Unit: I

What is Management?

Resources by their nature are generally scarce, thus there is a compelling need of ensuring caution
in utilization of resources. The organization resources consist of five M’s — Man, Material,
Money, Machine and Methods. Organizational leaders or top management i.e. the Managers are
involved in the effective and efficient utilization of these scarce resources.

So in simpler terms, the act/process of an efficient and effective coordination of the activities of
organization’s employees and optimum utilization of scare resources with a view to achieving a
wide range of goals is called as management.

The term management is being loosely understood by a wide variety of people even those in
business. Peter Drucker explains, “Even the people in business often do not know what
management does and what it is supposed to be doing, how it acts and why, whether it does a good
job or not”. He went on to attest that we will only understand management by analyzing the
functions of management.

According to Peter Drucker, "Management is a multi-purpose organ that manages business and
manages managers and manages workers and work." In simple words, "Management is the art of
getting things done through people."

Management is an individual or a group of individuals that accept responsibilities to run an

organization. They plan, organize, direct and control all the essential activities of the organization.
Management does not do the work themselves. They motivate others to do the work and co-
ordinate (i.e. bring together) all the work for achieving the objectives of the organization.

The nature, main characteristics or features of management:

1. Continuous and never ending process.
2. Getting things done through people.
3. Result oriented.
4. Multidisciplinary in nature.
5. A group and not an individual activity.
6. Follows established principles or rules.
7. Aided but not replaced by computers.
8. Situational in nature.
9. Need not be an ownership.
10. Both an art and science.
11. Management is all pervasive.
12. Management is intangible.
13. Uses a professional approach in work.
14. Dynamic in nature.

1. Continuous and never ending process

Management is a Process. It includes four main functions, viz., Planning, Organizing, Directing
and Controlling. The manager has to Plan and Organize all the activities. He had to give proper
Directions to his subordinates. He also has to Control all the activities. The manager has to perform
these functions continuously. Therefore, management is a continuous and never ending process.

2. Getting things done through people

The managers do not do the work themselves. They get the work done through the workers. The
workers should not be treated like slaves. They should not be tricked, threatened or forced to do
the work. A favorable work environment should be created and maintained.

3. Result oriented

Management is result oriented because it gives a lot of importance to "Results". Examples of

Results like, increase in market share increase in profits, etc. Management always wants to get the
best results at all times.

4. Multidisciplinary in nature

Management has to get the work done through people. It has to manage people. This is a very
difficult job because different people have different emotions, feelings, aspirations, etc. Similarly,
the same person may have different emotions at different times. So, management is a very complex
job. Therefore, management uses knowledge from many different subjects such as Economics,
Information Technology, Psychology, Sociology, etc. Therefore, it is multidisciplinary in nature.

5. A group and not an individual activity

Management is not an individual activity. It is a group activity. It uses group (employees) efforts
to achieve group (owners) objectives. It tries to satisfy the needs and wants of a group (consumers).
Nowadays, importance is given to the team (group) and not to individuals.

6. Follows established principles or rules

Management follows established principles, such as division of work, discipline, unity of

command, etc. These principles help to prevent and solve the problems in the organization.

7. Aided but not replaced by computers

Now-a-days, all managers use computers. Computers help the managers to take accurate decisions.
However, computers can only help management. Computers cannot replace management. This is
because management takes the final responsibility. Thus Management is aided (helped) but not
replaced by computers.

8. Situational in nature

Management makes plans, policies and decisions according to the situation. It changes its style
according to the situation. It uses different plans, policies, decisions and styles for different
situations. The manager first studies the full present situation. Then he draws conclusions about
the situation. Then he makes plans, decisions, etc., which are best for the present situation. This is
called Situational Management.

9. Need not be an ownership

In small organizations, management and ownership are one and the same. However, in large
organizations, management is separate from ownership. The managers are highly qualified
professionals who are hired from outside. The owners are the shareholders of the company.

10. Both an art and science

Management is result-oriented. Therefore, it is an Art. Management conducts continuous research.

Thus, it is also a Science.

11. Management is all pervasive

Management is necessary for running a business. It is also essential for educational, charitable and
religious institutions. Management is a must for all activities, and therefore, it is all pervasive.

12. Management is intangible

Management is intangible, i.e. it cannot be seen and touched, but it can be felt and realized by its
results. The success or failure of management can be judged only by its results. If there is good
discipline, good productivity, good profits, etc., then the management is successful and vice-versa.

13. Uses a professional approach in work

Managers use a professional approach for getting the work done from their subordinates. They
delegate (i.e. give) authority to their subordinates. They ask their subordinates to give suggestions
for improving their work. They also encourage subordinates to take the initiative. Initiative means
to do the right thing at the right time without being guided or helped by the superior.

14. Dynamic in nature

Management is dynamic in nature. That is, management is creative and innovative. An

organization will survive and succeed only if it is dynamic. It must continuously bring in new and
creative ideas, new products, new product features, new ads, new marketing techniques, etc.

Management Process Activities

Management process involves four activities:

1. Planning

2. Organizing

3. Staffing/Leading

4. Coordinating

5. Controlling
Role of Manager

• Interpersonal: Coordinate and interact with employee and provide direction to the
organization.
o Figurehead
o Leader
o Liaison
• Informational
o Monitor
o Disseminator
o Spokesperson
• Decisional
o Entrepreneur
o Disturbance hander
o Resource allocator
o Negotiator

Management Principle: AUTHORITY AND RESPONSIBILITY

Authority

Authority is the right or power assigned to an executive or a manager in order to achieve certain
organizational objectives. Authority is the power to give orders and get it obeyed or in other words
it is the power to take decisions.
A manager will not be able to function efficiently without proper authority. Authority is the genesis
of organizational framework. It is an essential accompaniment of the job of management. Without
authority, a manager ceases to be a manager, because he cannot get his policies carried out through
others. Authority is one of the founding stones of formal and informal organizations. An
Organization cannot survive without authority. It indicates the right and power of making
decisions, giving orders and instructions to subordinates. Authority is delegated from above but
must be accepted from below i.e. by the subordinates. In other words, authority flows downwards.

Definitions of Authority

According to Henri Fayol, "Authority is the right to give orders and the power to exact obedience."
According to Mooney and Reily, "Authority is the principle at the root of Organization and so
important that it is impossible to conceive of an Organization at all unless some person or persons
are in a position to require action of others."

Authority is the kind of right and power through which it guides and directs the actions of others
so that the organizational goals can be achieved. It is also related with decision making. It is vested
in particular position, not to the person because authority is given by an institution and therefore
it is legal.

Responsibility

Responsibility means state of being answerable for any obligation, trust, debt or something or in
other words it means obligation to complete a job assigned on time and in best way. Responsibility
indicates the duty assigned to a position. The person holding the position has to perform the duty
assigned. It is his responsibility. The term responsibility is often referred to as an obligation to
perform a particular task assigned to a subordinate. In an organization, responsibility is the duty
as per the guidelines issued.

According to Davis, "Responsibility is an obligation of individual to perform assigned duties to

the best of his ability under the direction of his executive leader." In the words of Theo Haimann,
"Responsibility is the obligation of a subordinate to perform the duty as required by his superior".

Characteristics of Responsibility

✓ The essence of responsibility is the obligation of a subordinate to perform the duty

assigned.
✓ It always originates from the superior-subordinate relationship.
✓ Normally, responsibility moves upwards, whereas authority flows downwards.
✓ Responsibility is in the form of a continuing obligation.
✓ Responsibility cannot be delegated.
✓ The person accepting responsibility is accountable for the performance of assigned duties.
✓ It is hard to conceive responsibility without authority.

Authentic body of an organization is top level management, top level management direct the
subordinates. Departmental managers and other personnel take the direction from top level
management to perform the task. Authority is necessary to perform the work .only authority is not
provided to the people but obligation is also provided. So the obligation to perform the duties and
task is known as responsibility.
Authority and responsibility are closely related and this principle states that these two must go
hand in hand. It means that proper authority should be delegated to meet the responsibilities.

A match should be there between these two because of two main reasons:--

✓ Firstly, if a person is given some responsibility without sufficient authority he can’t

perform better, and also could not accomplish the desired goal.

✓ Secondly, if there is excess authority being delegated to an individual without matching

responsibility then the delegated authority will be misused in one way or the other.

This is an important and useful principle of management because if adequate authority is not
delegated to the employees they cannot discharge their duties with efficiency and this in turn will
hamper the achievement of the organizational goal. Sometimes the relation between management
and employees is also badly effected by non-delegation of proper authority.

Positive impacts of this principle:

✓ No misuse of authority.
✓ Helps to complete job effectively and efficiently.
✓ Individuals can be held accountable.
✓ Systematized and effective achievement of organizational objectives.

Consequences of violation of this principle:

✓ Misuse of authority.
✓ Responsibility can’t be discharged effectively.
✓ No one can be held accountable.
✓ Conflicts between management and employees.

Accountability

Every employee/manager is accountable for the job assigned to him. He is supposed to complete
the job as per the expectations and inform his superior accordingly. Accountability is the liability
created for the use of authority. It is the answerability for performance of the assigned duties.

Definition of Accountability

According, to McFarland, "accountability is the obligation of an individual to report formally to

his superior about the work he has done to discharge the responsibility."

Subordinates receive the authority from top level of the organization and they also receive the
command and direction to perform the work. In other words, they are authorized and responsible
for a specific function. Sometimes the task may not be performed effectively the subordinates may
not be performed effectively. The subordinates must report to boss about the assigned task. S/he
must answer his/her performance which is known as accountability.

Authority, Responsibility and Accountability

When authority is delegated to a subordinate, the person is accountable to the superior for
performance in relation to assigned duties. If the subordinate does a poor job, the superior cannot
evade the responsibility by stating that poor performance is the fault of the subordinate. A superior
is normally responsible for all actions of groups under his supervision even if there are several
layers down in the hierarchy. Simply stated, accountability means that the subordinate should
explain the factors responsible for non-performance or lack of performance.

Authority, Responsibility and Accountability are inter-related. They need proper consideration
while introducing delegation of authority within an Organization. In the process of delegation, the
superior transfers his duties/responsibilities to his subordinate and also give necessary authority
for performing the responsibilities assigned. At the same time, the superior is accountable for the
performance of his subordinate.

Functions of Management

Effective management involves creative problem solving, motivating employees and making sure
the organization accomplishes objectives and goals. There are five functions of management:
planning, organizing, staffing, coordinating and controlling.

Planning
Deciding in advance what to do, how to do, why to do, where to do and who will be responsible
for doing is planning. Determination of the objectives of business, splitting of objectives into goals
for each department of the organization and formulating policies, programs, procedures rules and
regulations and budget are the important steps involved in planning. Planning involves defining a
goal and determining the most effective course of action needed to reach that goal. A manager acts
as a planner and must have complete knowledge of the company’s resources. A plan should be
well coordinated with the future objectives of the business.

Organizing
Division of work into functions and sub-functions, grouping of activities that are closely related in
their nature, assigning of duties and responsibilities to the employees and finally delegation of
authority and power to each employee or the group to discharge their duties accordingly are the
processes come under the function of management organizing. The organizational structure is the
foundation of a company; without this structure, the day-to-day operation of the business becomes
difficult and unsuccessful. Organizing involves designating tasks and responsibilities to the
employees taking organizational structure and their specific skill sets into consideration.
Organizing is necessary to maintain the chain of command within the company.

Directing
Directing is nothing but guiding and leading the people in an organization. It is not just giving
instructions by a superior to the sub-ordinates but also is a process of supervising, guiding and
motivating the latter to achieve the organizational goals. It is a complex function of management
that ensures the employees work effectively and efficiently. From top executive to supervisor
performs the function of directing and it takes place accordingly wherever superior – subordinate
relations exist. Directing is a continuous process initiated at top level and flows to the bottom
through organizational hierarchy.

Staffing
The process of making out, assessing, appointing, evaluating and developing the employees at
work in an organization is staffing. The staffing function of management controls all recruitment
and personnel needs of the organization. The main purpose of staffing is to hire the right people
for the right jobs to achieve the objectives of the organization. But staffing is more than just
recruitment; it also encompasses training and development, performance appraisals, promotions
and transfers.

Coordinating
The coordinating function of leadership controls all the organizing, planning and staffing activities
of the company and ensures all activities function together for the good of the organization.
Coordinating involves communication, supervision and direction by management. It typically
takes place in meetings and other planning sessions with the department heads of the company to
ensure all departments are on the same page in terms of objectives and goals.

Controlling
It is the process that ensures whether the resources are obtained and used efficiently in achieving
the organizational objectives. Controlling function of management is closely linked with the
planning function because, it includes checking the performance of employees to see whether the
planned performance is being achieved by them or not. Controlling involves establishing
performance standards and monitoring the output of employees to ensure each employee’s
performance meets those standards. The controlling process often leads to the identification of
situations and problems that need to be addressed by creating new performance standards. The
level of performance affects the success of all aspects of the organization.

Role of Manager

Mintzberg published his Ten Management Roles in his book, "Mintzberg on Management: Inside
our Strange World of Organizations," in 1990.

The ten roles are:

1. Figurehead.
2. Leader.
3. Liaison.
4. Monitor.
5. Disseminator.
6. Spokesperson.
7. Entrepreneur.
8. Disturbance Handler.
9. Resource Allocator.
10. Negotiator.
The 10 roles are then divided up into three categories, as follows:

Category Roles

Interpersonal Figurehead
Leader
Liaison

Informational Monitor
Disseminator
Spokesperson

Decisional Entrepreneur
Disturbance
Handler
Resource
Allocator
Negotiator

Interpersonal Category: — the roles in this category involve providing information and ideas.

Figurehead – As a manager, you have social, ceremonial and legal responsibilities. You're
expected to be a source of inspiration. People look up to you as a person with authority, and as a
figurehead.

Leader – This is where you provide leadership for your team, your department or perhaps your
entire organization; and it's where you manage the performance and responsibilities of everyone
in the group.
Liaison – Managers must communicate with internal and external contacts. You need to be able to
network effectively on behalf of your organization.

Informational Category: — the roles in this category involve processing information.

Monitor – In this role, you regularly seek out information related to your organization and industry,
looking for relevant changes in the environment. You also monitor your team, in terms of both
their productivity, and their well-being.

Disseminator – This is where you communicate potentially useful information to your colleagues
and your team.

Spokesperson – Managers represent and speak for their organization. In this role you're responsible
for transmitting information about your organization and its goals to the people outside it.

Decisional Category: — the roles in this category involve using information.

Entrepreneur – As a manager, you create and control change within the organization. This means
solving problems, generating new ideas, and implementing them.
Disturbance Handler – When an organization or team hits an unexpected roadblock, it's the
manager who must take charge. You also need to help mediate disputes within it.

Resource Allocator – You'll also need to determine where organizational resources are best
applied. This involves allocating funding, as well as assigning staff and other organizational
resources.

Negotiator – You may be needed to take part in, and direct, important negotiations within your
team, department, or organization.

Management Theory

Classical Approach — F. W. Taylor (Scientific Principles of Management)

Henri Fayol’s Principles of Management

Max Weber Bureaucracy Theory

Behavioral Approach (Hawthrone Experiment and McGregor’s theory X and Y)

Contemporary Approach (Ouchi’s Z Theory and Contingency Management)

Scientific Principles of Management by F. W. Taylor

One of the earliest theorists of management was developed by Frederick Winslow Taylor. He
started the Scientific Management movement, and was the first to recognize and emphasis the need
for adopting a scientific approach to the task of managing an enterprise. He and his associates were
the first people to study the work process scientifically. They studied how work was performed,
and they looked at how this affected worker productivity. Taylor's philosophy focused on the belief
that making people work as hard as they could was not as efficient as optimizing the way the work
was done.

With a background in mechanical engineering, Taylor was very interested in efficiency. While
advancing his career at a U.S. steel manufacturer, he designed workplace experiments to determine
optimal performance levels. In one, he experimented with shovel design until he had a design that
would allow workers to shovel for several hours straight. With bricklayers, he experimented with
the various motions required and developed an efficient way to lay bricks. And he applied the
scientific method to study the optimal way to do any type of workplace task. As such, he found
that by calculating the time needed for the various elements of a task, he could develop the "best"
way to complete that task.

He tried to diagnose the causes of low efficiency in industry and came to the conclusion that much
of waste and inefficiency is due to the lack of order and system in the methods of management.
He found that the management was usually ignorant of the amount of work that could be done by
a worker in a day as also the best method of doing the job. As a result, it remained largely at the
mercy of the workers who deliberately shirked work. He therefore, suggested that those
responsible for management should adopt a scientific approach in their work, and make use of
"scientific method" for achieving higher efficiency.

In 1909, Taylor published "The Principles of Scientific Management." In this, he proposed that by
optimizing and simplifying jobs, productivity would increase. He also advanced the idea that
workers and managers needed to cooperate with one another.

The scientific method consists essentially of:

(a) Observation
(b) Measurement
(c) Experimentation and
(d) Inference

He summed up his approach in these words:

✓ Science, not rule of thumb
✓ Harmony, not discord
✓ Co-operation, not individualism
✓ Maximum output, in place of restricted output
✓ The development of each man to his greatest efficiency and prosperity

Elements of Scientific Management:

The techniques which Taylor regarded as its essential elements or features may be classified as
under:
1. Scientific Task and Rate-setting, work improvement, etc.
2. Planning the Task.
3. Vocational Selection and Training
4. Standardization (of working conditions, material equipment etc.)
5. Specialization
6. Mental Revolution.

1.Scientific Task and Rate-Setting (work study): Work study may be defined as the systematic,
objective and critical examination of all the factors governing the operational efficiency of any
specified activity in order to effect improvement.

Work study includes:

(a) Methods Study: The management should try to ensure that the plant is laid out in the
best manner and is equipped with the best tools and machinery. The possibilities of
eliminating or combining certain operations may be studied.

(b) Motion Study: It is a study of the movement, of an operator (or even of a machine) in
performing an operation with the purpose of eliminating useless motions.

(c) Time Study (work measurement): The basic purpose of time study is to determine the
proper time for performing the operation. Such study may be conducted after the motion
study. Both time study and motion study help in determining the best method of doing a
job and the standard time allowed for it.
 (d) Fatigue Study: If, a standard task is set without providing for measures to eliminate
fatigue, it may either be beyond the workers or the workers may over strain themselves to
attain it. It is necessary, therefore, to regulate the working hours and provide for rest pauses
at scientifically determined intervals.

(e) Rate-setting: Taylor recommended the differential piece wage system, under which
workers performing the standard task within prescribed time are paid a much higher rate
per unit than inefficient workers who are not able to come up to the standard set.

2. Planning the Task: Having set the task which an average worker must strive to perform to get
wages at the higher piece-rate, necessary steps have to be taken to plan the production thoroughly
so that there is no bottle neck and the work goes on systematically.

3. Selection and Training: Scientific Management requires a radical change in the methods and
procedures of selecting workers. It is therefore necessary to entrust the task of selection to a central
personnel department. The procedure of selection will also have to be systematized. Proper
attention has also to be devoted to the training of the workers in the correct methods of work.

4. Standardization: Standardization may be introduced in respect of the following:

(a) Tools and equipment: By standardization is meant the process of bringing about
uniformity. The management must select and store standard tools and implements which
will be nearly the best or the best of their kind.

(b) Speed: There is usually an optimum speed for every machine. If it is exceeded, it is
likely to result in damage to machinery.

(c) Conditions of Work: To attain standard performance, the maintenance of standard

conditions of ventilation, heating, cooling, humidity, floor space, safety etc., is very
essential.

(d) Materials: The efficiency of a worker depends on the quality of materials and the
method of handling materials.

5. Specialization: Scientific management will not be complete without the introduction of

specialization. Under this plan, the two functions of 'planning' and 'doing' are separated in the
organization of the plant. The `functional foremen' are specialists who join their heads to give
thought to the planning of the performance of operations in the workshop. Taylor suggested eight
functional foremen under his scheme of functional foremanship.

(a) The Route Clerk: To lay down the sequence of operations and instruct the workers
concerned about it.

(b) The Instruction Card Clerk: To prepare detailed instructions regarding different aspects
of work.
 (c) The Time and Cost Clerk: To send all information relating to their pay to the workers
and to secure proper returns of work from them.

(d) The Shop Disciplinarian: To deal with cases of breach of discipline and absenteeism.

(e) The Gang Boss: To assemble and set up tools and machines and to teach the workers to
make all their personal motions in the quickest and best way.

(f) The Speed Boss: To ensure that machines are run at their best speeds and proper tools
are used by the workers.

(g) The Repair Boss: To ensure that each worker keeps his machine in good order and
maintains cleanliness around him and his machines.

