means.
4. Dust and fume (Sec.14): Effective measures shall be taken in every factory for prevention of
inhalation or accumulation of dust and fumes in work rooms.  In any factory no stationary internal
combustion engine shall be operated unless the exhaust is conducted into the open  air.
5. Artificial humidification (Sec.15): In respect of all factories in which the humidity of the air is
artificially increased, the State Government may make rules prescribing standards of
humidification.  It shall also make rules prescribing methods to be adopted for securing adequate
ventilation and cooling of the air in the work room.
In any factory in which the humidity of the air is artificially increased the water used for the
purpose shall be taken from a public supply or other source of drinking water, or shall be
effectively purified before it is so used.
6. Overcrowding (Sec.16): There must not be overcrowding in any room of the factory to the
extend injurious to the health of the workers employed therein.  There must be at least 350 cubic
feet (in respect of factories in existence before 1 st April 1949) and  500 cubic feet (in respect of
factories built after the commencement of the Act i.e., 1st April 1949) of space every worker.
If the Chief Inspector by order in writing so requires, there shall be posted in each work room of a
factory a notice specifying the number or workers who may be employed in the room.
7. Lighting (Sec.16):
8. Drinking water (Sec.18)
9. Latrines and Urinals (Sec.19)
10. Spittoons (Sec.20)
The factories act with regard to the safety of workers:
Sections 21 to 40 lay down the provisions with regard to the safety of workers.  The following are
the provisions:-
1)      Fencing of machinery Sec.21): In every factory, every dangerous part of any machinery
shall be securely fenced by safeguards of substantial constructions, which shall be kept in position
while the part of machinery they are fencing are in motion or in use.  The expression dangerous
parts means any reasonably be anticipated, even if such danger would airse from negligence or
some outside source.
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 2)      Work on or near machinery in motion (Sec.22): Wherein any factory it becomes necessary
to examine any part of machinery while the machinery is in motion, such examination shall be
made only by a specially trained adult male worker wearing tight fighting clothing.
3)      Employment of young persons on dangerous machines (Sec.23) : No young person shall
work on any machine to which this section applies unless he has been fully instructed as to the
dangers arising in connection with the machines and the precautions to be observed and has
received sufficient training to work on the machine.
4)      Striking gear and devices for cutting off power (Sec.24)
5)      Self-acting machines (Sec.25)
6)      Casing of new machinery (Sec.25)
7)      Prohibition of employment of women and children near cotton openers (Sec.27)
8)      Hoists and Lifts (Sec.28)
9)      Lifting machines, chains, ropes and lifting tackles(Sec.29)
10)  Revolving machinery (Sec.30)
11)  Pressure point (Sec.31)
12)  Floors, Stairs, and means of access (Sec.32)
13) Protection of eyes (Sec.35)
14) Precautions in case of fire (Sec.38)
15) Safety of Buildings and machinery (Sec.40)
The welfare facilities to be provided in a factory under the factories act, 1948:
Sec 42 to 50 of the Factories Act, 1948 deal with the welfare of the workers.
1)      Washing facilities (sec. 42) in every factory adequate and suitable facilities for washing shall
be provided and maintained for the use of the workers therein. Such facilities conveniently
accessible & shall be kept clean.
2)      Facilities for storing & drying clothing (Sec.43) State Government may in respect of any
factory, make rules requiring the provisions therein of suitable place for keeping clothing not worn
during working hours & for the drying of wet clothing.
3)      Facilities for sitting (Sec 44) In every factory suitable arrangements for sitting shall be
provided & maintained for all workers who are obliged to work in a standing position. This has
been done in order that the workers may take advantage of the opportunities for rest which may
occur in the course of their work.
4)      First-aid appliance (Sec.45) There shall in every factory be provided and maintained so as to
be readily accessible during all working hours first-aid boxes or cupboards equipped with the
prescribed contents and the number of 6such boxes or cupboards to be provided and mainted shall
not be less than one for every 50 workers.
5)      Canteen (Sec. 46)
6)    Shelter, rest room and lunch rooms (Sec 47)

The Factories Act regarding the Working hours of adults:

1. Weakly hours (sec.51) No adult worker can be required to work or allowed to work in a
factory for more than 48 hours in any week.
2. Weekly holiday (sec.52) Every adult worker in a factory must be allowed a holiday during
the week.