(h) The Inspector: To show to the worker how to do the work.

6. Mental Revolution: At present, industry is divided into two groups – management and labor.
The major problem between these two groups is the division of surplus. The management wants
the maximum possible share of the surplus as profit; the workers want, as large share in the form
of wages. Taylor has in mind the enormous gain that arises from higher productivity. Such gains
can be shared both by the management and workers in the form of increased profits and increased
wages.

Four Principles of Scientific Management

1. Replace working by "rule of thumb," or simple habit and common sense, and instead use the
scientific method to study work and determine the most efficient way to perform specific tasks.

2. Rather than simply assign workers to just any job, match workers to their jobs based on
capability and motivation, and train them to work at maximum efficiency.

3. Monitor worker performance, and provide instructions and supervision to ensure that they're
using the most efficient ways of working.

4. Allocate the work between managers and workers so that the managers spend their time planning
and training, allowing the workers to perform their tasks efficiently.

The benefits of scientific management are:-

1. Replacement of traditional rule of thumb method by scientific techniques.

2. Proper selection and training of workers.
3. Incentive wages to the workers for higher production.
4. Elimination of wastes and rationalization of system of control.
5. Standardization of tools, equipment, materials and work methods.
6. Detailed instructions and constant guidance of the workers.
Critiques of Taylor

1. Taylor promoted the idea that there is "one right way" to do something. This approach is at odds
with the current approaches. Taylor’s approach promotes tightly controlled procedures and
environment and provides no flexibility to the employees. Rigid, rules-driven organizations really
struggle to adapt in rapidly changing environment.

2. Taylor breaks tasks down into tiny steps, and focuses on how each person can do his or her
specific series of steps best. Modern methodologies prefer to examine work systems more
holistically in order to evaluate efficiency and maximize productivity. The extreme specialization
that Taylorism promotes is contrary to modern ideals of how to provide a motivating and satisfying
workplace.

3. Taylor’s approach separates manual from mental work, modern productivity enhancement
practices seek to incorporate worker's ideas, experience and knowledge into best practice.

4. Scientific management in its pure form focuses too much on the mechanics, and fails to value
the people side of work, whereby motivation and workplace satisfaction are key elements in an
efficient and productive organization.

Management Principles developed by Henri Fayol

Henry Fayol: Henri Fayol was a French mining engineer who developed a general theory of
business administration based largely on his own management experience that is often called
Fayolism.

Henri Fayol was born in Istanbul in 1841. When he was 19, he began working as an engineer at
a large mining company in France. He eventually became the director, at a time when the mining
company employed more than 1,000 people. Through the years, Fayol began to develop what he
considered to be the 14 most important principles of management. Essentially, these explained
how managers should organize and interact with staff. In 1916, two years before he stepped down
as director, he published his "14 Principles of Management" in the book "Administration
Industrielle et Generale." Fayol also created a list of the six primary functions of management,
which go hand in hand with the Principles. Fayol's "14 Principles" was one of the earliest theories
of management to be created, and remains one of the most comprehensive. He's considered to be
among the most influential contributors to the modern concept of management, even though people
don't refer to "The 14 Principles" often today. The theory falls under the Administrative
Management school of thought (as opposed to the Scientific Management school, led by Fredrick
Taylor).

DIVISION OF WORK: Work should be divided among individuals and groups to ensure that
effort and attention are focused on special portions of the task. Fayol presented work specialization
as the best way to use the human resources of the organization. When employees are specialized,
output can increase because they become increasingly skilled and efficient.

AUTHORITY: The concepts of Authority and responsibility are closely related. Authority was
defined by Fayol as the right to give orders and the power to exact obedience. Responsibility
involves being accountable, and is therefore naturally associated with authority. Whoever assumes
authority also assumes responsibility. Managers must have the authority to give orders, but they
must also keep in mind that responsibility comes with authority.
DISCIPLINE: A successful organization requires the common effort of workers. Penalties should
be applied judiciously to encourage this common effort.

UNITY OF COMMAND: Workers should receive orders from only one manager. That is,
employees should have only one direct supervisor.

UNITY OF DIRECTION: The entire organization should be moving towards a common objective
in a common direction. Teams with the same objective should be working under the direction of
one manager, using one plan. This will ensure that action is properly coordinated.

SUBORDINATION OF INDIVIDUAL INTERESTS TO THE GENERAL INTERESTS: The

interests of one person should not take priority over the interests of the organization as a whole.
The interests of one employee should not be allowed to become more important than those of the
group. This includes managers.

REMUNERATION: Many variables, such as cost of living, supply of qualified personnel, general
business conditions, and success of the business, should be considered in determining a worker’s
rate of pay. Employee satisfaction depends on fair remuneration for everyone. This includes
financial and non-financial compensation.

CENTRALIZATION: Fayol defined centralization as lowering the importance of the subordinate

role. Decentralization is increasing the importance. The degree to which centralization or
decentralization should be adopted depends on the specific organization in which the manager is
working. This principle refers to how close employees are to the decision-making process. It is
important to aim for an appropriate balance.

SCALAR CHAIN: Managers in hierarchies are part of a chain like authority scale. Each manager
possesses certain amounts of authority. The President possesses the most authority; the first line
supervisor the least. Lower level managers should always keep upper level managers informed of
their work activities. The existence of a scalar chain and adherence to it are necessary if the
organization is to be successful. Employees should be aware of where they stand in the
organization's hierarchy, or chain of command.

ORDER: For the sake of efficiency and coordination, all materials and people related to a specific
kind of work should be treated as equally as possible. The workplace facilities must be clean, tidy
and safe for employees. Everything should have its place.

EQUITY: All employees should be treated as equally as possible. Managers should be fair to staff
at all times, both maintaining discipline as necessary and acting with kindness where appropriate.

STABILITY OF TENURE OF PERSONNEL: Retaining productive employees should always be

a high priority of management. Managers should strive to minimize employee turnover. Personnel
planning should be a priority.

INITIATIVE: Management should take steps to encourage worker initiative, which is defined as
new or additional work activity undertaken through self-direction. Employees should be given the
necessary level of freedom to create and carry out plans.
ESPIRIT DE CORPS: Management should encourage harmony and general good feelings among
employees. Organizations should strive to promote team spirit and unity.

Behavioral Approach

As management research continued in the 20th century, questions began to come up regarding the
interactions and motivations of the individual within organizations. Management principles
developed during the classical period were simply not useful in dealing with many management
situations and could not explain the behavior of individual employees. In short, classical theory
ignored employee motivation and behavior. As a result, the behavioral school was a natural
outgrowth of this revolutionary management experiment.

The behavioral management theory is often called the human relations movement because it
addresses the human dimension of work. Behavioral theorists believed that a better understanding
of human behavior at work, such as motivation, conflict, expectations, and group dynamics,
improved productivity.

Behavioral management theory relies on the notion that managers will better understand the human
aspect to workers and treat employees as important assets to achieve goals. Management taking a
special interest in workers makes them feel like part of a special group.

Hawthrone Experiment

Elton Mayo's contributions came as part of the Hawthorne studies, a series of experiments that
rigorously applied classical management theory only to reveal its shortcomings.

The Hawthorne experiments consisted of two studies conducted at the Hawthorne Works of the
Western Electric Company in Chicago from 1924 to 1932. The first study was conducted by a
group of engineers seeking to determine the relationship of lighting levels to worker productivity.
Surprisingly enough, they discovered that worker productivity increased as the lighting levels
decreased — that is, until the employees were unable to see what they were doing, after which
performance naturally declined.

A few years later, a second group of experiments began. Harvard researchers Mayo and F. J.
Roethlisberger supervised a group of five women in a bank wiring room. They gave the women
special privileges, such as the right to leave their workstations without permission, take rest
periods, enjoy free lunches, and have variations in pay levels and workdays. This experiment also
resulted in significantly increased rates of productivity.
In this case, Mayo and Roethlisberger concluded that the increase in productivity resulted from
the supervisory arrangement rather than the changes in lighting or other associated worker benefits.
Because the experimenters became the primary supervisors of the employees, the intense interest
they displayed for the workers was the basis for the increased motivation and resulting
productivity. Essentially, the experimenters became a part of the study and influenced its outcome.
This is the origin of the term Hawthorne effect, which describes the special attention researchers
give to a study's subjects and the impact that attention has on the study's findings.

The general conclusion from the Hawthorne studies was that human relations and the social needs
of workers are crucial aspects of business management. This principle of human motivation helped
revolutionize theories and practices of management.
The Needs Theory: Motivating Employees with Maslow's Hierarchy of Needs

Effectively motivating employees has long been one of management's most important and
challenging duties. Motivation refers to the psychological processes that stimulate excitement and
persistence of voluntary actions aimed at some goal. Because motivation can be highly
individualized, managers use a wide range of techniques to keep their employees motivated and
happy. Therefore, it is essential for managers to understand the psychological processes involved
in motivation so that they can effectively direct employees towards organizational goals. Needs
theories attempt to identify internal factors that motivate an individual's behavior and are based on
the premise that people are motivated by unfulfilled needs.

Maslow's Hierarchy of Needs Theory

One of the most popular needs theories is Abraham Maslow's hierarchy of needs theory. Maslow
proposed that motivation is the result of a person's attempt at fulfilling five basic needs:
physiological, safety, social, esteem and self-actualization. According to Maslow, these needs can
create internal pressures that can influence a person's behavior.

Physiological needs are those needs required

for human survival such as air, food, water,
shelter, clothing and sleep. As a manager, you
can account for physiological needs of your
employees by providing comfortable working
conditions, reasonable work hours and the
necessary breaks to use the bathroom and eat
and/or drink.

Safety needs include those needs that provide

The five basic human needs
a person with a sense of security and well-
being. Personal security, financial security,
good health and protection from accidents, harm and their adverse effects are all included in safety
needs. As a manager, you can account for the safety needs of your employees by providing safe
working conditions, secure compensation (such as a salary) and job security, which is especially
important in a bad economy.

Social needs, also called love and belonging, refer to the need to feel a sense of belonging and
acceptance. Social needs are important to humans so that they do not feel alone, isolated and
depressed. Friendships, family and intimacy all work to fulfill social needs. As a manager, you can
account for the social needs of your employees by making sure each of your employees know one
another, encouraging cooperative teamwork, being an accessible and kind supervisor and
promoting a good work-life balance.

Esteem needs refer to the need for self-esteem and respect, with self-respect being slightly more
important than gaining respect and admiration from others. As a manager, you can account for the
esteem needs of your employees by offering praise and recognition when the employee does well,
and offering promotions and additional responsibility to reflect your belief that they are a valued
employee.
Self-actualization needs describe a person's need to reach his or her full potential. The need to
become what one is capable of is something that is highly personal. While I might have the need
to be a good parent, you might have the need to hold an executive-level position within your
organization. Because this need is individualized, as a manager, you can account for this need by
providing challenging work, inviting employees to participate in decision-making and giving them
flexibility and autonomy in their jobs.

Douglas McGregor: Theory X & Theory Y: Two Types of Managers

Douglas McGregor was heavily influenced by both the Hawthorne studies and Maslow. He
believed that two basic kinds of managers exist. One type, the Theory X manager, has a negative
view of employees and assumes that they are lazy, untrustworthy, and incapable of assuming
responsibility. On the other hand, the Theory Y manager assumes that employees are not only
trustworthy and capable of assuming responsibility, but also have high levels of motivation.

McGregor proposed that there were two types of managers: ones who assumed a negative view of
their employees, also known as the Theory X managers, and others who assumed a positive view
of workers, or the Theory Y managers. So grab your bomb repellent while we explore these two
different types of managers by discussing the assumptions of each.

Theory X

Xavier is a Theory X manager. When I say X, I don't mean the type that marks a treasure - in fact,
quite the opposite is true. As a Theory X manager, Xavier believes that his workers:

Hate the idea of having to go to work and do so only to earn a paycheck and the security that it
offers.
1. Are inherently lazy, lack ambition and prefer to be directed on what to do rather than
assume responsibility on their own.
2. Are self-centered and care only about themselves and not the organization (or its goals),
making it necessary for the manager to coerce, control, direct or threaten with punishment
in order to get them to work towards organizational goals.
3. They also dislike change and tend to resist it at all costs.

Xavier assumes that his employees show up for work for their paycheck and the security that a
regular, paying job offers. As soon as that need is satisfied, the employees have no additional
motivation for coming to work. Therefore, Xavier believes his role as a manager is to coerce and
control his employees to work towards organizational goals.

The typical characteristics of a Theory X manager are:

Results-driven and deadline-driven, to the exclusion of everything else, intolerant, issues deadlines
and ultimatums, distant and detached, aloof and arrogant, elitist, short temper, shouts, issues
instructions, directions, edicts, issues threats to make people follow instructions
demands, never asks, does not participate, does not team-build, unconcerned about staff welfare,
or morale, proud, sometimes to the point of self-destruction, one-way communicator
poor listener, fundamentally insecure and possibly neurotic, anti-social, vengeful and
recriminatory, does not thank or praise, withholds rewards, and suppresses pay and remunerations
levels, scrutinises expenditure to the point of false economy, seeks culprits for failures or shortfalls,
seeks to apportion blame instead of focusing on learning from the experience and preventing
recurrence, does not invite or welcome suggestions, takes criticism badly and likely to retaliate if
from below or peer group, poor at proper delegating - but believes they delegate well, thinks giving
orders is delegating, holds on to responsibility but shifts accountability to subordinates, relatively
unconcerned with investing in anything to gain future improvements and unhappy.

Theory Y

Yoko is a Theory Y manager, and when I say Y here, think 'why not.' Why not assume the best in
people? As a Theory Y manager, Yoko believes her employees:

1. Accept work as a normal part of their day, and it's right next to recreation and rest.
2. They are not lazy at all. In fact, when the proper motivations and rewards are in place,
employees are not only willing but purposely driven to seek out responsibility and
challenges on their own.
3. They're full of potential, and it's through their own creativity, ingenuity and imagination
that organizational goals are met.

Yoko assumes that her employees are full of potential and that it is her role as a manager to help
develop that potential so that the employee can work towards a common organizational goal. Yoko
must also try to harness the motivational energy of her employees through things such as giving
them more autonomy, responsibility, power, trust and feedback and involving them in the decision-
making process.

McGregor cautioned both types of managers against what he called self-fulfilling prophecies,
whereby an employee will act just as the manager assumed he or she would due to the manager's
own actions and behaviors. Essentially, if you hold people to a certain expectation - whether that's
good or bad - your own actions as a manager will influence those employees to act accordingly. A
manager's behavior and expectations are as contagious as the plague. As such, McGregor
acknowledged both types of managers as being a legitimate means of motivating employees, but
he felt that you would get much better results through the use of Theory Y rather than Theory X.

Contemporary Approach

Theory z - William Ouchi

First things first - Theory Z is not a Mcgregor idea and as such is not Mcgregor's extension of his
XY theory. Ouchi's theory focuses on increasing employee loyalty to the company by providing a
job for life and focusing on the employee's well-being.

Theory Z was developed by not by Mcgregor, but 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, and a board member of several large US organisations.

Professor Ouchi spent years researching Japanese companies and examining American companies
using the Theory Z management styles . By the 1980s, Japan was known for the highest
productivity anywhere in the world, while America's productivity had fallen drastically. The word
"Wa" in Japanese can be applied to Theory Z because they both deal with promoting partnerships
and group work.

The word "Wa" means a perfect circle or harmony, which influences Japanese society to always
come to a solution via teamwork. Promoting Theory Z and the Japanese word "Wa" is how the
Japanese economy became so powerful. Because the Japanese show a high level enthusiasm to
work, some of the researchers also claim that the "Z" in the Theory Z stands for "Zeal. "

Theory Z essentially advocates a combination of all that's best about theory Y and modern Japanese
management and 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 organization.

Theory Z also places more reliance on the attitude and responsibilities of the workers, whereas
Mcgregor's XY theory is mainly focused on management and motivation from the manager's and
organisation's perspective. There is no doubt that Ouchi's Theory Z model offers excellent ideas,
albeit it lacking the simple elegance of Mcgregor's model, which let's face it, thousands of
organisations and managers around the world have still yet to embrace. For this reason, Theory Z
may for some be like trying to manage the kitchen at the Ritz before mastering the ability to cook
a decent fried breakfast.

For Ouchi, 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 Ouchi, Theory Z management tends to promote:

1. Stable employment
2. High productivity
3. High employee morale and satisfaction

The secret to Japanese success, according to Ouchi, is not technology, but a special way of
managing people. "This is a managing style that focuses on a strong company philosophy, a distinct
corporate culture, long-range staff development, and consensus decision-making" (Ouchi, 1981).
Ouchi claims that the results show:

1. Lower turnover
2. Increased job commitment
3. Dramatically higher productivity

William Ouchi doesn't say that the Japanese culture for business is necessarily the best strategy for
the American companies. Instead, he takes Japanese business techniques and adapts them to the
American corporate environment.

One of the most important pieces of this theory is that management must have a high degree of
confidence in its workers in order for this type of participative management to work. This theory
assumes that workers will be participating in the decisions of the company to a great degree.

Ouchi explains that the employees must be very knowledgeable about the various issues of the
company, as well as possess the competence to make those decisions. He also points out, however,
that management sometimes has a tendency to underestimate the ability of the workers to
effectively contribute to the decision-making process (Bittel, 1989). For this reason, Theory Z
stresses the need for the workers to become generalists, rather than specialists, and to increase their
knowledge of the company and its processes through job rotations and constant training.

Promotions tend to be slower in this type of setting, as workers are given a much longer opportunity
to receive training and more time to learn the ins and outs of the company's operations.

The desire, under this theory, is to develop a work force, which has more loyalty toward staying
with the company for an entire career. It is expected that once employees do rise to a position of
high level management, they will know a great deal more about the company and how it operates,
and will be able to use Theory Z management theories effectively on the newer employees.

Contingency Management

Contingency management is based on the principle that behavior is a function of its consequences.
That is, what people do – how they behave – is related in a predictable way to the consequences
of their behavior. For example, if an action is followed by a positive consequence (positive for that
person), then the individual is likely to repeat that action. In contrast, if an action is followed by a
negative consequence (negative for that person), then the individual is unlikely to repeat the action.
Negative consequences include both no response (e.g., the person’s action is ignored) and
punishing responses.

Effective management of consequences (contingencies) is important for all children, especially in

a school context. Compliance and orderly behavior are critical in creating an effective learning
environment. The contingency approach to management holds that management techniques should
be dependent upon the circumstances.

Management by Objectives

A management model that aims to improve performance of an organization by clearly defining

objectives that are agreed to by both management and employees. According to the theory, having
a say in goal setting and action plans should ensure better participation and commitment among
employees, as well as alignment of objectives across the organization. The term was first outlined
by management guru Peter Drucker in 1954 in his book "The Practice of Management."

Management by objectives (or MBO) is a personnel management technique where managers and
employees work together to set, record and monitor goals for a specific period of time.
Organizational goals and planning flow top-down through the organization and are translated into
personal goals for organizational members. The technique was first championed by management
expert Peter Drucker and became commonly used in the 1960s.

Key Concepts
The core concept of MBO is planning, which means that an organization and its members are not
merely reacting to events and problems but are instead being proactive. MBO requires that
employees set measurable personal goals based upon the organizational goals. For example, a goal
for a civil engineer may be to complete the infrastructure of a housing division within the next
twelve months. The personal goal aligns with the organizational goal of completing the
subdivision.

MBO is a supervised and managed activity so that all of the individual goals can be coordinated
to work towards the overall organizational goal. You can think of an individual, personal goal as
one piece of a puzzle that must fit together with all of the other pieces to form the complete puzzle:
the organizational goal. Goals are set down in writing annually and are continually monitored by
managers to check progress. Rewards are based upon goal achievement.

Advantage — It provides a means to identify and plan for achievement of goals. If you don't know
what your goals are, you will not be able to achieve them. Planning permits proactive behavior
and a disciplined approach to goal achievement. It also allows you to prepare for contingencies
and roadblocks that may hinder the plan. Goals are measurable so that they can be assessed and
adjusted easily. Organizations can also gain more efficiency, save resources and increase
organizational morale if goals are properly set, managed and achieved.

Disadvantage — Application of MBO does take some concerted effort. You cannot rely upon a
thoughtless, mechanical approach. You should note that some tasks are so simple that setting goals
makes little sense and becomes more of silly annual ritual. For example, if your job is snapping
two pieces of a product together on an assembly line, setting individual goals for your work borders
on the absurd.

Different Organization Structure

Every organization, to be effective, must have a structure. Organization Structure is the setup that
determines the hierarchy and reporting structure in an organization. It is represented by a drawing
known as an organizational chart. There are different types of organizational structures that
companies follow, depending on a variety of factors like leadership style, type of organization,
geographical regions, work flow and hierarchy. To put it simply, an organizational structure is the
plan of the hierarchy and arrangement of work.

The typically hierarchical arrangement of lines of authority, communications, rights and duties of
an organization. Organizational structure determines how the roles, power and responsibilities are
assigned, controlled, and coordinated, and how information flows between the different levels of
management.
A structure depends on the organization's objectives and strategy. In a centralized structure, the
top layer of management has most of the decision making power and has tight control over
departments and divisions. In a decentralized structure, the decision making power is distributed
and the departments and divisions may have different degrees of independence. A company such
as Proctor & Gamble that sells multiple products may organize their structure so that groups are
divided according to each product and depending on geographical area as well.

Traditional Structures

Flat Structure

A flat organizational structure is often used for a small company with 20 or fewer employees. This
type of structure has very few levels of management between the Chief Executive Officer
(CEO)/president and the lower level employees. In this type of structure, decisions can be made
quickly due to the fact there are only a few levels of management. Here is an example of what a
flat organizational structure looks like:
Line Structure

This is the kind of structure that has a specific line of command. The approvals and orders in this
kind of structure come from top to bottom in a line. Hence it is known as a line structure. This kind
of structure is suitable for smaller organizations like small accounting firms and law offices. This
structure allows easy decision-making and is informal in nature.

Merits
✔ It is the simplest kind of organizational structure.
✔ Strict authority results in a stronger discipline.
✔ Prompt decisions result in quick and effective actions.
✔ There is clarity in the structures of authority and responsibility.
✔ As the control rests with one superior, it accords him the flexibility to adjust the department.
✔ There are good career advancement prospects for individuals who deliver quality work.

Demerits
✗ There are chances of the department head being biased.
✗ Lack of specialization is a persistent problem.
✗ The department head may be burdened with lots of work.
✗ Communication only happens from top to bottom.
✗ Superiors with authority can misuse it for their benefit.
✗ Decisions are taken by a single person and can go wrong.

Line and Staff Structure

Though a line structure is suitable for most organizations, especially the small ones, it is not
effective for larger companies. This is where the line and staff organizational structure comes into
play. Line and staff structure combines the line structure where information and approvals come
from top to bottom, with staff departments for support and specialization. Line and staff
organizational structures are more centralized. Managers of line and staff have authority over their
subordinates, but staff managers have no authority over line managers and their subordinates. The
decision-making process becomes slower in this type of organizational structure because of several
layers and guidelines. Also, there is formality involved.

Merits
✔ It enables the employees to perform at a faster rate.
✔ It helps employees to accept responsible jobs and specialize in a particular area.
✔ It helps line managers to concentrate on the task at hand.
✔ Little or no resistance is met when organizational changes take place.
✔ It results in less operational wastage and increases productivity.
✔ Employees feel that they are given the due credit for their contribution.

Demerits
✗ Confusion may be created among employees.
✗ Employees lack operational knowledge to give result-oriented suggestions.
✗ There are too many levels of hierarchy.
✗ Employees may have differences of opinions and this may slow down the work.
✗ As staff specialists exist, it is costlier than a simple line organization.
✗ Decision-making may be time-consuming.

Popular Organizational Structures

Organizations are set up in specific ways to accomplish different goals, and the structure of an
organization can help or hinder its progress toward accomplishing these goals. Organizations large
and small can achieve higher sales and other profit by properly matching their needs with the
structure they use to operate.

Functional Structure

Functional structure is set up so that each portion of the organization is grouped according to its
purpose. In this type of organization, for example, there may be a marketing department, a sales
department and a production department. The functional structure works very well for small
businesses in which each department can rely on the talent and knowledge of its workers and
support itself. However, one of the drawbacks to a functional structure is that the coordination and
communication between departments can be restricted by the organizational boundaries of having
the various departments working separately.

This kind of organizational structure classifies people according to the function they perform in
their professional life or according to the functions performed by them in the organization. The
organization chart for a functional organization consists of a Vice President, a Sales Department,
a Customer Service Department, an Engineering or Production Department, an Accounting
Department, an Administration Department, etc.

Merits
✔ It has high degrees of specialization.
✔ It has clear lines of authority.
✔ It facilitates easy accountability for the work.
✔ It accords a high level of speed and efficiency.
✔ The need for duplication of work is eliminated.
✔ All the functions command equal importance.

Demerits
✗ Communication has several barriers which makes coordination difficult.
✗ More focus is laid on individuals rather than the organization.
✗ The decisions taken by a single person may not always work in favor of the organization.
✗ As the organization expands, it gets difficult to exercise control on its operations.
✗ There may be lack of teamwork between different departments or units.
✗ As all the functions are separated, employees may not gain knowledge about other
specializations.

Divisional Structure

Divisional structure typically is used in larger companies that operate in a wide geographic area or
that have separate smaller organizations within the umbrella group to cover different types of
products or market areas. The benefit of this structure is that the needs can be met more rapidly
and more specifically; however, communication is inhibited because employees in different
divisions are not working together. Divisional structure is costly because of its size and scope.
Small businesses can use a divisional structure on a smaller scale, having different offices in
different parts of the city, for example, or assigning different sales teams to handle different
geographic areas.

These are the kinds of structures that are based on different divisions in the organization. They
group together employees based on the products, markets and geographical locations covered.
Here is a detailed description of a divisional structure.

Product Structure

A product structure is based on organizing employees and work on the basis of the different
products. If the company produces three different products, they will have three different divisions
for these products. This type of structure can be best utilized for retail stores with a number of
products.

Merits
✔ Units which are not working can be closed down easily.
✔ Each unit can be operated and treated as a separate profit center.
✔ It accords rapid and easy decision-making.
✔ It also gives a lot of independence to the decision makers.
✔ Individual products get separate attention as per the problems they face.
✔ It enables the organization to have a high productivity and efficiency quotient.

Demerits
✗ As each unit operates on its own, organizational goals may not be achieved.
✗ Unhealthy competition may exist among internal business units.
✗ As it has too many managerial levels, it may hamper the business.
✗ Accounting work and taxes may increase considerably.
✗ All the units may not be considered as equal.
✗ Marketing individual products may add up to the cost significantly.

Market Structure

Market structure is used to group employees on the basis of the specific market the company sells
in. A company could have five different markets they use and according to this structure, each
would be a separate division.

Merits
✔ Employees can communicate with customers in the local language.
✔ They are available for the customers, if need is felt.
✔ The problems in a particular market can be isolated and dealt with separately.
✔ As individuals are responsible for a particular market, tasks are completed on time.
✔ Employees are specialized in catering to a particular market.
✔ New products for niche markets can be introduced.

Demerits
✗ There can be intense competition among the employees.
✗ Decision-making can cause conflicts.
✗ It is difficult to determine the productivity and efficiency.
✗ All the markets may not be considered as equal.
✗ There may be lack of communication between the superiors and the employees.
✗ Employees may misuse their authority.

Geographic Structure

Large organizations have offices at different places, for example, there could be a north zone, south
zone, west zone and east zone. The organizational structure, in such a case, follows a zonal
structure.

Merits
✔ There is better communication among the employees at the same location.
✔ Locals are familiar with the local business environment and can cater to geographical and
cultural differences.
✔ Customers feel a better connection with local managers who can speak their language.
✔ A record of the work of individual markets and groups can be maintained.
✔ Decisions are taken thoughtfully and work when implemented.
✔ New products or product modifications catering to a specific area can be introduced.

Demerits
✗ It may give rise to a feeling of division among the employees of the organization.
✗ There may be unhealthy competition among different zones.
✗ Core company ethics, beliefs and practices may differ from location to location.
✗ Tracing the performance and profits of each region may be time-consuming and tedious.
✗ There may be poor communication among the employees at different locations.
✗ Collaboration and cooperation between employees at different locations may not work out.

Matrix Structure

The third main type of organizational structure, called the matrix structure, is a hybrid of divisional
and functional structure. Typically used in large multinational companies, the matrix structure
allows for the benefits of functional and divisional structures to exist in one organization. This can
create power struggles because most areas of the company will have a dual management--a
functional manager and a product or divisional manager working at the same level and covering
some of the same managerial territory.
This structure is a combination of function and product structures. It combines the best of both
worlds to make an efficient organizational structure. This structure is the most complex structure.
It uses teams of employees to accomplish work by capitalizing on their strengths while creating
weaknesses which are of functional form. The different types of matrix structures are:

Weak/Functional Matrix
In this type of matrix structure, a project manager is assigned to look over the cross-functional
aspects of the project. However, he has a very limited authority and it is the functional manager
who actually controls the inventory, resources and the project.

Merits
✔ Employees are not attached to temporary staff or temporary work.
✔ The functional manager controls the project.
✔ The functional manager is responsible in case anything goes wrong.
✔ The more the project manager communicates with the employees, the better are the results.
✔ The project manager can make things happen without being in control.
✔ The decision-making rests in the hands of the functional manager.

Demerits
✗ The project manager may face strong apathy from his workers.
✗ The project manager does not have complete authority.
✗ If not supervised, workers can reduce the productivity of the entire unit.
✗ The project manager is a weak authority who has no control over the employees.
✗ He has no control over workload management and task prioritization.
✗ He cannot even give a performance review.

There are two more structures namely balanced/functional matrix and strong/project matrix.
In the balanced/functional matrix, the responsibility and power is shared equally by both the
project manager and the functional head. This may create a power struggle between them. In the
strong/project matrix, the project manager is primarily responsible for the work while the
functional head gives technical advice and allocates resources.
Other Organizational Structure

Bureaucratic Structure

This kind of structure can be seen in tall organizations where tasks, processes and procedures are
all standardized. This type of structure is suitable for huge enterprises that involve complex
operations and require smooth administration of the same. It is highly recommended for industries
like food, beverage, etc. as they have to adhere to stringent rules and regulations.

Merits
✔ As the complete control rests in the hands of one person, it is easy to achieve organizational
goals.
✔ Strict hierarchies ensure timely completion of tasks and quality.
✔ It helps in easy cooperation and coordination among the employees.
✔ Standardization and the best practices can be implemented easily.
✔ Employees have to adhere to policies and procedures.
✔ Production takes place efficiently and effectively.

Demerits
✗ A centralized authority can discourage employees.
✗ It does not encourage innovative ideas.
✗ It can lead to employee dissatisfaction and attrition.
✗ It cannot adapt to changes in the business environment.
✗ One person cannot be responsible for coming up with creative ideas every time.
✗ It can trigger a power struggle in the organization.

Pre-bureaucratic Structure

This structural form is best-exemplified in organizations where administration and control are
centralized, and there is very little, if any, standardization of tasks. This structure is highly
recommended for small-scale industries and start-ups.

Merits
✔ It has a centralized structure with only one decision maker.
✔ The founder has complete control on decisions and their implementation.
✔ Communication mostly happens on a one-on-one basis.
✔ Decisions are made and implemented quickly.
✔ Productivity and profits are closely monitored.
✔ If an employee works hard, he gets noticed.

Demerits
✗ Decisions taken by one person stand the risk of going wrong.
✗ It is only applicable to small businesses and cannot sustain once they expand.
✗ Lack of standardization can lead to inconsistencies.
✗ Employees are not part of the decision-making process and this can demoralize them.
✗ Effective communication may not take place as people do not open up in front of the authority.
✗ Due to lack of flexibility, employees may feel frustrated.
Post-bureaucratic Structure

This is a structure that is not bureaucratic in nature. While bureaucratic organizations are too
controlled, post-bureaucratic ones offer more freedom to the employees. Though there is hierarchy,
the leaders are open to new ideas. The decisions are taken after discussion and consensus is not
dependent on hierarchy. This encourages employee participation, trust, personal treatment,
responsibility and empowerment. This type of structure is often used in housing cooperatives and
non-profit organizations. It also incorporates techniques like total quality management (TQM) and
culture management.

Now that you know about the various organizational structures, implement the right one based on
its applicability, advantages and disadvantages. It is important to find an organizational structure
that works best for the organization as a wrong setup can hamper functioning and be detrimental
to organizational success.

Network Structure

In this structure, organization managers are required to maintain and coordinate

business/professional relations with third parties such as clients, vendors and associates in order
to achieve a collective goal of profitability and growth. Most of the time, these relations are
maintained and tasks are coordinated via telecommunication and electronic media and, hence this
structure is also known as a virtual structure.

Merits
✔ The employees can be closer to the location of the customer.
✔ It helps in optimizing the knowledge potential of the organization.
✔ Even if something like a natural disaster occurs, the work of network employees can continue.
✔ It can be dynamic and easily adaptive to changes in the business environment.
✔ There is a certain level of flexibility for the employees.
✔ There can be a collaborative relationship between the supervisor and the employee.

Demerits
✗ An employee may have to report to too many supervisors and this may affect his work.
✗ As a formal hierarchy is missing, it can lead to conflicts.
✗ Too much dependence on technologies like the Internet, phone, etc. can cause problems.
✗ As there is no physical place for employees, it affects communication.
✗ It can lead to increased work stress among the employees.
✗ An intense competition exists among the supervisors, to get a high-performing employee.

Team Structure

Organizations with team structures can have both vertical as well as horizontal process flows. The
most distinct feature of such an organizational structure is that different tasks and processes are
allotted to specialized teams of personnel in such a way that a harmonious coordination is struck
among the various teams.

Merits
✔ It facilitates practical decision-making and implementation.
✔ Decisions are taken unanimously and not by an individual.
✔ It eliminates traditional scalar chains of command for getting approvals.
✔ The relationships and communication between employees improve.
✔ If one employee in the team fails to work, the other can take his place.
✔ It enables the heads to staff resources which complement each other.

Demerits
✗ There is very less contact with teams of other functions.
✗ If teams undergo constant changes and alterations, it can affect work.
✗ Each team contributes on its own and may not be in alignment with the organizational goals.
✗ Team members need to be proactive and incorporate better project management.
✗ The need for an effective leader can be felt.
✗ As decisions are given by many people, they may take a long time.

A Few More Organizational Structures

Entrepreneurial Structure

The authority of such organizations oftentimes is heavily centralized and lies with one person. It
only comprises two to three vertical levels and the duties of the employees overlap. It is suitable
for small or new organizations where the decision of one person matters the most. It also exhibits
easy responsiveness and adaptability to change in the business environment.

Horizontal Organization Structure

It is also known as a flat structure. In this type, there is absolutely nil or very less interference from
the senior management which allows the employees to conduct their tasks smoothly. Employees
are also involved in the decision-making process. As it eliminates the need for middle
management, it contributes towards giving a quick response to customer feedback. However, it
may not be applicable and practical for big organizations.

Vertical Organization Structure

It relies on the middle management to monitor and control the work of the employees. These
structures have well-defined roles and responsibilities for the employees. Hence, delegating tasks
to the employees becomes easier. It requires a strong leader at the top of the hierarchy as he is the
one to take all the decisions. As a hierarchy exists, it ensures that the work is done in a disciplined
manner.

Mechanistic Structure

This is the most formal and the strictest kind of structure with a clear distinction in the hierarchy
and roles. Hence, these structures are vertically oriented. The hierarchy of the authority is well-
defined. Decision-making rests in the hands of the senior management. As a lot of bureaucracy is
involved in these structures, the leaders find it difficult to deal with competition. Also, innovation
oftentimes is hampered due to red-tapeism. Employees work separately and are specialists of a
task.

Organic Structure

It is the exact opposite of a mechanistic organizational structure. In an organization following the

organic structure, the authority is delegated and is decentralized. Hence, communication takes
place laterally. There is a lot of flexibility in this type of an organization. Employees generally
work together and coordinate different tasks. They are highly flexible to adapt to the changes in
the external business environment.
 UNIT 2
Concept of Business Environment

All living creatures including human beings live within an environment. Apart from the natural
environment, environment of humans include family, friends, peers and neighbours. It also
includes man-made structures such as buildings, furniture, roads and other physical
infrastructure. The individuals do not live in a vacuum. They continuously interact with their
environment to live their lives.

Just like human beings, business also does not function in an isolated vacuum. Businesses
function within a whole gambit of relevant environment and have to negotiate their way
through it. The extent to which the business thrives depends on the manner in which it interacts
with its environment. A business, which continually remains passive to the relevant changes in
the environment, is destined to gradually fade-away in oblivion. To be successful business has
not only recognize different elements of the environment but also respect, adapt to or have to
manage and influence them. The business must continuously monitor and adapt to the
environment if it is to survive and prosper. Disturbances in the environment may spell extreme
threats or open up new opportunities for the firm. A successful business has to identify,
appraise, and respond to the various opportunities and threats in its environment.

As stated above, the success of every business depends on adapting itself to the
environment within which it functions. For example, when there is a change in the government
policies, the business has to make the necessary changes to adapt itself to the new policies.
Similarly, a change in the technology may render the existing products obsolete, as we have
seen that the introduction of computer has replaced the typewriters; the colour television
has made the black and white television out of fashion. Again a change in the fashion
or customers’ taste may shift the demand in the market for a particular product, e.g.,
the demand for jeans reduced the sale of other traditional wear. All these aspects are
external factors that are beyond the control of the business. So the business units must have
to adapt themselves to these changes in order to survive and succeed in business. Hence, it is
very necessary to have a clear understanding of the concept of business environment and the
nature of its various components.

Definitions of Business Environment

The term ‘business environment’ connotes external forces, factors and institutions that
are beyond the control of the business and they affect the functioning of a business
enterprise. These include customers, competitors, suppliers, government, and the social,
political, legal and technological factors etc. While some of these factors or forces may have
direct influence over the business firm, others may operate indirectly. Thus, business
environment may be defined as the total surroundings, which have a direct or indirect bearing
on the functioning of business. It may also be defined as the set of external factors, such
as economic factors, social factors, political and legal factors, demographic factors,
technical factors etc., which are uncontrollable in nature and affects the business decisions of
a firm.

1. Business Environment has been defined by Bayard O. Wheeler as “the total of all things
external to firms and industries which affect their organization and operation”.

2. According to Arthur M. Weimer, business environment encompasses the ‘climate’ or set

of conditions, economic, social, political or institutional in which business operations are
conducted.

3. According to Glueck and Jauch, “The environment includes factors outside the firm which
can lead to opportunities for or threats to the firm. Although there are many factors, the
most important of the sectors are socio-economic, technological, supplier, competitors, and
government.”

4. According to Barry M. Richman and Melvgn Copen “Environment consists of factors that
are largely if not totally, external and beyond the control of individual industrial enterprise
and their managements. These are essentially the ‘givers’ within which firms and their
management must operate in a specific country and they vary, often greatly, from country
to country”.

From the above definitions we can extract that business environment consists of factors that
are internal and external which poses threats to a firm or these provide opportunities for
exploitation.

Concept of Business Environment

A business firm is an open system. It gets resources from the environment and supplies its
goods and services to the environment. There are different levels of environmental forces.
Some are close and internal forces whereas others are external forces. External forces may be
related to national level, regional level or international level. These environmental forces
provide opportunities or threats to the business community. Every business organization tries
to grasp the available opportunities and face the threats that emerge from the business
environment. Business organizations cannot change the external environment but they just
react. They change their internal business components (internal environment) to grasp the
external opportunities and face the external environmental threats. It is, therefore, very
important to analyze business environment to survive and to get success for a business in its
industry. It is, therefore, a vital role of managers to analyze business environment so that they
could pursue effective business strategy. A business firm gets human resources, capital,
technology, information, energy, and raw materials from society. It follows government rules
and regulations, social norms and cultural values, regional treaty and global alignment,
economic rules and tax policies of the government. Thus, a business organization is a dynamic
entity because it operates in a dynamic business environment.

Features of Business Environment

On the basis of the above discussion the features of business environment can be summarized
as follows.

1. Business environment is the sum total of all factors external to the business firm and that
greatly influence their functioning.

2. It covers factors and forces like customers, competitors, suppliers, government, and the
social, cultural, political, technological and legal conditions.

3. The business environment is dynamic in nature, that means, it keeps on changing.

4. The changes in business environment are unpredictable. It is very difficult to predict the
exact nature of future happenings and the changes in economic and social environment. .

5. Business Environment differs from place to place, region to region and country to country.

Importance of Business Environment

There is a close and continuous interaction between the business and its environment.
This interaction helps in strengthening the business firm and using its resources more
effectively. As stated above, the business environment is multifaceted, complex, and dynamic
in nature and has a far-reaching impact on the survival and growth of the business. To be
more specific, proper understanding of the social, political, legal and economic
environment helps the business in the following ways:
1. Identifying Firm’s Strength and Weakness: Business environment helps to identify the
individual strengths and weaknesses in view of the technological and global developments

2. Determining Opportunities and Threats: The interaction between the business and its
environment would identify opportunities for and threats to the business. It helps the
business enterprises for meeting the challenges successfully.