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3. Compensatory holiday (sec. 53) Where a worker is deprive an equal numbered of any of
the weekly holidays under sec. 52, he shall be allowed compensatory holiday of an equal number
to the holiday so lost. That holiday allowed within two months immediately following that month.
4. Daily hours (sec. 54) Subject to the provisions of sec. 51, no adult worker shall be
required to work in a factory for more than 9 hours in a day.
5. Intervals for rest (Sec. 55) The periods of work of adult workers in a factory shall be
so fixed each day that no period shall exceed five hours before he had an interval for rest of
at least half an hours.
6. Nightshift (sec.57)
7. Prohibition of overlapping shifts (sec. 590)
8. Extra wage for overtime (sec. 59)
9. Notice of period of work for adult 9sec. 61)
10. Further restrictions on employment of women (sec. 66)

Workers Compensation Act, 1923

The Workers Compensation Act, aims to provide workmen and/or their dependents some
relief in case of accidents arising out of and in the course of employment and causing either death
or disablement of workmen. It provides for payment by certain classes of employers to their
workmen compensation for injury by accident. The latest amendment to the Act was made in 1984.
Object and scope of the Act:
The passing of the Act in 1923 was the first step towards social security of workmen. The main
objective of the Act is to provide for the payment of compensation by certain classes of employers
to their workers for injury by accident.
The theory of Act is that “The cost of the product should bear the blood of the workmen”.
The Act came into force on the first day of July, 1924. The growing complexity of industry with
increasing use of machinery and consequent dangers to workmen rendered it advisable that they
and their families should be protected, as far as possible, from hardship arising from accidents.
Keeping in view this fact an Act called the Workmen’s Compensation Act was passed which came
into force on 1st July 1924.it applies to the whole of India except the state of Jammu & Kashmir.
The Act provides for cheaper & quicker disposal of disputed relating to compensation through
special tribunals than possible under the Civil Law. The Act looks upon compensation as relief to
the workmen & not as damages payable by the employer for a wrongful act.
Position before the Act:
Prior to the passing of the Workmen’s Compensation Act, the position was very unsatisfactory. The
employer was liable to pay compensation only when the injury was caused to the worker on
account of his (employer’s)negligence, & here also, the employer could escape liability on any of
the following grounds:
 The doctrine of common employment.
 The doctrine of assumed risks.
 The doctrine of contributory negligence.
Who is Workman?

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Workman means any person (other than a person whose employment is of a casual nature and who
is employed otherwise than for the purposes of the employer’s trade or business) who is- i. a
railway servant as defined in section 3 of the Indian Railways Act, 1890 not permanently employed
in any administrative, district or sub-divisional office of a railway and not employed in any such
capacity as is specified in Schedule II, or
ii. Employed in any such capacity as is specified in Schedule II,
Whether the contract of employment was made before or after the passing of this Act and whether
such contract is expressed or implied, oral or in writing.
The provisions of the Act have been extended to cooks employed in hotels, restaurants using
power, liquefied petroleum gas or any other mechanical device in the process of cooking.
Employees Entitled To Compensation:
Every employee (including those employed through a contractor but excluding casual employees),
who is engaged for the purposes of employer’s business and who suffers an injury in any accident
arising out of and in the course of his employment, shall be entitled for compensation under the
Act.

Employer’s Liability For Compensation (Accidents):

The employer of any establishment covered under this Act, is required to compensate an employee:
a. Who has suffered an accident arising out of and in the course of his employment, resulting into
(i) death, (ii) permanent total disablement, (iii) permanent partial disablement, or (iv) temporary
disablement whether total or partial, or
b. Who has contracted an occupational disease.
However The Employer Shall Not Be Liable:
a. In respect of any injury which does not result in the total or partial disablement of the workmen
for a period exceeding three days;
b. In respect of any injury not resulting in death, caused by an accident which is directly
attributable to-
i. the workmen having been at the time thereof under the influence or drugs, or
ii. the willful disobedience of the workman to an order expressly given, or to a rule expressly
framed, for the purpose of securing the safety of workmen, or
iii. The willful removal or disregard by the workmen of any safeguard or other device which he
knew to have been provided for the purpose of securing the safety of workmen.
The burden of proving intentional disobedience on the part of the employee shall lie upon the
employer.
iv. When the employee has contacted a disease which is not directly attributable to a specific injury
caused by the accident or to the occupation; or
v. When the employee has filed a suit for damages against the employer or any other person, in a
Civil Court.
Contracting Out:
Any contract or agreement which makes the workman give up or reduce his right to compensation
from the employer is null and void insofar as it aims at reducing or removing the liability of the
employer to pay compensation under the Act.
What Is Disablement?