3. Giving Direction for Growth: The interaction with the environment leads to opening up
new frontiers of growth for the business firms. It enables the business to identify the areas
for growth and expansion of their activities.

4. Continuous Learning: Environmental analysis makes the task of managers easier

in dealing with business challenges. The managers are motivated to continuously
update their knowledge, understanding and skills to meet the predicted changes in realm of
business.

5. Image Building: Environmental understanding helps the business organisations

in improving their image by showing their sensitivity to the environment within which
they are working.

6. Meeting Competition: It helps the firms to analyse the competitors’

strategies and formulate their own strategies accordingly.

Factors Affecting Business Environment

The business environment or the external forces acting on the business consists of a large
number of forces. These are;

1. Demographic Factors - Demography is a study of human population with reference to its

size, density, distribution and other connected vital statistics. This information is very essential
in modern days for planning and development and also for framing laws relating to society and
business. The density of population, the extent of their standard of living, the level of their
education and the nature of their occupation etc., greatly influence the type of business the
entrepreneurs could undertake. The business units require customers for its survival and
growth; naturally business can thrive in populace regions, though now-a day’s transportation
helps a lot in bringing the commodities to the scarcely populated areas.

2. Economic Factors - The business enterprise is affected by various economic forces which
cannot be controlled by the business. These economic forces, can be divided into two
categories, ie. Demand Force and Competitive Force. For a business firm to survive and thrive,
it should have adequate demand for its products. At the same time, the firm has to complete
with the rival firm producing similar products or substitute products.

Economic forces affecting demand:

For customers to buy the commodity of the firm, they should have the ability to buy and
willingness to buy. The ability to buy a commodity depends on the income of the customer, to
be very precise, the disposable income of the customer. Out of the total income, the individual
has to pay taxes due to the government and the disposable income will be less if the taxes are
high. Secondly, if the individual wants to save more, the amount for spending will be less.
Thus, the ability to buy a commodity depends on the a) Total income earned out of the
employment of the individual b) The taxes of the government and c) The savings of the
individual.

An increase in tax will reduce the demand for the commodity. The attitude of the individual
towards ‘Saving’ will affect the demand. A change in ‘Price’ of the commodity will affect the
demand. Expectation of a further change in price or change in taxes will also affect the demand.

a) Competitive forces: The competitive tools are price cutting, advertisement, product
differentiation, marketing strategies and consumer service.

b) Price cutting: Price cutting or price reduction is a method which has to be adopted
very cautiously, as it may ultimately lead to price-war between firms competing,
resulting in reduction of profits.

c) Advertisement: Advertisements in modern days have become a very powerful tool in

persuading the consumers of a product to a particular brand. In monopolistic
competition, a large share of the market is entrenched by firms making effective and
aggressive advertisement.

d) Product differentiation: A firm tries to get competitive strength by differentiating its

product from those of its rivals. By having special design, colour, packing and features,
the firm tries to get competitive edges.

e) Marketing strategies and Consumer Service: Modern firm adopt various types of
marketing strategies to create market for their products. Installment system, credit
system, hire-purchase, etc., are the prominent ways by which firms try to cut through
the poor segments of the society and convert them their customers. Besides customer
 service like, free door delivery, quick service, after sales service, guarantee from defects
up to a certain period are adopted to have more and more demand for their commodities.

3. Geographical and Ecological Environment

a) Geographical conditions, to a greater extent, influence the type of industries and

business in a region. Generally, the people of a particular geographical region will have
similar tastes, preferences and requirements. The geographical situation, the physical
feature, the climate, rainfall, humidity, the vegetation, etc., decide the type of living in
a particular region and only those industries which could cater to the needs of the
people, could develop. In other words, geographical conditions exert profound
influence on the location of the business.

b) Ecological is a study “dealing with the interaction of living organism with each other
and with their non-living environment”. It is a science telling about the relationship of
all living beings. (ie., human beings, animals, plants) with non- living beings (air, water,
soil represented by atmosphere, rivers, lakes, mountains and land).

4. Social and Cultural Environment

Social and Cultural attitudes of a region influence the business organizations of the region
influence the business organizations of the region in a verity of ways. The business practices
and the management technique of the organization should cope with the social and cultural
attitudes of the people.

The modern business is a social system in itself, but it is also part of a larger social system
represented by society in general. Clearly, there should be some reciprocal relationship
between business and this larger society. To put it shortly, the business should adopt itself to
the social and cultural environment.

It is the class structure of the society. It tells about the social roles and organizations and the
development of social institutions. The class-structure depend upon the occupation of the
people, their education, income level, social status, their mobility, their attitude towards living,
work and social relationship and above all, their attitude towards business.

Every society develops its own ‘culture’ which means how the members of that society behave
and interact with each other in society, as well as outside society. The term culture includes
values, norms, customs, ethics, goals and other accepted behavior patterns.
5. Political and Legal Environment

Political Environment: All business firms are directly affected to a greater or lesser degree by
the government and its programmes. Political forces will decide the nature of business,
programmes and projects to be undertaken for the development of the country. These political
forces can be classified as long term forces, quick changes, cyclical changes and regional
factors.

a) Long term forces denote the secular trends in business activities due to the political
conditions prevailing and the adoption of a particular line of policy in business.

b) Quick Changes consist of sudden political changes due to army coup or revolt or
capturing of the government machinery by the dissident group. The quick change may
also be the result of proclamation of ‘emergency’ or ‘Martial Law’ due to sudden
outbreak of war with a belligerent nation. In all these cases, the business manager has
to take quick decisions to adopt his business to the changed environment.

c) Cyclical Changes denote periodical anticipated changes like ’General Election’

which may change the government and consequent change in plans and programmes as
well as priorities by the new Government.

Regional Factors the regional consideration may dominate the political scene. Development of
agricultural or development of an industrially backward region may draw the attention of
politicians and government. Consequently, special legislations or policies will be framed to
help the backward regions or sector. In such changes, the business has to adopt itself by
studying and estimating the risks and dangers involved in taking decisions.

Legal Environment: Business in a country can be started and nurtured to grow into big
business only within the legal system of the country. In this connection, all countries of the
word have a separate set of laws for the control and direction of business. The business law of
the country is a complex system of regulations and intervention that form the legal environment
of the business. All business managers should have the knowledge of business law for taking
management decision.
6. Technological Environment

Technology means “the systematic knowledge of the industrial arts”. ‘Technique’ denotes the
method of performance. These two are increasingly used in modern literature on industrial
production. The present age is the age of technology. Technology affects the business in two
ways.

a) Its impact on the society and

b) Its impact on business operation.

Importance of Business Environment Concept

In business all the activities are being organized and also carried out by the people to satisfy
the needs of the consumers. So, it is an activity carried out by the people for the people which
means people occupy a central place around which all the activities revolve. It means business
is people and a human is always a dynamic entity who believes in change and it may be right
to say that the only certainty today is change. It poses a huge challenge for today’s and
especially tomorrow’s businessmen and managers to be aware of specific changes so as to keep
themselves abreast with the latest happenings in the field of business to maintain their survival
and sustainability in the market. Therefore, the study of business environment is of atmost
importance for the managers and practitioners.

Corporate Social Responsibility

What is Corporate Social Responsibility?

Corporate social responsibility (CSR) refers to business practices involving initiatives that
benefit society. A business's CSR can encompass a wide variety of tactics, from giving away a
portion of a company's proceeds to charity, to implementing "greener" business operations.

There are a few broad categories of social responsibility that many of today's businesses are
practicing:

1. Environmental efforts: One primary focus of corporate social responsibility is

the environment. Businesses regardless of size have a large carbon footprint. Any steps
they can take to reduce those footprints are considered both good for the company and
society as a whole.
2. Philanthropy: Businesses also practice social responsibility by donating to national and
local charities. Businesses have a lot of resources that can benefit charities and local
community programs.

3. Ethical labor practices: By treating employees fairly and ethically, companies can also
demonstrate their corporate social responsibility. This is especially true of businesses that
operate in international locations with labor laws that differ from those in the United States.

4. Volunteering: Attending volunteer events says a lot about a company's sincerity. By doing
good deeds without expecting anything in return, companies are able to express their
concern for specific issues and support for certain organizations.
Describing Corporate Social Responsibility
There have been many definitions of corporate social responsibility in addition to the one given
above; rather than describing them, listing the key elements found in various definitions may
be more insightful. Buchholz identified five key elements found in most, if not all, definitions:

1. Corporations have responsibilities that go beyond the production of goods and services at
a profit.
2. These responsibilities involve helping to solve important social problems, especially those
they have helped create.

3. Corporations have a broader constituency than stockholders alone.

4. Corporations have impacts that go beyond simple marketplace transactions.
5. Corporations serve a wider range of human values than can be captured by a sole focus on
economic values.

The key components of CSR would include the following:

1. Corporate Governance: Within the ambit of corporate governance, major issues

are the accountability, transparency and conduct in conformity with the laws. Good
corporate governance policy would enable the company to realize its corporate
objectives, protect shareholder rights, meet legal requirements and create
transparency for all stakeholders.

2. Business Ethics: Relates to value-based and ethical business practices. ‘Business

ethics defines how a company integrates core values – such as honesty,
trust, respect, and fairness – into its policies, practices, and decision making.
Business ethics also involves a company’s compliance with legal standards and
adherence to internal rules and regulations.’1
3. Workplace and labour relations: Human resources are most important and critical
to a company. Good CSR practices relating to workplace and labour relations can
help in improving the workplace in terms of health and safety, employee relations
as well as result in a healthy balance between work and non-work aspects of
employees’ life. It can also make it easier to recruit employees and make them stay
longer, thereby reducing the costs and disruption of recruitment and retraining.

4. Affirmative action/good practices: Equal opportunity employer, diversity of

workforce that includes people with disability, people from the local community
etc., gender policy, code of conduct/guidelines on prevention of sexual
harassment at workplace, prevention of HIV/AIDS at workplace,
employee volunteering etc. are some of the good practices which reflect CSR
practices of the company.

5. Supply Chain: The business process of the company is not just limited to the
operations internal to the company but to the entire supply chain involved in goods
and services. If anyone from the supply chain neglects social,
environmental, human rights or other aspects, it may reflect badly on the company
and may ultimately affect business heavily. Thus, company should use its strategic
position to influence the entire supply chain to positively impact the stakeholders.

6. Customers: The products and services of a company are ultimately aimed at the
customers. The cost and quality of products may be of greatest concern to the
customers but these are not the only aspects that the customers are concerned
with. With increased awareness and means of communication, customer
satisfaction and loyalty would depend on how the company has produced the
goods and services, considering the social, environmental, supply-chain and other
such aspects.

7. Environment: Merely meeting legal requirements in itself does not comprise CSR
but it requires company to engage in such a way that goes beyond mandatory
requirements and delivers environmental benefits. It would include, but not limited
to, finding sustainable solutions for natural resources, reducing adverse impacts
on environment, reducing environment-risky pollutants/emissions as well as
producing environment-friendly goods.

8. Community: A major stakeholder to the business is the community in which the

company operates. The involvement of a company with the community would
depend upon its direct interaction with the community and assessment of
issues/risks faced by those living in the company surrounding areas. This helps in
delivering a community-focused CSR strategy – making positive changes to the
lives of the people and improving the brand-image of the company. Involvement
with the community could be both direct & indirect – through funding and other
support for community projects implemented by local agencies.

Benefits of CSR for the Organizations

Some of the positive outcomes that can arise when businesses adopt a policy of
social responsibility include:

1. Company benefits:

1. Improved financial performance;

2. Lower operating costs;
3. Enhanced brand image and reputation;
4. Increased sales and customer loyalty;
5. Greater productivity and quality;
6. More ability to attract and retain employees;
7. Reduced regulatory oversight;
8. Access to capital;
9. Workforce diversity;
10. Product safety and decreased liability.

2. Benefits to the community and the general public:

1. Charitable contributions;
2. Employee volunteer programmes;
3. Corporate involvement in community education, employment and
homelessness programmes;
4. Product safety and quality.

3. Environmental benefits:

1. Greater material recyclability;

2. Better product durability and functionality;
3. Greater use of renewable resources;
4. Integration of environmental management tools into business plans,
including life-cycle assessment and costing, environmental management
standards, and eco-labelling.
Nevertheless, many companies continue to overlook CSR in the supply chain - for
example by importing and retailing timber that has been illegally harvested. While
governments can impose embargos and penalties on offending companies, the
organizations themselves can make a commitment to sustainability by being more
discerning in their choice of suppliers.

The concept of corporate social responsibility is now firmly rooted on the global
business agenda. But in order to move from theory to concrete action, many
obstacles need to be overcome.

A key challenge facing business is the need for more reliable indicators of progress
in the field of CSR, along with the dissemination of CSR strategies. Transparency
and dialogue can help to make a business appear more trustworthy, and push up
the standards of other organizations at the same time.

Examples of CSR Initiatives in India

1. ITC Limited

ITC partnered the Indian farmer for close to a century. ITC is now engaged in
elevating this partnership to a new paradigm by leveraging information technology
through its trailblazing 'e-Choupal' initiative. ITC is significantly widening its farmer
partnerships to embrace a host of value-adding activities: creating livelihoods
by helping poor tribals make their wastelands productive; investing in rainwater
harvesting to bring much-needed irrigation to parched drylands; empowering rural
women by helping them evolve into entrepreneurs; and providing infrastructural
support to make schools exciting for village children. Through these rural
partnerships, ITC touches the lives of nearly 3 million villagers across India.

2. Larsen & Toubro (L & T) Limited

Considering that construction industry is the second largest employer in India after
agriculture, employing about 32 million-strong workforce, L&T set out to regulate
and promote Construction Vocational Training (CVT) in India by establishing a
Construction Skills Training Institute (CSTI) on a 5.5 acre land, close to its
Construction Division Headquarters at Manapakkam, Chennai. CSTI imparts,
totally free of cost, basic training in formwork, carpentry, masonry, bar-bending,
plumbing and sanitary, scaffolder and electrical wireman trades to a wide
spectrum of the rural poor.

As a result of the good response it received in Chennai, CSTI set up a branch at

Panvel, Mumbai, initially offering training in formwork, carpentry and masonry
 trades. The Manapakkam and Panvel facilities together provide training to about
300 candidates annually who are inducted after a process of selection, the
minimum qualification being tenth standard. Since inception, these two units have
produced about 2,000 skilled workmen in various trades, with about sixty percent
of them being deployed to L&T’s jobsites spread across the country. The success
of this training-initiative demonstrates that adoption of systematic training
techniques are bound to yield efficient and skilled personnel in the shortest
possible time, and in the power to convert the potential of the Rural Youth in
Construction and upgrading Rural Economy in a small way

India Aluminium Company Limited

The Women's Empowerment project was initiated by Indal-Muri in Jharkhand

where the Company operates an alumina refining plant. It was implemented in
collaboration with an NGO, CARE-Jharkhand. The central problem this project has
attempted to address is the very low socio-economic condition of the rural and
tribal population of Silli block caused by low agricultural productivity, lack of or low
cash income, unresponsive health/ Integrated Child Development Services (ICDS)
schemes. The Project has helped set up around 100 Self Help Groups so far, which
are running successfully with members trained in various vocational income–
generating skills, agricultural methods for better yields and health care initiatives.
About 2000 women have been brought into the fold of this activity helping to
improve not just their own lives but the quality of life of their children and families
as well.

The Indal Women's Empowerment & Child Care project

employed integrated package of strategies and interventions,
such as:

1.Establishment and Strengthening of Self Help Groups (SHG) in 30 strategically

selected villages.

2. Promotion of Nutrition Gardens and improved land /agricultural and natural

resource management practices.

3. Creation of demand for improved ICDS/ health services through Self Help
Groups and strengthening ICDS/ Health Department's service delivery

Corporate Governance

Corporate Governance refers to the way a corporation is governed. It is the technique

by which companies are directed and managed. It means carrying the business as per
the stakeholders’ desires. It is actually conducted by the board of Directors and the
concerned committees for the company’s stakeholder’s benefit. It is all about
balancing individual and societal goals, as well as, economic and social goals.

Corporate Governance is the interaction between various participants (shareholders,

board of directors, and company’s management) in shaping corporation’s
performance and the way it is proceeding towards. The relationship between the
owners and the managers in an organization must be healthy and there should be no
conflict between the two. The owners must see that individual’s actual performance
is according to the standard performance. These dimensions of corporate governance
should not be overlooked.

Corporate Governance deals with the manner the providers of finance guarantee
themselves of getting a fair return on their investment. Corporate Governance clearly
distinguishes between the owners and the managers. The managers are the deciding
authority. In modern corporations, the functions/ tasks of owners and managers
should be clearly defined, rather, harmonizing.

Corporate Governance deals with determining ways to take effective strategic

decisions. It gives ultimate authority and complete responsibility to the Board of
Directors. In today’s market- oriented economy, the need for corporate governance
arises. Also, efficiency as well as globalization are significant factors urging corporate
governance. Corporate Governance is essential to develop added value to the
stakeholders.

Corporate Governance ensures transparency which ensures strong and balanced

economic development. This also ensures that the interests of all shareholders
(majority as well as minority shareholders) are safeguarded. It ensures that all
shareholders fully exercise their rights and that the organization fully recognizes their
rights.

Corporate Governance has a broad scope. It includes both social and institutional
aspects. Corporate Governance encourages a trustworthy, moral, as well as ethical
environment.

Benefits of Corporate Governance

1. Good corporate governance ensures corporate success and economic growth.

2. Strong corporate governance maintains investors’ confidence, as a result of
which, company can raise capital efficiently and effectively.
3. It lowers the capital cost.
4. There is a positive impact on the share price.
5. It provides proper inducement to the owners as well as managers to achieve
objectives that are in interests of the shareholders and the organization.
6. Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
7. It helps in brand formation and development.
8. It ensures organization in managed in a manner that fits the best interests of
all.
WHY DO WE INVEST?
To make sure we have enough funds to be prepared for the future. Simply earning and saving is not enough. Inflation
– the price-rise beast – eats into the value of your money. To make up for the loss through inflation, we invest and earn
extra. This is the investment fundament. The stock market is one such investment avenue. It has a history that goes
way back to the 1800s.

Earlier, stockbrokers would converge around Banyan trees to conduct trades of stocks. As the number of brokers
increased and the streets overflowed, they simply had no choice but to relocate from one place to another. Finally in
1854, they relocated to Dalal Street, the place where the oldest stock exchange in Asia – the Bombay Stock Exchange
(BSE) – is now located. It is also India’s first stock exchange and has since then played an important role in the Indian
stock markets. Even today, the BSE Sensex remains one of the parameters against which the robustness of the Indian
economy and finance is measured.

In 1993, the National Stock Exchange or NSE was formed. Within a few years, trading on both the exchanges shifted
from an open outcry system to an automated trading environment.

This shows that stock markets in India have a strong history. Yet, at the face of it, especially when you consider investing
in the stock market, it often seems like a maze. But once you start, you will realize that the investment fundamentals
are not too complicated.

WHAT IS SHARE MARKET?

A share market is where shares are either issued or traded in.

A stock market is similar to a share market. The key difference is that a stock market helps you trade financial
instruments like bonds, mutual funds, derivatives as well as shares of companies. A share market only allows trading
of shares.

The key factor is the stock exchange – the basic platform that provides the facilities used to trade company stocks and
other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the
stock buyers and sellers. India's premier stock exchanges are the Bombay Stock Exchange and the National Stock
Exchange.
THERE ARE TWO KINDS OF SHARE MARKETS – PRIMARY AND SECOND MARKETS.

Primary Market:
This where a company gets registered to issue a certain amount of shares and raise money. This is also called getting
listed in a stock exchange.

A company enters primary markets to raise capital. If the company is selling shares for the first time, it is called an Initial
Public Offering (IPO). The company thus becomes public.

Secondary Market:
Once new securities have been sold in the primary market, these shares are traded in the secondary market. This is to
offer a chance for investors to exit an investment and sell the shares. Secondary market transactions are referred to
trades where one investor buys shares from another investor at the prevailing market price or at whatever price the two
parties agree upon.

Normally, investors conduct such transactions using an intermediary such as a broker, who facilitates the process.

HOW TO BUY SHARES?

First, you need to open a trading account and a demat account. This trading and demat account will be linked to your
savings account to facilitate smooth transfer of money and shares.
We offer various trading tools to buy and sell shares that caters to our diversified set of traders and investors :
WHAT ARE THE FINANCIAL INSTRUMENTS TRADED IN A STOCK MARKET?

Now that we have understood what a stock market is, let us understand the four key financial instruments that are
traded:

Bonds:
Companies need money to undertake projects. They then pay back using the money earned through the project. One
way of raising funds is through bonds. When a company borrows from the bank in exchange for regular interest
payments, it is called a loan. Similarly, when a company borrows from multiple investors in exchange for timely
payments of interest, it is called a bond.

For example, imagine you want to start a project that will start earning money in two years. To undertake the project,
you will need an initial amount to get started. So, you acquire the requisite funds from a friend and write down a receipt
of this loan saying 'I owe you Rs 1 lakh and will repay you the principal loan amount by five years, and will pay a 5%
interest every year until then'. When your friend holds this receipt, it means he has just bought a bond by lending money
to your company. You promise to make the 5% interest payment at the end of every year, and pay the principal amount
of Rs 1 lakh at the end of the fifth year.

Thus, a bond is a means of investing money by lending to others. This is why it is called a debt instrument. When you
invest in bonds, it will show the face value – the amount of money being borrowed, the coupon rate or yield – the
interest rate that the borrower has to pay, the coupon or interest payments, and the deadline for paying the money back
called as the maturity date.

Secondary Market:
The share market is another place for raising money. In exchange for the money, companies issue shares. Owning a
share is akin to holding a portion of the company. These shares are then traded in the share market. Consider the
previous example; your project is successful and so, you want to expand it.
Now, you sell half of your company to your brother for Rs 50,000. You put this transaction in writing – ‘my new company
will issue 100 shares of stock. My brother will buy 50 shares for Rs 50,000.' Thus, your brother has just bought 50% of
the shares of stock of your company. He is now a shareholder. Suppose your brother immediately needs Rs 50,000.
He can sell the share in the secondary market and get the money. This may be more or less than Rs 50,000. For this
reason, it is considered a riskier instrument.

Shares are thus, a certificate of ownership of a corporation. Thus, as a stockholder, you share a portion of the profit
the company may make as well as a portion of the loss a company may take. As the company keeps doing better, your
stocks will increase in value.

Mutual Funds:
These are investment vehicles that allow you to indirectly invest in stocks or bonds. It pools money from a collection of
investors, and then invests that sum in financial instruments. This is handled by a professional fund manager.

Every mutual fund scheme issues units, which have a certain value just like a share. When you invest, you thus become
a unit-holder. When the instruments that the MF scheme invests in make money, as a unit-holder, you get money.

This is either through a rise in the value of the units or through the distribution of dividends – money to all unit-holders.

Derivatives:
The value of financial instruments like shares keeps fluctuating. So, it is difficult to fix a particular price. Derivatives
instruments come handy here.

These are instruments that help you trade in the future at a price that you fix today. Simply put, you enter into an
agreement to either buy or sell a share or other instrument at a certain fixed price.

WHAT DOES THE SEBI DO?

Stock markets are risky. Hence, they need to be regulated to protect investors. The Security and Exchange Board of
India (SEBI) is mandated to oversee the secondary and primary markets in India since 1988 when the Government of
India established it as the regulatory body of stock markets. Within a short period of time, SEBI became an autonomous
body through the SEBI Act of 1992.

SEBI has the responsibility of both development and regulation of the market. It regularly comes out with
comprehensive regulatory measures aimed at ensuring that end investors benefit from safe and transparent dealings
in securities.

Its basic objectives are:

• Protecting the interests of investors in stocks

• Promoting the development of the stock market
• Regulating the stock market
Break-even analysis

Break-even point

What is meant by the term ‘break even’?

A firm breaks even when income is sufficiently high to exactly cover total costs therefore neither a profit
nor a loss is made. However, break-even analysis is not usually applied to the whole firm but rather to a
single product, studying its profitability by comparing its estimated revenue and costs.

Break-even analysis does more than just estimate the break-even point (BEP): it also shows how much
profit or loss should be made at various levels of activity. It is therefore seen as a valuable tool for the
management accountant.

To use break-even analysis several assumptions must be made:

• There is only one product

• All costs can be classified as either fixed or variable

• Costs remain constant over the whole range of output

• Selling price remains constant for the whole range of output

• Production is equal to sales so there is no adjustment for stock figures

• There are no changes in materials, labour, design or manufacturing methods.

Fixed costs are those that do not change with changes in production levels, e.g. rent.

Variable costs vary in proportion to changes in production levels, e.g. raw materials.

A simple table can be drawn up to show:

• Increasing levels of activity

• Estimated costs of production at these levels

• Estimated revenue at these levels

• The resulting profit/loss for each level.

Example 1: The following figures have been supplied by A Gardiner, who is considering making plant pots.
He is particularly concerned to know how many he must make before the product becomes profitable.

Total fixed costs £1,000

Variable costs per unit £3

Selling price per unit £8

We can draw up a table to show the information.

Profit/loss

Profit/loss (the difference between sales revenue and total costs) at various output levels. At 100 units
of output the loss is (£500) and at 400 units of output a profit of £1,000 is made. Break-even analysis is
thus useful in forecasting profit/loss figures for different production levels.

Margin of safety

Output above BEP which gives a profit is the margin of safety. This margin can be measured by comparing
the level of output with BEP and it can be expressed in units or in sales revenue.
 Unit IV
DEFINITION OF MARKETING

The management process through which goods and services move from concept to the
customer. It includes the coordination of four elements called the 4 P's of marketing:

1. Identification, selection and development of a product,

2. Determination of its price,
3. Selection of a distribution channel to reach the customer's place, and
4. Development and implementation of a promotional strategy.

For example, new Apple products are developed to include improved applications and systems,
are set at different prices depending on how much capability the customer desires, and are sold
in places where other Apple products are sold.

In order to promote the device, the company featured its debut at tech events and is highly
advertised on the web and on television.

Marketing is based on thinking about the business in terms of customer needs and their
satisfaction. Marketing differs from selling because (in the words of Harvard Business School's
retired professor of marketing Theodore C. Levitt) "Selling concerns itself with the tricks and
techniques of getting people to exchange their cash for your product. It is not concerned with
the values that the exchange is all about. And it does not, as marketing invariable does, view
the entire business process as consisting of a tightly integrated effort to discover, create, arouse
and satisfy customer needs." In other words, marketing has less to do with getting customers
to pay for your product as it does developing a demand for that product and fulfilling the
customer's needs.

FUNCTIONS OF MARKETING

A role that helps a company to identify and source potentially successful products for the
marketplace and then promote them by differentiating them from similar products. Typical
marketing function types within a larger business might include performing market research,
producing a marketing plan, and product development, as well as strategically overseeing
advertising, promotion, distribution for sale, customer service and public relations.
Marketing is important to every small business, helping companies increase revenue and profit
by meeting customers’ needs effectively. Although one person or one department is generally
responsible for managing the seven functions of marketing, it’s important for all employees to
understand customer needs so they can develop the right products and provide the highest
standards of customer service.

1. Marketing Information Management - Managing marketing information helps you

understand your customers’ needs. You can gather information by reviewing published
market research reports, asking your sales team for feedback or carrying out a survey using
a market research firm. You should also monitor product review sites and social media,
such as Facebook and Twitter, where you can find information on consumers’ needs and
attitudes toward products.
2. Distribution - Your distribution strategy determines how and where customers can obtain
your products. If you market products to a small number of business customers, you may
deal with them directly through a sales team. If your business expands to other regions or
countries, it may be more cost effective to deal with customers through local distributors.
Companies marketing consumer products distribute them through retail outlets or,
increasingly, via the Internet.
3. Product/Service Management - Marketing provides valuable input to product and service
development. Information on customers’ needs helps to identify the features to incorporate
in new products and product upgrades. Marketing also identifies opportunities to extend a
product range or launch existing products into new sectors.
4. Pricing - Pricing plays an important role in determining market success and profitability.
If you market products that have many competitors, you may face strong price competition.
In that situation, you must aim to be the lowest-cost supplier so you can set low prices and
still remain profitable. You can overcome low price competition by differentiating your
product and offering customers benefits and value that competitors cannot match.
5. Promotion - Promotion makes customers and prospects aware of your products and your
company. Using promotional techniques, such as advertising, direct marketing,
telemarketing or public relations, you can communicate product benefits and build
preference for your company’s products.
6. Selling - Marketing and selling are complementary functions. Marketing creates awareness
and builds preference for a product, helping company sales representatives or retail sales
 staff sell more of a product. Marketing also supports sales by generating leads for the sales
team to follow up.
7. Financing - Successful marketing provides a regular flow of revenue to pay for business
operations. Marketing programs that strengthen customer loyalty help to secure long-term
revenue, while product development programs open new revenue streams. Financing also
plays a role in marketing success by offering customers alternative methods of payment,
such as loans, extended credit terms or leasing.

Functions of marketing

MARKETING MIX

The Marketing mix is a set of four decisions which needs to be taken before launching any
new product. These variables are also known as the 4 P’s of marketing. These four variables
help the firm in making strategic decisions necessary for the smooth running of any product /
organization.

If you ask What is the marketing mix? Then in summary these 4 variables comprise the
Marketing mix.

1. Product – What the company is manufacturing?

2. Price – What is the pricing strategy used by the company?
3. Place – Where is the company selling?
 4. Promotions – How is the company promoting the product?
What are the two types of Marketing mix?

1) Product marketing mix – Comprised of Product, price, place and promotions. This
marketing mix is mainly used in case of Tangible goods.

2) Service marketing mix – The service marketing mix has three further variables included
which are people, physical evidence and process. They are discussed in detail in the article
on service marketing mix.

The term marketing mix was first coined by Neil H Borden back in 1964 in his article “The
concept of marketing mix”. Several strategic analysts over the years believe that the marketing
mix can make or break the firm. Having the right marketing mix at the start of the marketing
plan is absolutely essential. Over time the concept of marketing mix has provided a steady
platform for the launch of a new product or business.

As mentioned before, the marketing mix is characterized by four different but equally
important variables. These variables are never constant and may be changed over time.
However, a change in one of the variables may cause a change in all the other variables as well.

The Variables of Marketing mix are as follows

1) Product in the Marketing mix – The first thing you need, if you want to start a business,
is a product. Therefore Product is also the first variable in the marketing mix. Product decisions
are the first decisions you need to take before making any marketing plan. A product can be
divided into three parts. The core product, the augmented product and the tertiary product.
Before deciding on the product component there are some questions which you need to ask
yourself.

1. What product are you selling?

2. What would be the quality of your product?
3. Which features are different from the market?
4. What is the USP of the product?
5. Whether the product will be branded as sub brand or completely new?
6. What are the secondary products which can be sold along with primary (Warranty,
services)
Based on these questions, several product decisions have to be made. These product decisions
will in turn affect the other variables of the mix. For example – You launch a car with is to
have the highest quality. Thus the pricing, promotions and placing would have to be altered
accordingly. Thus as long as you dont know your product, you cannot decide any other variable
of the marketing mix. However, if the product features are not fitting in the mix, you can alter
the product such that it finds a place for itself in the marketing mix.

2) Pricing in the Marketing mix – Pricing of a product depends on a lot of different variables
and hence it is constantly updated. Major consideration in pricing is the costing of the product,
the advertising and marketing expenses, any price fluctuations in the market, distribution costs
etc. Many of these factors can change separately. Thus the pricing has to be such that it can
bear the brunt of changes for a certain period of time. However, if all these variables change,
then the pricing of a product has to be increased and decreased accordingly.

Along with the above factors, there are also other things which have to be taken in consideration
when deciding on a pricing strategy. Competition can be the best example. Similarly, pricing
also affects the targeting and positioning of a product. Pricing is used for sales promotions in
the form of trade discounts. Thus based on these factors there are several pricing strategies, one
of which is implemented for the marketing mix.

3) Place in the Marketing mix – Place refers to the distribution channel of a product. If a
product is a consumer product, it needs to be available as far and wide as possible. On the other
hand, if the product is a Premium consumer product, it will be available only in select stores.
Similarly, if the product is a business product, you need a team which interacts with businesses
and makes the product available to them. Thus the place where the product is distributed,
depends on the product and pricing decisions, as well as any STP decisions taken by a firm.

Distribution has a huge affect on the profitability of a product. Consider a FMCG company
which has national distribution for its product. An increase in petrol rates by 10 rs will in fact
bring about drastic changes in the profitability of the company. Thus supply chain and logistics
decisions are considered as very important costing decisions of the firm. The firm needs to
have a full proof logistics and supply chain plan for its distribution.

4) Promotions in the Marketing mix – Promotions in the marketing mix includes the
complete integrated marketing communications which in turn includes ATL and BTL
advertising as well as sales promotions. Promotions are dependent a lot on the product and
pricing decision. What is the budget for marketing and advertising? What stage is the product
in? If the product is completely new in the market, it needs brand / product awareness
promotions, whereas if the product is already existing then it will need brand recall promotions.

Promotions also decide the segmentation targeting and positioning of the product. The right
kind of promotions affect all the other three variables – the product, price and place. If the
promotions are effective, you might have to increase distribution points, you might get to
increase the price because of the rising brand equity of the product, and the profitability might
support you in launching even more products. However, the budget required for extensive
promotions is also high. Promotions is considered as marketing expenses and the same needs
to be taken in consideration while deciding the costing of the product.

Thus as we see from the above diagram, all the four variables of marketing mix are inter related
and affect each other. By increasing the pricing of the product, demand of the product might
lessen, and lesser distribution points might be needed. On the other hand, the product USP can
be such that maximum concentration is on creating brand awareness, thereby increasing need
of better pricing and more promotions. Finally, the overall marketing mix can result in your
customer base asking for some improvement in the product, and the same can be launched as
the upgraded product.
The role of Four P’s of marketing in Strategy – Marketing mix plays a crucial role while
deciding the strategy of an organization. It is the first step even when a marketing plan or a
business plan is being made. This is because, your marketing mix decision will also
affect segmentation, targeting and positioning decisions. Based on products, segmentation and
targeting will be done. Based on the price, positioning can be decided. And these decisions will
likely affect the place and promotion decisions. Thus, the marketing mix strategy goes hand in
hand with segmentation targeting and positioning.

Using the 4Ps of Marketing

The model can be used to help you decide how to take a new offer to market. It can also be
used to test your existing marketing strategy . Whether you are considering a new or existing
offer, follow the steps below help you define and improve your marketing mix.

1. Start by identifying the product or service that you want to analyze.

2. Now go through and answer the 4Ps questions – as defined in detail above.

3. Try asking "why" and "what if" questions too, to challenge your offer. For example,
ask why your target audience needs a particular feature. What if you drop your price by
5%? What if you offer more colors? Why sell through wholesalers rather than direct
channels? What if you improve PR rather than rely on online advertising?

4. Once you have a well-defined marketing mix, try "testing" the overall offer from the
customer's perspective, by asking customer focused questions:

a) Does it meet their needs? (product)

b) Will they find it where they shop? (place)
c) Will they consider it's priced favorably? (price)
d) And will the marketing communications reach them? (promotion)
5. Keep on asking questions and making changes to your mix until you are satisfied that
you have optimized your marketing mix, given the information and facts and figures
you have available.

6. Review your marketing mix regularly, as some elements will need to change as the
product or service, and its market grow, mature and adapt in an ever-changing
competitive environment.
DIFFERENCE BETWEEN SELLING AND MARKETING

In general we use ‘marketing’ and ‘selling’ as synonyms but there is a substantial difference
between both the concepts. It is necessary to understand the differences between marketing vs.
selling for a successful marketing manager. Selling has a product focus and mostly producer
driven. It is the action part of marketing only and has short – term goal of achieving market
share. The emphasis is on price variation for closing the sale where the objective can be stated,
as “I must somehow sell the product”. This short – term focus does not consider a prudential
planning for building up the brand in the market place and winning competitive advantage
through a high loyal set of customers. The end means of any sales activity is maximizing profits
through sales maximization.

When the focus is on selling, the businessman thinks that after production has been completed
the task of the sales force starts. It is also the task of the sales department to sell whatever the
production department has manufactured. Aggressive sales methods are justified to meet this
goal and customer’s actual needs and satisfaction are taken for granted. Selling converts the
product in to cash for the company in the short run.

Marketing as a concept and approach is much wider than selling and is also dynamic as the
focus is on the customer rather than the product. While selling revolves around the needs and
interest of the manufacturer or marketer, marketing revolves around that of consumer. It is the
whole process of meeting and satisfying the needs of the consumer.

Marketing vs selling

Marketing consists of all those activities that are associated with product planning, pricing,
promoting and distributing the product or service. The task commences with identifying
consumer needs and does not end till feedback on consumer sat-\isfaction from the
consumption of the product is received. It is a long chain of activity, which comprises
production, packing, promotion, pricing, distribution and then the selling. Consumer needs
become the guiding force behind all these activities. Profits are not ignored but they are built
up on a long run basis. Mind share is more important than market share in Marketing.

According to Prof. Theodore Levitt ‘The difference between selling and marketing is more
than semantic. A truly marketing minded firm tries to create value satisfying goods and services
which the consumers will want to buy. What is offers for sale is determined not by the seller
but by the buyers. The seller takes his cues from the buyer and the product becomes the
consequence of the marketing effort, not vice versa. Selling merely concerns itself with the
tricks and techniques of getting the customers to exchange their cash for the company’s
products, it does not bother about the value satisfaction that the exchange is all about. On the
contrary, marketing views the entire business as consisting of a tightly integrated effort to
discover, create, arouse ad satisfy customer needs’.

The typical goal of marketing is to generate interest in the product and create leads or
prospects. Marketing activities include:

1. Consumer research to identify the needs of the customers

2. Product development – designing innovative products to meet existing or latent needs
3. Advertising the products to raise awareness and build the brand.
4. Pricing products and services to maximize long-term revenue.
On the other hand, sales activities are focused on converting prospects to actual paying
customers. Sales involves directly interacting with the prospects to persuade them to purchase
the product.

Marketing thus tends to focus on the general population (or, in any case, a large set of people)
whereas sales tends to focus on individuals or a small group of prospects. Following are the
major differences between Selling and Marketing.

SELLING MARKETING
1 Emphasis is on the product 1 Emphasis on consumer needs wants.
2 Company Manufactures the product first. 2 Company first determines customers’
needs and wants and then decides out how to
deliver a product to satisfy these wants.
3 Management is sales volume oriented. 3 Management is profit oriented.
4 Planning is short-run-oriented in terms of 4 Planning is long-run-oriented in today’s
today’s products and markets. products and terms of new products,
tomorrow’s markets and future growth.
5 Stresses needs of seller. 5 Stresses needs and wants of buyers.
6 Views business as a good producing 6 Views business as consumer producing
process. process satisfying process.
7 Emphasis on staying with existing 7 Emphasis on innovation on every existing
technology and reducing costs. technology and reducing every sphere, on
 providing better costs value to the customer
by adopting a superior technology.
8 Different departments work as in a highly 8 All departments of the business integrated
separate water tight compartments. manner, the sole purpose being generation of
consumer satisfaction.
9 Cost determines Price. 9. Consumer determine price, price
determines cost.
10 Selling views customer as a last link in 10. Marketing views the customer last link in
business. business as the very purpose of the business.

INTERFACE OF MARKETING WITH OTHER DEPARTMENTS

There are various types of organizations in existence. Functional organization, geographical

area organization, product based organization, customer segment based organization and some
form of hybrids can be observed.

Functional marketing organization: The important functional areas can be marketing research,
new product marketing, advertising and sales promotion, sales management, physical
distribution (marketing logistics), and marketing administration. As organizations become big
more specialized functions within marketing can be organized as independent sections.

Geographical Area Based Organization: Companies selling across the nation generally set up
branch sales offices and regional sales offices.

Product Based Organization (Brand Management): In product based organization each product
or brand has a manager who looks after its marketing activities. The sales staff can be common
staff and they report to a sales manager.

Coordination between marketing and other departments

Kotler highlighted the fact that each business function has a potential impact on customer
satisfaction. All departments need to think of customer satisfaction and work together to fulfil
customer needs and expectations. The chief marketing man in the organization has two tasks:
One is to manage the marketing department and other is to coordinate marketing specialist
activities with marketing related activities of operations, finance, and other functions in the
organization.