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Disablement is the loss of the earning capacity resulting from injury caused to a workman by an
accident.
· Disablement’s can be classified as (a) Total, and (b) Partial. It can further be classified into (i)
Permanent, and (ii) Temporary, Disablement, whether permanent or temporary is said to be total
when it incapacitates a worker for all work he was capable of doing at the time of the accident
resulting in such disablement.
· Total disablement is considered to be permanent if a workman, as a result of an accident, suffers
from the injury specified in Part I of Schedule I or suffers from such combination of injuries
specified in Part II of Schedule I as would be the loss of earning capacity when totaled to one
hundred per cent or more. Disablement is said to be permanent partial when it reduces for all times,
the earning capacity of a workman in every employment, which he was capable of undertaking at
the time of the accident. Every injury specified in Part II of Schedule I is deemed to result in
permanent partial disablement.
Temporary disablement reduces the earning capacity of a workman in the employment in which he
was engaged at the time of the accident.

Accident Arising Out Of And In The Course Of Employment:

An accident arising out of employment implies a casual connection between the injury and the
accident and the work done in the course of employment. Employment should be the distinctive
and the proximate cause of the injury. The three tests for determining whether an accident arose out
of employment are:
1. At the time of injury workman must have been engaged in the business of the employer and must
not be doing something for his personal benefit;
2. That accident occurred at the place where he as performing his duties; and
3. Injury must have resulted from some risk incidental to the duties of the service, or inherent in the
nature condition of employment.
The general principles that are evolved are:
· There must be a casual connection between the injury and the accident and the work done in the
course of employment;
· The onus is upon the applicant to show that it was the work and the resulting strain which
contributed to or aggravated the injury;
· It is not necessary that the workman must be actually working at the time of his death or that
death must occur while he was working or had just ceased to work; and
Where the evidence is balanced, if the evidence shows a greater probability which satisfies a
reasonable man that the work contributed to the causing of the personal injury it would be enough
for the workman to succeed. But where the accident involved a risk common to all humanity and
did not involve any peculiar or exceptional danger resulting from the nature of the employment or
where the accident was the result of an added peril to which the workman by his own conduct
exposed himself, which peril was not involved in the normal performance of the duties of his
employment, then the employer will not be liable.
Compensation In Case Of Occupational Diseases:
Workers employed in certain types of occupations are exposed to the risk of contracting certain
diseases, which are peculiar and inherent to those occupations. A worker contracting an

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occupational disease is deemed to have suffered an accident out of and in the course of employment
and the employer is liable to pay compensation for the same.
Occupational diseases have been categorized in Parts A, B and C of Schedule III. The employer is
liable to pay compensation:
a. When a workman contracts any disease specified in Part B, while in service for a continuous
period of 6 months under one employer. (Period of service under any other employer in the same
kind of employment shall not be included),
b. When a workman contracts any disease specified in Part C, while he has been in continuous
service for a specified period, whether under one or more employers. (Proportionate compensation
is payable by all the employers, if the workman had been in service under more than one
employer).
If an employee has after the cessation of that service contracted any disease specified in the said
Part B or Part C, as an occupational disease peculiar to the employment and that such disease arose
out of the employment, the contracting of the disease shall be deemed to be an injury by accident
within the meaning of the Act.

Calculation of Compensation:
The amount of compensation payable by the employer shall be calculated as follows:
(a) In case of death. – 50% of the monthly wages X Relevant Factor or Rs. 50,000, whichever is
more and Rs.1000 for funeral expenses.
(b) In case of total permanent disablement Specified under Schedule I – 60% of the monthly wages
X Relevant Factor or Rs. 60,000, whichever is more.
(c) In case of partial permanent disablement specified under Schedule I – Such percentage of the
compensation payable in case (b) above as is the percentage of the loss in earning capacity
(specified in Schedule I)
(d) In case of partial permanent disablement not specified under Schedule I .-Such percentage of
the compensation payable in case (b) above, as is proportionate to the loss of earning Capacity (as
assessed by a qualified medical practitioner).
(e) In case of temporary disablement (whether total or partial). – A half-monthly installment equal
to 25% of the monthly wages, for the period of disablement or 5 years, whichever is shorter.
When compensation to be deposited with commissioner?
The amount of compensation is not payable to the workman directly. It is generally deposited along
with the prescribed statement, with the Commissioner who will then pay it to the workman. Any
payment made to the workman or his dependents, directly, in the following cases will not be
deemed to be a payment of compensation:
i. in case of death of the employee;
ii. in case of lump sum compensation payable to a woman or a minor or a person of unsound mind
or whose entitlement to the compensation is in dispute or a person under a legal disability.
Besides, compensation of Rs. 10 or more may be deposited with the Commissioner on behalf of the
person entitled thereto.
The receipt of deposit with the Commissioner shall be a sufficient proof of discharge of the
employer’s liability.
Amounts Permissible To Be Paid To The Workman/ Dependents Directly:

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Following amounts may be paid directly to the workman or his dependents:
a. In case of death of the workman, any advance on account of compensation up to [an amount
equal to three months’ wages of such workman] may be paid to any dependent.
b. In case of lump sum compensation payable to an adult male worker not suffering from any legal
disability.
In case of half-monthly payments payable to any workman.
Registration of Agreements Of Compensation
1. Where the amount payable as compensation has been settled by agreement a memorandum
thereof shall be sent by the employer to the Commissioner, who shall, on being satisfied about its
genuineness, record the memorandum in a registered manner.
2. However where it appears to the Commissioner that the agreement ought not to be registered
by reason of the inadequacy of the sum or amount, or by reason that the agreement has been
obtained by fraud or undue influence or other improper means he may refuse to record the
agreement and may make such order including an order as to any sum already paid under the
agreement as he thinks just in the circumstances.
2. 3. An agreement for payment of compensation which has been registered shall be
enforceable under this act notwithstanding anything contained in the Indian Contract Act, or any
other law for the time being in force.

Effect of Failure to Register Agreement:

When a memorandum of any agreement is not sent to the Commissioner for registration, the
employer shall be liable to pay the full amount of compensation, which he is liable to pay under the
provisions of this Act.
Filing of Claims:
A claim for the compensation shall be made before the Commissioner.
No claim for compensation shall be entertained by the Commissioner unless the notice of accident
has been given by the workman in the prescribed manner, except in the following circumstances:
a. in case of death of workman resulting from an accident which occurred on the premises of the
employer, or at any place where the workman at the time of the accident was working died on such
premises or such place or in the vicinity of such premises or place;
b. in case the employer has knowledge of the accident from any other source, at or about the time
of its occurrence;
c. in case the failure to give notice or prefer the claim, was due to sufficient cause.
Limitation:
Workman, to the Commissioner, may file the claim for accident compensation in the prescribed
form, within 2 years from the occurrence of the accident or from the date of death. The claim must
be preceded by
(i) a notice of accident, and
(ii) the claimant-employee must present himself for medical examination if so required by the
employer.
Duties of Employers / Employees:
· To pay compensation for an accident suffered by an employee, in accordance with the Act.
· To submit a statement to the Commissioner (within 30 days of receiving the notice) in the

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prescribed form, giving the circumstances attending the death of a workman as result of an accident
and indicating whether he is liable to deposit any compensation for the same.
· To submit accident report to the Commissioner in the prescribed form within 7 days of the
accident, which results in death of a workman or a serious bodily injury to a workman.
· To maintain a notice book in the prescribed from at a place where it is readily accessible to the
workman.
· To submit an annual return of accidents specifying the number of injuries for which compensation
has been paid during the year, the amount of such compensation and other prescribed particulars.
Duties of Employees:
· To send a notice of the accident in the prescribed form, to the Commissioner and the employer,
within such time as soon as it is practicable for him. The notice is precondition for the admission of
the claim for compensation.
· To present himself for medical examination, if required by the employer.
Appeal / Bar To Civil Remedy:
An appeal against and order of the Commissioner lies to the High Court, within 60 days of the
order. The employer is required to deposit the compensation before filing the appeal.
No right to compensation in respect of any injury shall exist under this act if he has instituted in
Civil Court a suit for damages in respect of the injury against the employer or any other person; and
no suit for damages shall be maintainable by a workmen in any Court of law in respect of any
injury -
a. if he has instituted a claim to compensation respect of the injury before a Commissioner; or
b. if an agreement has come to between the workman and his employer providing for the payment
of compensation in respect of the injury in accordance with the provisions of his Act.

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