If we accept that marketing has a communicator role between the company and the outside
world and that it is focused on customers in order to give them what they want, we can see how
a systemic interaction with other department is fundamental to the attainment of the
organisational goals. The most important business functions which marketing can assist are:

1. Finance/Management: marketing plans should include financial information for both new
and existing products. In this sense, marketing can be a means supporting management
when taking investment decisions. Marketing can also give inputs on sales forecasts under
different marketing strategies scenario. Management can be supported by financial inputs
provided by marketing but also to other data such as market actual (or expected) response
to a product/service
2. Production/operational department: marketing can assist these departments in
estimating the number and the type of products and services to be produced/provided.
Marketing strategies can also try to stimulate a certain response of markets in order to
influence the demand of goods/services in terms of level and/or timing. This can be useful
to match the production/operational constraints of the organisation
3. R&D: marketing can assist R&D throughout from the idea of new product/services to its
implementation. Marketing researches can provide inputs to understand what kind of
products/services are likely to be the most marketable and/or understand what kind of
features customers would like to have
4. Sales: sales department cultivates relationships with clients and marketing can offer inputs
to make it more profitable

CUSTOMER LIFE TIME VALUE

In marketing, customer lifetime value (CLV) is a metric that represents the total net profit a
company makes from any given customer. CLV is a projection to estimate a customer's
monetary worth to a business after factoring in the value of the relationship with a customer
over time. CLV is an important metric for determining how much money a company wants to
spend on acquiring new customers and how much repeat business a company can expect from
certain consumers.

Customer data analytics can reap significant financial rewards for your organization’s sales,
marketing and customer service departments. With so much data to contend with, companies
often struggle with making sense of information from customers, public records and external
databases. Luckily, we evaluate the newest sales and marketing tools making the process easier
for IT managers and sales executives.

CLV is different from customer profitability (CP), which measures the customer's worth over
a specific period of time, in that the metric predicts the future whereas CP measures the past.

CLV is calculated by subtracting the cost of acquiring and serving a customer from the revenue
gained from the customer and takes into account statistics such as customer expenditures per
visit, the total number of visits and then can be broken down to figure out the average customer
value by week, year, etc.

But the process is more nuanced than that. By concentrating on what a customer has previously
spent, companies neglect how their marketing or advertising practices have changed over time,
resulting in new customers who behave differently than old ones. CLV should never be
determined by dividing the total revenue by the number of total customers, since this is too
simple a calculation and does not factor into how long some customers have had a relationship
with the company. Changes to any of these strategies, as well as any shifts in a company's
customer base as a whole, in the future will prevent companies from depending on past CLVs
to predict upcoming ones.

Common ways of calculating a company's CLV include the following:

1. Average revenue per user: Determine the average revenue per customer per month (total
revenue ÷ number of months since the customer joined) and multiply that value by 12 or
24 to get a one- or two-year CLV. This approach is simple to calculate but does not take
customer behavior into account or changes over time, either in customers' preferences or
company strategy.
2. Cohort analysis. A cohort is a group of customers that share a characteristic or set of
characteristics. By examining cohorts instead of individual users, companies can get a
picture of the variations that exist over the course of an entire relationship with groups of
customers. Factors such as market changes, seasonality and the introduction of new
products, competitors or promotions could skew cohort analysis.
3. Individualized CLV. Companies not interested in broadly calculating CLV often focus on
determining the total value of customers by source, channel, campaign or other mediums
such as coupons or landing pages on a company website. This could mean comparing CLVs
 as obtained through social media advertising against those from other digital marketing
tactics, for example, with a focus on whether company resources are being efficiently spent.

The CLV can affect many different areas of the business since it is not focused on acquiring
many customers or how cheaply those customers can be obtained but, instead, emphasizing
efficient spending to maximize customer acquisition and retention practices. Customer
segmentation can affect CLV in that some groups of customers might be more highly valued
than others.

Customer lifetime value has intuitive appeal as a marketing concept, because in theory it
represents exactly how much each customer is worth in monetary terms, and therefore exactly
how much a marketing department should be willing to spend to acquire each customer,
especially in direct response marketing.

Uses and advantages

Lifetime value is typically used to judge the appropriateness of the costs of acquisition of a
customer. For example, if a new customer costs $50 to acquire (COCA, or cost of customer
acquisition), and their lifetime value is $60, then the customer is judged to be profitable, and
acquisition of additional similar customers is acceptable. Additionally, CLV is used to calculate
customer equity. Advantages of CLV:

1. Management of customer relationship as an asset.

2. Monitoring the impact of management strategies and marketing investments on the value
of customer assets, e.g.: Marketing Mix Modelling simulators can use a multi-year CLV
model to show the true value (versus acquisition cost) of an additional customer, reduced
churn rate, product up-sell.
3. Determination of the optimal level of investments in marketing and sales activities.
4. Encourages marketers to focus on the long-term value of customers instead of investing
resources in acquiring "cheap" customers with low total revenue value.
5. Implementation of sensitivity analysis in order to determinate getting impact by spending
extra money on each customer.
6. Optimal allocation of limited resources for ongoing marketing activities in order to achieve
a maximum return.
7. A good basis for selecting customers and for decision making regarding customer specific
communication strategies.
8. A natural decision criterion to use in automation of customer relationship management
systems.
9. Measurement of customer loyalty (proportion of purchase, probability of purchase and
repurchase, purchase frequency and sequence etc.).

The Disadvantages of CLV do not generally stem from CLV modelling per se, but from its
incorrect application.

NEW PRODUCT DEVELOPMENT

New product development is a task taken by the company to introduce newer products in the
market. Regularly there will arise a need in the business for new product development. Your
existing products may be technologically outdated, you have different segments to target or
you want to cannibalize an existing product. In such cases, New product development is the
answer for the company. There are 7 stages of new product development and they are as
follows.

1. Idea generation – in this you are basically involved in the systematic search for new
product Ideas. A company has to generate many ideas in order to find one that is worth
pursuing. The Major sources of new product ideas include internal sources, customers,
competitors, distributors and suppliers. Almost 55% of all new product ideas come from
internal sources according to one study. Companies like 3M and Toyota have put in special
incentive programs or their employees to come up with workable ideas. Almost 28% of
new product ideas come from watching and listening to customers. Customers even create
new products on their own, and companies can benefit by finding these products and putting
them on the market like Pillsbury gets promising new products from its annual Bake-off.
One of Pillsbury’s four cake mix lines and several variations of another came directly from
Bake-Off winners’ recipes.
2. Idea Screening - The second step in new product development is Idea screening. The
purpose of idea generation is to create a large pool of ideas. The purpose of this stage is to
pare these down to those that are genuinely worth pursuing. Companies have different
methods for doing this from product review committees to formal market research. It, is
helpful at this stage to have a checklist that can be used to rate each idea based on the factors
required for successfully launching the product in the marketplace and their relative
 importance. Against these, management can assess how well the idea fits with the
company’s marketing skills and experience and other capabilities. Finally, the management
can obtain an overall rating of the company’s ability to launch the product successfully.
3. Concept Development and Testing – The third step in New product development is
Concept Development and Testing. An attractive idea has to be developed into a Product
concept. As opposed to a product idea that is an idea for a product that the company can
see itself marketing to customers, a product concept is a detailed version of the idea stated
in meaningful consumer terms. This is different again from a product image, which is the
consumers’ perception of an actual or potential product. Once the concepts are developed,
these need to be tested with consumers either symbolically or physically. For some concept
tests, a word or a picture may be sufficient, however, a physical presentation will increase
the reliability of the concept test. After being exposed to the concept, consumers are asked
to respond to it by answering a set of questions designed to help the company decide which
concept has the strongest appeal. The company can then project these findings to the full
market to estimate sales volume.
4. Marketing Strategy Development – This is the next step in new product development.
The strategy statement consists of three parts: the first part describes the target market, the
planned product positioning and the sales, market share and profit goals for the first few
years. The second part outlines the product’s planned price, distribution, and marketing
budget for the first year. The third part of the marketing strategy statement describes the
planned long-run sales, profit goals, and the marketing mix strategy.
5. Business Analysis – Once the management has decided on the marketing strategy, it can
evaluate the attractiveness of the business proposal. Business analysis involves the review
of projected sales, costs and profits to find out whether they satisfy a company’s objectives.
If they do, the product can move to the product development stage.
6. Product Development – Here, R&D or engineering develops the product concept into a
physical product. This step calls for a large investment. It will show whether the product
idea can be developed into a full- fledged workable product. First, R&D will develop
prototypes that will satisfy and excite customers and that can be produced quickly and at
budgeted costs. When the prototypes are ready, they must be tested. Functional tests are
then conducted under laboratory and field conditions to ascertain whether the product
performs safely and effectively.
7. Test Marketing – If the product passes the functional tests, the next step is test marketing:
the stage at which the product and the marketing program are introduced to a more realistic
 market settings. Test marketing gives the marketer an opportunity to tweak the marketing
mix before the going into the expense of a product launch. The amount of test marketing
varies with the type of product. Costs of test marketing can be enormous and it can also
allow competitors to launch a “me-too” product or even sabotage the testing so that the
marketer gets skewed results. Hence, at times, management may decide to do away with
this stage and proceed straight to the next one:
8. Commercialization – The final step in new product development is Commercialization.
Introducing the product to the market-it will face high costs for manufacturing and
advertising and promotion. The company will have to decide on the timing of the launch
(seasonality) and the location (whether regional, national or international). This depends a
lot on the ability of the company to bear risk and the reach of its distribution network.
Today, in order to increase speed to market, many companies are dropping this sequential
approach to development and are adopting the faster, more flexible, simultaneous
development approach. Under this approach, many company departments work closely
together, overlapping the steps in the product development process to save time and
increase effectiveness.

UNETHICAL ISSUES IN MARKETING

Whether you are playing the salesman role for your own business or you are hired to market
an employer’s products or services, you need to understand the thin line between ethical and
unethical marketing practices.

Ethical marketing entails making honest claims and satisfying the needs of potential and
existing customers. It boosts credibility and trust, develops brand loyalty, increases customer
retention, and prompts customers to spread word about the products or services you’re
marketing.

Unethical marketing, on the other hand, can send wrong signals about your products and
services, destroy your brand’s reputation, and possibly lead to legal problems. This explains
why you should avoid them like a plague.

Your first step towards ensuring that you avoid unethical marketing practices is to recognize
those practices. Of course, you can only avoid something when you can identify it. Many
business owners and sales personnel have erroneously engaged in unethical marketing practices
just because they never knew what these practices are in the first place. Here are ten common
examples of unethical marketing practices that you must always avoid when promoting your
products or services. Following are the examples of Unethical Marketing Practices

1. Making false, exaggerated, or unverified claims - In a desperate bid to compel potential

and existing customers to buy their products or services, some marketers use false statements,
exaggerated benefits, or make unverifiable claims about their offers. This is common in the
weight loss industry, where marketers convince potential buyers that a particular product can
help them shed so-and-so pounds within two weeks without exercise or dieting!

2. Distortion of facts to mislead or confuse potential buyers - This is another common

unethical marketing practice. A typical example is when a food processing company claims
that its products are sugar-free or calorie-free when indeed they contain sugar or calories. Such
a company is only trying to mislead potential buyers, since they are unlikely to buy the products
if it is made known that they contain sugar or calories.

3. Concealing dark sides or side effects of products or services - This unethical marketing
practice is rife in the natural remedies industry, where most manufacturers deceive potential
buyers that their products have no side effects because they are “made from natural products”.
But in reality, most of these products have been found to have side effects, especially when
used over a long period. In fact, there’s no product without side effects—it’s just that the side
effects might be unknown. It’s better to say, “There are no known side effects” than to say
“there are no side effects“.

4. Bad-mouthing rival products - Emphasizing the dark sides of your rival’s products in a
bid to turn potential customers towards your own products is another common but unethical
marketing practice. Rather than resort to this bad strategy, you should emphasize on those
aspects that make your offer stand out from the rest of the pack. That’s professional and ethical.

5. Using women as sex symbols for advertising - The rate at which even reputable brands are
resorting to this unethical marketing practice is quite alarming. If you observe TV, billboard,
and magazine adverts, there’s something common to most of them; a half-naked lady is used
to attract attention to the product or service being advertised. While it might be intuitive to use
models in adverts for beauty products and cosmetics, having half-naked models in adverts for
generators, heavy machinery, smartphones, and other products not strongly related to women
is both nonsensical and unethical.
5. Using fear tactics - This is another common unethical marketing practice among snake oil
salespersons. You will hear them saying something like: “This price is a limited-time offer. If
you don’t buy now, you might have to pay much more to buy it later because the offer will end
up in two days time, and the price will go up.” The only motive behind those statements is to
prompt the potential buyer to make a decision on the spot. And that’s wrong. Why subject
someone to undue pressure because you want to make money off him or her?

7. Plagiarism of marketing messages - Though uncommon, some business owners and

salespersons engage in using the exact marketing messages of their competitors to market their
own products or services. Creativity is a huge part of marketing, and using other businesses’
marketing messages just passes you off as being creatively bankrupt and fraudulent.

8. Exploitation - This is charging for much more than the actual value of a product or service.
For marketing efforts to remain with ethical limits; the prices of your offers must be equal to
or less than the value they give the buyer. If the value is less than the cost, it’s unethical.

9. Demeaning references to races, age, sex, or religion - Ethical marketing must be devoid
of all forms of discrimination. If your marketing messages contain lines that place people of
certain age range, sex, religion, nationality, or race at a higher level than others, then you are
crossing the bounds of ethical marketing.

10. Spamming - Spamming is when you send unsolicited emails to potential customers,
encouraging them to buy your products or services. This is the commonest unethical marketing
practice done online. The number of time you send such emails doesn’t matter. Whether you
send them once, or on occasions, or frequently, you remain a spammer.
Digital India programme
Minister Narendra Modi launched the much ambitious 'Digital India' programme on Wednesday,
July 1, at the Indira Gandhi Indoor Stadium in the national capital. Top industrialists like RIL
Chairman and Managing Director Mukesh Ambani, Tata Group chairman Cyrus Mistry, Wipro
Chairman Azim Premji and many others, were among the business honchos who shared their
ideas of taking digital revolution to the masses.

What is Digital India?

With the launch of Digital India programme, the government is taking a big step forward to
transform the country into a digitally empowered knowledge economy. Includes various schemes
worth over Rs 1 lakh crore like Digital Locker, e-eduction, e-health, e-sign and national
scholarship portal. BharatNet in 11 states and Next Generation Network (NGN), are also a part
of Digital India campaign. The programme includes projects that aim to ensure that government
services are available to citizens electronically and people get benefit of the latest information
and communication technology. The Ministry of Communications and IT is the nodal agency to
implement the programme.

Apps for Digital India

Digital India Portal, MyGov Mobile App, Swachh Bharat Mission App and Aadhaar Mobile
Update App.

Vision Of Digital India

∑ Digital Infrastructure as a Utility to Every Citizen
∑ Governance & Services on Demand
∑ Digital Empowerment of Citizens
∑ Pillars Of Digital India
∑ Broadband Highways
∑ Universal Access to Phones
∑ Public Internet Access Programme
∑ e-Governance - Reforming government through Technology
∑ e-Kranti - Electronic delivery of services
∑ Information for All
∑ Electronics Manufacturing - Target NET ZERO Imports
∑ IT for Jobs
∑ Early Harvest Programmes

Impact of Digital India by 2019

∑ Broadband in 2.5 lakh villages, universal phone connectivity
∑ Net Zero Imports by 2020
∑ 400,000 Public Internet Access Points
∑ Wi-fi in 2.5 lakh schools, all universities; Public wi-fi hotspots for citizens
∑ Digital Inclusion: 1.7 Cr trained for IT, Telecom and Electronics Jobs
∑ Job creation: Direct 1.7 Cr. and Indirect at least 8.5 Cr.
∑ e-Governance & eServices: Across government
∑ India to be leader in IT use in services - health, education, banking
∑ Digitally empowered citizens - public cloud, internet access
E-Governance
UNIT 2 E-GOVERNANCE

Structure

2.0 Introduction
2.1 Objectives
2.2 Government, Governance and Democracy
2.3 E-Governance: An Introduction
2.4 Origins in India
2.5 E-Governance Projects in India
2.6 Measures to be considered before going for E-Governance
2.7 Workplan and Infrastructure
2.8 Summary
2.9 Solutions / Answers
2.10 Further Readings

2.0 INTRODUCTION

In the previous unit, we have discussed the concept of E-Commerce, which includes
the role of ICT in the area of commerce. Now let us see the role of ICT in the public
administration area.
Global shifts towards increased deployment of IT by governments emerged in the
nineties, with the advent of the World Wide Web. What this powerful means to
publish multimedia, support hyperlinked information and interactive information
meant was a clearer avenue for G to C interactions and the promise of the attainment
of the goals of good governance. Governments weighed down by the rising
expectations and demands of a highly aware citizenry suddenly began to believe that
there can be a new definition of public governance characterized by enhanced
efficiency, transparency, accountability and a citizen-orientation in the adoption of IT
enabled governance.

In this unit, let us study the concepts of E-Governance.

2.1 OBJECTIVES

After studying this unit, you will be able to:

• define the role of ICT in education ;
• define E-Learning, its features and benefits;
• discuss the E-Learning media creation tools and the communication tools;
• describe the teleconferencing ,its advantages and disadvantages;
• discuss about EDUSAT and its usage; and
• discuss online examination and E-Learning standards.

2.2 GOVERNMENT, GOVERNANCE AND DEMOCRACY

"Government's foremost job is to focus society on achieving the public interest.

Governance is a way of describing the links between government and its broader
environment - political, social, and administrative.” - Thomas B Riley

Government, governance and democracy have been with us for a long while.
Government and governance are both about getting the consent and cooperation of the
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 IT in Action
governed. Government is the formal apparatus for this objective, governance is the
outcome as experienced by those on the receiving end. Governance in the public
context is closely related to government and democracy, but has a different focus.
These three concepts can be considered as different views or political entities.
Government is the Institutional view. Democracy is the legitimacy view and
Governance is the regulatory view.

The role of information in all areas of the private sector and in government is now
paramount for continued growth and stability in our societies. Information has become
the lynchpin in the way we think, act and operate as a society. The significance of the
growth of ICTs, new technologies, the Internet and the rapid deployment of
information and creation of information is the “potential” for change these phenomena
are creating. These are pressing issues for modern governments as the new
technologies are contributing to the creation of faster communications, the sharing of
information and knowledge, and the emergence of new forms of our respective
cultures. Networked communities are quickly evolving through the Internet, and
citizens are increasingly using the new technologies to organize themselves so their
voices can be heard, and to develop tools to attempt to influence government policy
and programs at the political and public administration level. It is important to put the
whole question of how ICTs will be used to further engage the citizenry into a wider
context of democracy as we practice it. The current trend of attaching ‘e’ to just about
every topic (like E-Commerce, E-Learning, E-Health, E-Governance) is nothing more
than a simple way to create a name for the use of information and communications
technology to support the tasks within the topic. More importantly, the use of terms
such as e-government, e-governance and e-democracy, leads to the creation of an
identifiable discipline. This then widens the development of the subject beyond the
parameters of simply government boundaries to the larger spheres of civil society,
associations, unions, the business community, international organizations and the
academic world. Governance is not a synonym for government.

We will study in the next section how the concepts of E-Governmentt and
E-Governance differ and how workable they are in our new digital environments.

2.3 E-Governance: An Introduction

The term E-Governance has different connotations:

E-Administration: The use of ICTs to modernize the state; the creation of data
repositories for MIS, computerization of records.

E-Services: The emphasis here is to bring the state closer to the citizens. Examples
include provision of online services. E-administration and e-services together
constitute what is generally termed e-government.

E-Governance: The use of IT to improve the ability of government to address the

needs of society. It includes the publishing of policy and programme related
information to transact with citizens. It extends beyond provision of on-line services
and covers the use of IT for strategic planning and reaching development goals of the
government.

E-Democracy: The use of IT to facilitate the ability of all sections of society to

participate in the governance of the state. The remit is much broader here with a stated
emphasis on transparency, accountability and participation. Examples could include
online disclosure policies, online grievance redress forums and e-referendums.
Conceptually, more potent.

27
E-Governance E-governance is beyond the scope of e-government. While e-government is defined as
a mere delivery of government services and information to the public using electronic
means, e-governance allows direct participation of constituents in government
activities.

Blake Harris summarizes the e-governance as the following; E-governance is not just
about government web site and e-mail. It is not just about service delivery over the
Internet. It is not just about digital access to government information or electronic
payments. It will change how citizens relate to governments as much as it changes
how citizens relate to each other. It will bring forth new concepts of citizenship, both
in terms of needs and responsibilities.

E-governance will allow citizens to communicate with government, participate in the

governments' policy-making and citizens to communicate each other. The e-
governance will truly allow citizens to participate in the government decision-making
process, reflect their true needs and welfare by utilizing e-government as a tool.

Governments are specialized institutions that contribute to governance. Representative

governments seek and receive citizen support, but they also need the active
cooperation of their public servants. Governance is the outcome of politics, policies,
and programs.

The Table 2.1 summarizes the characteristics of both conventional and electronic
government and governance.

Table 2.1: Characteristics of Government and Governance

Government Governance
superstructure functionality
decisions processes
rules goals
roles performance
implementation coordination
outputs outcomes
E-Government E-Governance
electronic service delivery electronic consultation
electronic workflow electronic controllership
electronic voting electronic engagement
electronic productivity networked societal guidance

2.3.1 Objectives of E-Governance, E-Government and E-Democracy

E-Governance

The strategic objective of e-governance is to support and simplify governance for all
parties - government, citizens and businesses. The use of ICTs can connect all three
parties and support processes and activities. In other words, in e-governance uses
electronic means to support and stimulate good governance. Therefore the objectives
of e-governance are similar to the objectives of good governance. Good governance
can be seen as an exercise of economic, political, and administrative authority to
better manage affairs of a country at all levels, national and local.

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 IT in Action

E-Democracy

The two main objectives of e-democracy are:

• To provide citizens access to information and knowledge about the political
process, about services and about choices available
• To make possible the transition from passive information access to active
citizen participation by:
• Informing the citizen
• Representing the citizen
• Encouraging the citizen to vote
• Consulting the citizen
• Involving the citizen

E-Government

Regarding e-government, the distinction is made between the objectives for internally
focused processes (operations) and objectives for externally focused services.

External strategic objectives: The external objective of e-government is to

satisfactorily fulfil the public’s needs and expectations on the front-office side, by
simplifying their interaction with various online services. The use of ICTs in
government operations facilitates speedy, transparent, accountable, efficient and
effective interaction with the public, citizens, business and other agencies.

Internal strategic objectives: In the back-office, the objective of e-government in

government operations is to facilitate a speedy, transparent, accountable, efficient and
effective process for performing government administration activities. Significant cost
savings (per transaction) in government operations can be the result.

It can be concluded that e-governance is more than just a Government website on the
Internet. Political, social, economic and technological aspects determine e-
governance.

2.4 ORIGINS IN INDIA

E-Governance originated in India during the seventies with a focus on in- house
government applications in the areas of defence, economic monitoring, planning and
the deployment of ICT to manage data intensive functions related to elections, census,
tax administration etc. The efforts of the National Informatics Center (NIC) to connect
all the district headquarters during the eighties was a watershed. From the early
nineties, e-governance has seen the use of IT for wider sectoral applications with
policy emphasis on reaching out to rural areas and taking in greater inputs from NGOs
and private sector as well. There has been an increasing involvement of international
donor agencies such as DfID, G-8, UNDP, and WB under the framework of e-
governance for development.

While the emphasis has been primarily on automation and computerization, state
endeavors to use IT include forays into connectivity, networking, setting up systems
for processing information and delivering services. At a micro level, this has ranged
from IT automation in individual departments, electronic file handling, and access to
entitlements, public grievance systems, service delivery for high volume routine
transactions such as payment of bills, tax dues to meeting poverty alleviation goals
through the promotion of entrepreneurial models and provision of market information.
The thrust has varied across initiatives, with some focusing on enabling the citizen-
29
E-Governance state interface for various government services, and others focusing on bettering
livelihoods.

2.5 E-GOVERNANCE PROJECTS IN INDIA

IT revolution, a word-wide phenomenon today has stirred societies and governments

to embark upon an IT-based social, educational and administrative processes. India, as
one of the pioneering countries in I.T revolution has made a great stride in e-
governance. Let us study some of the project state wise / union-territory wise from the
Table2.2.

Table 2.1 E-Governance Projects in India

State/Union Initiatives covering departmental automation, user charge

Territory collection, delivery of policy/programme information and delivery
of entitlements
Andhra e-Seva, CARD, VOICE, MPHS, FAST, e-Cops, AP online—One-
Pradesh stop-shop on the Internet, Saukaryam, Online Transaction processing
Bihar Sales Tax Administration Management Information
Chattisgarh Chhattisgarh Infotech Promotion Society, Treasury office, e-linking
project
Delhi Automatic Vehicle Tracking System, Computerisation of website of
RCS office, Electronic Clearance System, Management Information
System for Education etc
Goa Dharani Project
Gujarat Mahiti Shakti, request for Government documents online, Form
book online, G R book online, census online, tender notice.
Haryana Nai Disha
Himachal Lok Mitra
Pradesh
Karnataka Bhoomi, Khajane, Kaveri,Mahiti, Smart Card System
Kerala e-Srinkhala, RDNet, Fast, Reliable, Instant, Efficient Network for
the Disbursement of Services (FRIENDS)
Madhya Gyandoot, Gram Sampark, Smart Card in Transport Department,
Pradesh Computerization MP State Agricultural Marketing Board (Mandi
Board) etc
Maharashtra SETU, Online Complaint Management System—Mumbai
Rajasthan Jan Mitra, RajSWIFT, Lokmitra, RajNIDHI
Tamil Nadu Rasi Maiyams–Kanchipuram; Application forms related to public
utility, tender notices and display
North-Eastern States
Arunachal Community Information Center. Forms available on
Pradesh,
Manipur, the Meghalaya website under schemes related to
Meghalaya,
Mizoram & social welfare, food civil supplies and consumer affairs, housing
Nagaland transport etc.

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 IT in Action
These are only a few to mention. Other than these there are several cities, state and
individual department portals available and providing services to the public.
2.6 MEASURES TO BE CONSIDERED BEFORE GOING
FOR E-GOVERNANCE

In addition to the need for a concrete set of goals and objectives the following are the
detailed list of criterion and factors which are to be considered before opting for an E-
Governance.

• Improve E-Readiness in aspect of E-Governance which includes human

resources, budgeting resources, inter/intra departmental communication flows,
society’s readiness.
• Investment in Telecommunication infrastructure
• Internet connectivity speed
• Governmental human resources
• Budget resources
• E-Business atmosphere which includes legal framework and security of the
information.
• Start with a simple approach and as with development of infrastructure and
acceptance of E-Governance among the various entities, functions can be
added in stages.
• Involve top leadership
• Promote awareness in the public about the importance and potential of E-
Governance
• Encourage and support from all the departments
• Maintain consistent implementation
• Monitor assessment
• Ensure security
• Encourage private sector
• To start with plan locally, but keep the global user community in mind.
• Involve stakeholders such as high-tech companies, software houses, the
banking sector etc.
• Adoption of international standards wherever possible minimizing
customization thereby reducing the risks of software and compatibility
problems.

2.7 WORKPLAN AND INFRASTRUCTURE

Once the vision and priorities are established, a detailed work plan helps maneuver the
agencies and officials for implementing E-Governance projects. Some of the key
elements on which the work plan, infrastructure and development of website should
focus are:

• Content Development: These include development of applications, local

language interfaces, and e-learning materials.
• Competency building: Training personnel for human resource development
must be implemented at all levels.
• Connectivity: Intranet/Internet connections must be established across related
agencies.
• eSecurity, eEthics and ePrivacy
• Two way communication flow
• Cyber laws: Providing legal framework to support objectives of E-
Governance policies.

31
E-Governance • Citizen Interfaces: Establishing a delivery channel to ensure accessibility &
affordability of E-Governance by the citizens.
• Capital: Identifying revenue sources to help achieve a financial equilibrium.
• Citizen oriented services to offer
• Other services
• Networking and gateways
• Feedback and interactivity
• Mailing
• Generation of on spot reports
• Transformation of forms
• Selection of platform independent languages like JAVA and .NET platforms
for website development
• LINUX and UNIX based applications
• Selection of Open Standards s/w such SOAP, WSDL, XML, Open GIS etc.
• Use of VoIP (Voice over Internet Protocol)
• Use of Wireless LAN and 3G Technologies, wherever applicable.
• Use of multimedia

For many governments the world over, the choice of Open Source is a strategic one.
This preference towards Open Source platforms is firstly because, acquiring and
upgrading proprietary software is expensive. There is also the proposition that it is
safer to entrust knowledge in the public domain to Open Source, which is also in the
public domain, than to proprietary platforms. Thirdly, using open source would enable
India to encourage our own software professionals to provide software support in the
form of add-on applications that could be written at a cost much smaller than that
required to buy multi-featured packaged software. This would also decentralize
software production, from the current paradigm of large transnational production of
packaged software. While Madhya Pradesh, Maharashtra and Goa have preferred
Linux software in their official IT programmes, states like Punjab and Rajasthan fully
rely on Windows while even Karnataka and Andhra Pradesh and the central
government continue to base their initiatives on the windows platform in addition to
Linux.

Check Your Progress 1

1) Explain the National E-Governance Plan?

…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
……………………………………………………………………........
2) List some of the E-Governance projects in India (state-wise).

…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
……………………………………………………………………........

2.8 SUMMARY

Governance is a burning topic for many reasons, including the changing role of
knowledge and information, a trend towards networks as an organizational form,
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 IT in Action
globalization issues and, last but not the least advances in ICTs. Like all the “e”
subjects, E-Governance is about playing advanced information and communications
technology to improve and support all tasks in the governmental domain. Public
awareness and Digital divide is important issues to be addressed. E-Governance
through regional languages is appreciable for the nations like India where people from
several states are the participants.

E-governance is not just the Internet as the common perception goes and governments
need to move back in a certain sense, to re-appropriate the older communication tools
like radio and cable TV. A critical mass of people is required to push e-governance to
the next gear.

In this unit, we had studied the role of ICTs in the public administration. In the next
unit we will go through the ICTs in Education.

2.9 SOLUTIONS / ANSWERS

Check Your Progress 1

1) The National e-Governance Plan (2003-2007) of Indian Government seeks to

lay the foundation and provide the impetus for long-term growth of e-
Governance within the country. The plan seeks to create the right governance
and institutional mechanisms, set up the core infrastructure and policies and
implements a number of Mission Mode Projects at the center, state and
integrated service levels to create a citizen-centric and business-centric
environment for governance.

2) See Section 2.5.

2.10 FURTHER READINGS

1) Governance.Com: Democracy in the Information Age, Elaine Ciulla Kamarck

(Editor).
2) Reinventing Government in the Information Age : International Practice in
IT-enabled Public Sector Reform, Richard Heeks(Editor),Routledg,January
2001
3) Egov: Ebusiness Strategies for Government by Douglas Holmes.
4) Electronic Government: Design, Applications and Management, Ake
Gronlund (Editor).
5) E-Government, 2003, Mark A. Abramson (Editor), Therese L. Morin (Editor)
6) E-Government in Asia: Enabling Public Service Innovation in the 21st
Century, James SL Yong.

33
E-Governance

34
 ABC of Knowledge Management

Freely extracted from the NHS National Library for Health at http://www.library.nhs.uk/knowledgemanagement/
by Géraud Servin
Creator: NHS National Library for Health: Knowledge Management Specialist Library
Contributor: Caroline De Brún
Publication Date: July 2005
Table of Contents
1 WHAT IS KNOWLEDGE MANAGEMENT?.................................................................................... 3
1.1 What is knowledge management?......................................................................................................... 3
1.2 What is knowledge?............................................................................................................................... 3
1.3 Why do we need knowledge management?.......................................................................................... 3
1.4 What does knowledge management involve?........................................................................................ 4
1.5 Some “textbook” definitions of knowledge management....................................................................... 5
2 PRINCIPLES AND PROCESSES OF KNOWLEDGE MANAGEMENT..........................................6
2.1 Right knowledge, right place, right time................................................................................................. 6
2.2 Types of knowledge: explicit and tacit................................................................................................... 6
2.3 Types of knowledge: old and new.......................................................................................................... 6
2.4 Ways with knowledge: collecting and connecting.................................................................................. 7
2.5 Ways with knowledge: people, processes and technology.................................................................... 8
3 GENERAL CONCEPTS.................................................................................................................. 9
3.1 A brief history of knowledge management............................................................................................. 9
3.2 The “knowledge economy”................................................................................................................... 10
3.3 Knowledge management in the public sector...................................................................................... 10
4 GETTING STARTED.....................................................................................................................12
4.2 KM toolbox – inventory of tools and techniques................................................................................... 14
4.3 After Action Reviews............................................................................................................................ 15
4.4 Communities of Practice...................................................................................................................... 18
4.5 Conducting a knowledge audit............................................................................................................. 22
4.6 Developing a knowledge management strategy.................................................................................. 25
4.7 Exit interviews...................................................................................................................................... 29
4.8 Identifying and sharing best practices.................................................................................................. 31
4.9 Knowledge centres.............................................................................................................................. 34
4.10 Knowledge harvesting........................................................................................................................ 36
4.11 Peer assists....................................................................................................................................... 39
4.12 Social Network Analysis..................................................................................................................... 42
4.13 Storytelling......................................................................................................................................... 44
4.14 White Pages...................................................................................................................................... 48
5 DEVELOPING THE KM ENVIRONMENT.....................................................................................51
5.1 People.................................................................................................................................................. 51
5.2 KM Processes...................................................................................................................................... 57
5.3 KM Technology.................................................................................................................................... 59
6 MEASURING THE EFFECTS OF KNOWLEDGE MANAGEMENT..............................................64
6.1 Why measure?..................................................................................................................................... 64
6.2 What to measure? Common measurement approaches...................................................................... 64
6.3 How to measure? ................................................................................................................................ 66
7 KNOWLEDGE MANAGEMENT GLOSSARY OF TERMS............................................................68
 1 What is knowledge management?

1 WHAT IS KNOWLEDGE MANAGEMENT?

Knowledge management is based on the idea that an organisation’s most valuable resource is the knowledge of
its people. Therefore, the extent to which an organisation performs well, will depend, among other things, on
how effectively its people can create new knowledge, share knowledge around the organisation, and use that
knowledge to best effect.
If you have read any of the huge array of knowledge management books and articles that are currently available,
you are possibly feeling slightly bewildered. Perhaps you are wondering whether knowledge management is just
the latest fad and hoping that if you ignore it, it will eventually go away. Let’s be honest – knowledge
management is surrounded by a great deal of hype. But if you can put the hype to one side, you will find that
many of the tools, techniques and processes of knowledge management actually make a great deal of common
sense, are already part of what you do, and can greatly help you in your job.

1.1 What is knowledge management?

Many of us simply do not think in terms of managing knowledge, but we all do it. Each of us is a personal store
of knowledge with training, experiences, and informal networks of friends and colleagues, whom we seek out
when we want to solve a problem or explore an opportunity. Essentially, we get things done and succeed by
knowing an answer or knowing someone who does.
Fundamentally, knowledge management is about applying the collective knowledge of the entire workforce to
achieve specific organisational goals. The aim of knowledge management is not necessarily to manage all
knowledge, just the knowledge that is most important to the organisation. It is about ensuring that people have
the knowledge they need, where they need it, when they need it – the right knowledge, in the right place, at
the right time.
Knowledge management is unfortunately a misleading term – knowledge resides in people’s heads and
managing it is not really possible or desirable. What we can do, and what the ideas behind knowledge
management are all about, is to establish an environment in which people are encouraged to create, learn,
share, and use knowledge together for the benefit of the organisation, the people who work in it, and the
organisation’s customers (or in the case of the NHS, patients).

1.2 What is knowledge?

Academics have debated the meaning of “knowledge” since the word was invented, but let’s not get into that
here. A dictionary definition is “the facts, feelings or experiences known by a person or group of people”
(Collins English Dictionary). Knowledge is derived from information but it is richer and more meaningful than
information. It includes familiarity, awareness and understanding gained through experience or study, and
results from making comparisons, identifying consequences, and making connections. Some experts include
wisdom and insight in their definitions of knowledge. In organisational terms, knowledge is generally thought of
as being “know how”, or “applied action”. The last point is an important one. Today’s organisations contain a
vast amount of knowledge and the NHS is certainly no exception. However, in applying knowledge management
principles and practices in our organisation, knowledge is not our end, but the means for further action. What
we are trying to do is to use our knowledge to get better at doing what we do, i.e. health care and health care
improvement.

1.3 Why do we need knowledge management?

Knowledge management is based on the idea that an organisation’s most valuable resource is the knowledge of
its people. This is not a new idea – organisations have been managing “human resources” for years. What is
new is the focus on knowledge. This focus is being driven by the accelerated rate of change in today’s
organisations and in society as a whole. Knowledge management recognises that today nearly all jobs involve
“knowledge work” and so all staff are “knowledge workers” to some degree or another – meaning that their
job depends more on their knowledge than their manual skills. This means that creating, sharing and using
knowledge are among the most important activities of nearly every person in every organisation.
It is easy to see the importance of knowledge in the health sector. As clinicians, managers and other
practitioners, we all rely on what we know to do our jobs effectively. But....

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 1 What is knowledge management?

Do we know everything we need to know or are there gaps in our knowledge? Of course there are. Medical
advances are being made all the time so there is always new knowledge to be learned. Government policies are
constantly evolving, as are management practices. The current modernisation programme requires us to let go of
what we knew and to learn and apply new knowledge. Changing doctor-patient relationships are requiring us to
revisit our whole approach to the provision of health care. And of course, every new patient that comes through
our door brings a potential new learning opportunity.
Do we share what we know? The NHS is made up of over a million individuals in hundreds of organisations,
each of which have their own knowledge. Is the knowledge of individuals available to the whole organisation? Is
the knowledge or organisations available to the whole NHS? Not at present. How many times have we lost
valuable knowledge and expertise when a staff member moves on? How many times have we “reinvented the
wheel” when we could have learned from someone else’s experience? How many times have patients suffered
as a result of the “postcode lottery”?
Do we use what we know to best effect? Not always. In the NHS Plan, the NHS was described as “a 1940s
infrastructure operating in the 21st century”. Clearly our knowledge has not always been applied to best effect,
and we have fallen behind the times. How many times have we had an idea about how a process or an activity
could be improved, but felt we lacked the time or resources to do anything about it? How many times have we
had an idea that might help our colleagues, but we keep quiet because our colleagues might not appreciate us
“telling them how to do their job”? How many times have we implemented a new initiative, only to find we
reverted back to the “old way” a few months later? Perhaps we have had insights about how our patients”
needs could be better met, but there was no forum for us to share and explore those insights so we just forgot
about it.
These are just a few examples.
Almost everything we do in the NHS is based on our knowledge. If we do not constantly update and renew our
knowledge, share our knowledge, and then use that knowledge to do things differently and better, then our
people, our organisations, our patients and the general public will ultimately suffer. We know this because it has
already happened. As The NHS Plan (2000) affirms, in spite of our many achievements, the NHS has failed to
keep pace with changes in our society. What can transform that, along with the current investment and
modernisation programme, is harnessing the vast collective knowledge of the people working in the NHS, and
using it to best effect. That is why we need knowledge management.

1.4 What does knowledge management involve?

Knowledge management is essentially about facilitating the processes by which knowledge is created, shared
and used in organisations. It is not about setting up a new department or getting in a new computer system. It is
about making small changes to the way everyone in the organisation works. There are many ways of looking at
knowledge management and different organisations will take different approaches. Generally speaking, creating
a knowledge environment usually requires changing organisational values and culture, changing people’s
behaviours and work patterns, and providing people with easy access to each other and to relevant information
resources.
In terms of how that is done, the processes of knowledge management are many and varied. As knowledge
management is a relatively new concept, organisations are still finding their way and so there is no single agreed
way forward or best practice. This is a time of much trial and error. Similarly, to simply copy the practices of
another organisation would probably not work because each organisation faces a different set of knowledge
management problems and challenges. Knowledge management is essentially about people – how they create,
share and use knowledge, and so no knowledge management tool will work if it is not applied in a manner that
is sensitive to the ways people think and behave.
That being said, there are of course a whole raft of options in terms of tools and techniques, many of which are
not new. Many of the processes that currently fall under the banner of knowledge management have been
around for a long time, but as part of functions such as training, human resources, internal communications,
information technology, librarianship, records management and marketing to name a few. And some of those
processes can be very simple, such as:
> providing induction packs full of “know how” to new staff;
> conducting exit interviews when staff leave so that their knowledge is not lost to the organisation;
> creating databases of all publications produced by an organisation so that staff can access them from
their desk;

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 1 What is knowledge management?

> providing ongoing learning so that people can constantly update their knowledge;
> encouraging people with a common interest to network with each other;
> creating electronic filing systems that can be searched in a number of ways, making the information
much easier to find;
> redesigning offices to be open plan so that staff and managers are more visible and talk to each
other more;
> putting staff directories online so that people can easily find out who does what and where they are;
> creating intranets so that staff can access all kinds of organisational information and knowledge that
might otherwise take a great deal of time and energy to find.

1.5 Some “textbook” definitions of knowledge management

Here are a few definitions:
> “Clinical knowledge management means enhancing the identification, dissemination, awareness and
application of the results of research relevant to clinical practice in health and social care.”
Jeremy Wyatt
> “The creation and subsequent management of an environment, which encourages knowledge to be
created, shared, learnt, enhanced, organised and utilized for the benefit of the organisation and its
customers.”
Abell & Oxbrow, tfpl Ltd, 2001
> “Knowledge management is a process that emphasises generating, capturing and sharing
information know how and integrating these into business practices and decision making for greater
organisational benefit.”
Maggie Haines, NHS Acting Director of KM
> “The capabilities by which communities within an organisation capture the knowledge that is critical
to them, constantly improve it, and make it available in the most effective manner to those people
who need it, so that they can exploit it creatively to add value as a normal part of their work.”
BSI’s A Guide to Good Practice in KM
> “Knowledge is power, which is why people who had it in the past often tried to make a secret of it.
In post-capitalism, power comes from transmitting information to make it productive, not from hiding
it!”
Peter Drucker
> “Knowledge management involves efficiently connecting those who know with those who need to
know and converting personal knowledge into organisational knowledge.”
Yankee Group
> “Knowledge management is not about data, but about getting the right information to the right
people at the right time for them to impact the bottom line.”
IBM
> “The capability of an organization to create new knowledge, disseminate it throughout the
organization and embody it in products, services and systems.”
Nonaka & Takeuchi, 1995
> “Knowledge management is a relatively young corporate discipline and a new approach to the
identification, harnessing and exploitation of collective organisational information, talents, expertise
and know-how.”
Office of thee-Envoy, 2002
> “Knowledge management is the explicit and systematic management of vital knowledge and its
associated processes of creating, gathering, organizing, diffusion, use and exploitation. It requires
turning personal knowledge into corporate knowledge that can be widely shared throughout an
organization and appropriately applied.”
David J Skyrme, 1997

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 2 Principles and processes of knowledge management

2 PRINCIPLES AND PROCESSES OF KNOWLEDGE MANAGEMENT

A “rough guide” to some of the main general approaches to knowledge management.

2.1 Right knowledge, right place, right time

Some people mistakenly assume that knowledge management is about capturing all the best practices and
knowledge that people possess and storing it in a computer system in the hope that one day it will be useful. In
fact this is a good example of what knowledge management is not about! Consider this: how often has
information or knowledge been pushed at you when you don’t need it – paper, emails, training, another
irrelevant meeting? Then later, when you do need it, you vaguely remember seeing something relevant but can’t
find it. Some surveys suggest that professional workers spend ten per cent of their time looking for information
they know is somewhere. And if what you want is in people’s heads, and they’re not always around, how can
you access it when you need it? What if you don’t even know whose head it’s in, or if they’d be willing to share
it with you?
In a nutshell, good knowledge management is all about getting the right knowledge, in the right place, at the
right time.
The right knowledge is the knowledge that you need in order to be able to do your job to the best of your
ability, whether that means diagnosing a patient, making a decision, booking a referral, answering a patient’s
question, administering a treatment, training a new colleague, interpreting a piece of research, using a computer
system, managing a project, dealing with suppliers etc. Information and knowledge can usually be found in a
whole variety of places – research papers, reports and manuals, databases etc. Often it will be in people’s heads
– yours and other people’s. The right place, however, is the point of action or decision – the meeting, the patient
helpline, the hospital bedside, behind the reception desk and so on. The right time is when you (the person or
the team doing the work) need it.

2.2 Types of knowledge: explicit and tacit

Knowledge in organisations is often classified into two types: explicit and tacit.
1 Explicit knowledge is knowledge that can be captured and written down in documents or databases.
Examples of explicit knowledge include instruction manuals, written procedures, best practices,
lessons learned and research findings. Explicit knowledge can be categorised as either structured or
unstructured. Documents, databases, and spreadsheets are examples of structured knowledge,
because the data or information in them is organised in a particular way for future retrieval. In
contrast, e-mails, images, training courses, and audio and video selections are examples of
unstructured knowledge because the information they contain is not referenced for retrieval.
2 Tacit knowledge is the knowledge that people carry in their heads. It is much less concrete than
explicit knowledge. It is more of an “unspoken understanding” about something, knowledge that is
more difficult to write down in a document or a database. An example might be, knowing how to
ride a bicycle – you know how to do it, you can do it again and again, but could you write down
instructions for someone to learn to ride a bicycle? Tacit knowledge can be difficult to access, as it is
often not known to others. In fact, most people are not aware of the knowledge they themselves
possess or of its value to others. Tacit knowledge is considered more valuable because it provides
context for people, places, ideas and experiences. It generally requires extensive personal contact and
trust to share effectively.

2.3 Types of knowledge: old and new

Most knowledge management strategies generally have one (or sometimes both) of two thrusts. The first is to
make better use of the knowledge that already exists within the organisation, and the second is to create new
knowledge.
Making better use of the knowledge that already exists within an organisation (”old” knowledge) often begins
with “knowing what you know”. Very often leading managers comment: “if only we knew what we knew”.
Too frequently, people in one part of the organisation reinvent the wheel or fail to solve a problem because the
knowledge they need is elsewhere in the organisation but not known or accessible to them. Hence the first
knowledge management initiative of many companies is that of finding out what they know, and taking steps to

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make that knowledge accessible throughout the organisation. Specific approaches might include conducting a
knowledge audit, mapping the organisation’s knowledge resources and flows, making tacit knowledge more
explicit and putting in place mechanisms to move it more rapidly to where it is needed.
Creating new knowledge can equally be approached in a number of ways such as through training, hiring
external resources, bringing different people and their knowledge together to create fresh knowledge and
insights, etc. It is also about innovation – making the transition from ideas to action more effective. Many
managers mistakenly believe this is about R&D and creativity. In fact there is no shortage of creativity in
organisations – not just in R&D but everywhere. The real challenge is not to lose these creative ideas and to
allow them to flow where they can be used.
In reality, the distinction between “old” and “new” knowledge is not always that clear. Innovation will often
draw on lessons from the past, particularly those that have been forgotten, or those that can be put together in
new combinations to achieve new results. Similarly, the application of (old) knowledge almost always involves
some adaptation, and so in the process of adaptation, new knowledge is created. At the end of the day, the
quality of knowledge does not depend on whether it is “old” or “new” but rather whether it is relevant.
Whether it is old or new hardly matters. The question is: does it work in practice?

2.4 Ways with knowledge: collecting and connecting

Knowledge management programmes tend to have both a “collecting” and a “connecting” dimension.
The collecting dimension involves linking people with information. It relates to the capturing and disseminating
of explicit knowledge through information and communication technologies aimed at codifying, storing and
retrieving content, which in principle is continuously updated through computer networks. Through such
collections of content, what is learned is made readily accessible to future users.
Current examples in the NHS include various intranets, the National electronic Library for Health, the CLIP
database, The Cochrane Library, and many more. This collecting dimension is often the main emphasis of many
European and US knowledge programmes. However it has its limitations. Even where comprehensive collections
of materials exist, effective use may still need knowledgeable and skilled interpretation and subsequent
alignment with the local context to get effective results, just as reading a newspaper article on brain surgery
does not qualify or enable a reader to conduct brain surgery. An organisation that focuses completely on
collecting and makes little or no effort at connecting (see below) tends to end up with a repository of static
documents.
The connecting dimension involves linking people with people – specifically people who need to know with
those who do know, and so enhancing tacit knowledge flow through better human interaction, so that
knowledge is diffused around the organisation and not just held in the heads of a few. Connecting is necessary
because knowledge is embodied in people, and in the relationships within and between organisations.
Information becomes knowledge as it is interpreted in the light of the individual’s understandings of the
particular context. Examples of connecting initiatives include skills directories and expert directories – searchable
online staff directories that give much more detail about who does what and who knows what, collaborative
working, communities of practice – networks of people with a common interest, and various “socialisation”
activities designed to support knowledge flows. This connecting dimension tends to be the main emphasis in
Japanese knowledge programmes. However an organisation that focuses entirely on connecting, with little or no
attempt at collecting, can be very inefficient. Such organisations may waste time in “reinventing wheels”.
Most knowledge management programmes aim at an integrated approach to managing knowledge, by
combining the benefits of both approaches and achieving a balance between connecting individuals who need
to know with those who do know, and collecting what is learned as a result of these connections and making
that easily accessible to others. For example, if collected documents are linked to their authors and contain other
interactive possibilities, they can become dynamic and hence much more useful.

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 2 Principles and processes of knowledge management

2.5 Ways with knowledge: people, processes and technology

One popular and widely-used approach is to think of knowledge management in terms of three components,
namely people, processes and technology:
> People: Getting an organisation’s culture (including values and behaviours) “right” for knowledge
management is typically the most important and yet often the most difficult challenge. Knowledge
management is first and foremost a people issue. Does the culture of your organisation support
ongoing learning and knowledge sharing? Are people motivated and rewarded for creating, sharing
and using knowledge? Is there a culture of openness and mutual respect and support? Or is your
organisation very hierarchical where “knowledge is power” and so people are reluctant to share? Are
people under constant pressure to act, with no time for knowledge-seeking or reflection? Do they
feel inspired to innovate and learn from mistakes, or is there a strong “blame and shame” culture?
> Processes: In order to improve knowledge sharing, organisations often need to make changes to the
way their internal processes are structured, and sometimes even the organisational structure itself.
For example, if an organisation is structured in such a way that different parts of it are competing for
resources, then this will most likely be a barrier to knowledge sharing. Looking at the many aspects of
“how things are done around here” in your organisation, which processes constitute either barriers
to, or enablers of, knowledge management? How can these processes be adapted, or what new
processes can be introduced, to support people in creating, sharing and using knowledge?
> Technology: A common misconception is that knowledge management is mainly about technology –
getting an intranet, linking people by e-mail, compiling information databases etc. Technology is
often a crucial enabler of knowledge management – it can help connect people with information,
and people with each other, but it is not the solution. And it is vital that any technology used “fits”
the organisation’s people and processes – otherwise it will simply not be used.
These three components are often compared to the legs of a three-legged stool – if one is missing, then the
stool will collapse. However, one leg is viewed as being more important than the others – people. An
organisation’s primary focus should be on developing a knowledge-friendly culture and knowledge-friendly
behaviours among its people, which should be supported by the appropriate processes, and which may be
enabled through technology.

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 3 General concepts

3 GENERAL CONCEPTS

3.1 A brief history of knowledge management

Knowledge management as a conscious discipline would appear to be somewhere between five and fifteen
years old. It evolved from the thinking of academics and pioneers such as Peter Drucker in the 1970s, Karl-Erik
Sveiby in the late 1980s, and Nonaka and Takeuchi in the 1990s. During that time, economic, social and
technological changes were transforming the way that companies worked. Globalisation emerged and brought
new opportunities and increased competition. Companies responded by downsizing, merging, acquiring,
reengineering and outsourcing. Many streamlined their workforce and boosted their productivity and their
profits by using advances in computer and network technology. However their successes in doing so came with
a price. Many lost company knowledge as they grew smaller. And many lost company knowledge as they grew
bigger – they no longer “knew what they knew”.
By the early 1990s a growing body of academics and consultants were talking about knowledge management as
“the” new business practice, and it began to appear in more and more business journals and on conference
agendas. By the mid-1990s, it became widely acknowledged that the competitive advantage of some of the
world’s leading companies was being carved out from those companies’ knowledge assets such as
competencies, customer relationships and innovations. Managing knowledge therefore suddenly became a
mainstream business objective as other companies sought to follow the market leaders.
Many of these companies took the approach of implementing “knowledge management solutions”, focusing
almost entirely on knowledge management technologies. However they met with limited success, and so
questions began to be asked about whether knowledge management wasn’t simply another fad that looked
great on paper, but in reality did not deliver. In fact for a while, it looked as if knowledge management was
destined to be confined to the “management fad graveyard”. However on closer inspection, companies realised
that it wasn’t the concept of knowledge management that was the problem as such, but rather the way that
they had gone about approaching it. Reasons for their limited success included:
> The focus was on the technology rather than the business and its people.
> There was too much hype – with consultants and technology vendors cashing in on the latest
management fad.
> Companies spent too much money (usually on “sexy” technologies) with little or no return on their
investments.
> Most knowledge management literature was very conceptual and lacking in practical advice, which
led to frustration at the inability to translate the theory into practice – “it all makes so much sense
but why isn’t it working?”
> Knowledge management was not tied into business processes and ways of working.
> It was seen as another laborious overhead activity or yet another new initiative.
> A lack of incentives – employees quite rightly asked the “what’s in it for me?” question.
> There wasn’t sufficient senior executive level buy in.
Fortunately companies are now recognising these early mistakes and are beginning to take a different approach
to knowledge management – one in which the emphasis is more on people, behaviours and ways of working,
than on technology. Of course there are still some sceptics who believe that knowledge management is just a
fad. But according to a number of company surveys, it would seem that they are in a minority. A more popular
view is that knowledge management may not remain as a distinct discipline, but rather will become embedded
in the way organisations work. This can be compared to Total Quality Management which was the “in thing” in
the 1980s; nobody talks about “TQM” any more, but many of its principles and practices are an integral part of
how most organisations operate. It looks likely that this could also be the future for knowledge management.

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3.2 The “knowledge economy”

“As we enter the 21st century we are moving into a new phase of economic and social development, which can
usefully be referred to as a “knowledge economy”, in which knowledge will be a key determining factor in
organizational and economic success or failure. The most effective organizations in the knowledge economy will
be those which recognize and best harness the crucial role that knowledge plays both inside and outside their
organisation.”
From: Knowledge Enhanced Government: A strategy for the UK Office of the e-Envoy, July 2002
The government’s objective is to make the UK one of the world’s leading knowledge economies.

3.3 Knowledge management in the public sector

In both the private and public sectors, more and more organisations are beginning to take responsibility for
managing knowledge as a means to create value. But what does “value” mean in the context of the public
sector? Public sector organisations are not usually seeking a competitive advantage, so why bother with
knowledge management? If we go back to our definition of knowledge as “the capacity for effective action”
(see the section What is KM?) then this probably better describes the expectations of government and public
services. Every public service involves a wide range of relationships between policy makers, service providers,
local authorities, the general public and various other interested parties such as voluntary and community sector
organisations, the private sector etc. If we think about the many interactions within and between these groups,
and their impact on policy and service provision, then we begin to see the scope for knowledge management in
the public sector. How does one of these various parties share an experience and introduce one policy driven
initiative with that of another for the benefit of all concerned? How can everyone involved have an awareness of
the “bigger picture” as well as their own individual standpoints? How can all parties be better prepared to act?
In recent years there has been a number of government policies aimed at equipping the public sector to function
more effectively in an information society. These have included:
> our Information Age (HMSO, 1998) – the de facto UK national information policy
> open for learning, open for business (National Grid for Learning, 1998) – establishing a commitment
to a national grid for learning
> modernising government (HMSO, 1999) – committed government to modernising public services so
that all would be capable of being delivered by computer by 2005
> e-government (Cabinet Office, 2000) – a strategic framework for public services in the information
age
Building on this, subsequent developments have focused on making better use of the tacit knowledge within,
and improving knowledge transfer across, the public sector.
The Office of the e-Envoy’s UK Annual Report 2000 announced the development of a cross-government
knowledge management system, focusing on the creation of a Knowledge Network – “a unified cross-
government communications infrastructure to enable officials in all government departments and associated
bodies … to communicate electronically with each other and share common, secure access to databases,
discussion forums, web-based community sites and “knowledge pools”.”
From there, a new programme of modernisation led by the Office of the e-Envoy known as Knowledge
Enhanced Government (KEG) was launched. The KEG team is working with the major central government
departments in ensuring that there are departmental teams and processes in place to support participation in
KEG. The Department of Health is already a key player in these processes.

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As part of KEG, the Office of the e-Envoy has recently considered the development of a knowledge management
policy framework to provide a holistic view of knowledge management and recommendations for activity. Early
proposals have suggested that this framework could be based around ten key areas of activity:
1 knowledge capture – policies and processes for identifying and capturing explicit and tacit
knowledge.
2 knowledge transfer – policies and processes for transferring knowledge among and between its
various sources and forms.
3 knowledge retention – policies and processes for retaining organisational knowledge, especially
during periods of organisational change.
4 content management – policies and processes for efficiently managing the organisational knowledge
base.
5 knowledge capital – policies and processes for measuring and developing the government’s human
and social capital.
6 enabling communities – policies and processes for promoting and supporting knowledge-based
community working across and between departments.
7 supporting a knowledge culture – policies and processes to create the necessary cultural changes to
embed the knowledge management ethos into working practices.
8 knowledge partnerships – policies and processes for promoting and supporting knowledge
partnerships between central government and key partners such as local government, departmental
agencies, non-departmental public bodies, voluntary and community organizations etc.
9 supporting key business activities – policies and processes to support key business activities in
government such as project management, the legislative process, delivery monitoring etc.
10 knowledge benchmarking – policies and processes for benchmarking current knowledge
management capabilities and practices against UK and international best practice, and for improving
performance.
For more information about Knowledge Enhanced Government and related initiatives, see the Office of the e-
Envoy website at http://archive.cabinetoffice.gov.uk/e-envoy/index-content.htm.

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 4 Getting started

4 GETTING STARTED
With such a wide range of definitions, philosophies, methodologies, tools and techniques, approaching
knowledge management can initially seem quite daunting. In starting out, many practitioners tend to offer the
following types of advice:

4.1.1 Review your options

It is useful to gain a broad understanding of the variety of approaches to knowledge management. Not only are
there many alternatives, but also some of them differ quite widely from others in their methods. Before selecting
your approach or approaches, try to explore the many options open to you.

4.1.2 Don’t get too hung up on “the best”

There is no single “right” way to approach knowledge management. Knowledge management methods are as
varied as the organisations in which they are implemented. Every organisation is different and so its approach to
knowledge management will need to reflect its own particular circumstances. There is no “one size fits all”. The
“best” approach will be one that works well for your organisation.

4.1.3 Keep it simple – avoid rocket science

There is still quite a lot of confusion about what knowledge management actually is and what it involves. Don’t
add to that confusion by blinding people with rocket science and textbook definitions. Get clear on what
knowledge management means for your organisation. Then make the concepts of knowledge management real
for others in your organisation. Use simple definitions and simple language to explore real problems and
opportunities. Create a clear, tangible picture of the benefits of knowledge management as they relate to your
organisation’s specific goals and circumstances.

4.1.4 Learn while doing

Avoid the temptation to wait until you have “mastered” the theory of knowledge management before getting
started on the practice. (The theory is constantly evolving, so the chances are you will never master it). One of
the best ways to learn is “on the job”. You can learn a great deal from what others have done, but you will only
learn what does and doesn’t work for your organisation when you actually get started and do something.

4.1.5 Celebrate what you’re already doing

Start from where you are, with what you have. In most organisations there will already be examples of good
knowledge management practice – except they won’t usually be thought of as knowledge management. Look
around your organisation for current activities that might already be related to knowledge management – not
necessarily big projects or initiatives, but simple, day-to-day ways of doing things. Look for teams or groups that
are currently sharing knowledge, and make connections with these people. Find out how it is benefiting those
people and the organisation as a whole. Celebrate and build on these examples of good practice.

4.1.6 Look at your organisation’s goals

Given that knowledge management is not an end in itself, but rather a means to achieving organisational goals,
then this is a logical place to start. Look at both the long-term goals and short to medium-term objectives of
your organisation: what are they? How might knowledge management help you to achieve them? Then look at
what people – teams and individuals – do in your organisation. What are the services they provide? What
activities and processes do they perform in order to provide those services? How might they be done better for
the benefit of individual staff, the organisation a whole, and your patients? What knowledge do people need in
order to do their jobs? What knowledge might they need in order to do them better? How can you acquire,
create, use and share that knowledge to bring that about? In what ways are you already doing so? How might
you do it better?

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 4 Getting started

4.1.7 Look for needs, problems and pains

Another good place to start is with what some managers call “needs, problems and pains”. These are the things
that are not working well in your organisation: things that are getting in the way of people doing a good job,
things that irritate people and make their lives difficult, things that hamper the quality of your service to patients.
Talk to people and start to build up a list of some of the major needs, problems and pains in your organisation.
From there, you can select one or several of these with which to start, and look at how you might resolve it
using knowledge management principles and practices. A great advantage of this approach is that it can allow
you to achieve “quick wins”. These are problems that are generally fairly simple and quick to resolve, but their
resolution has a big impact and the results are clearly visible. Quick wins can be very useful in demonstrating the
potential benefits of knowledge management to both managers and staff – there is nothing like real results to
win people over.

4.1.8 Start small

Attempting to launch an organisation-wide knowledge management programme without building the evidence
first is unfortunately a common mistake, but one to be avoided. Some organisations prefer to “dip their toe in
the water” with one or two initiatives before considering a formal knowledge management strategy; others
choose not to create a formal strategy at all, choosing instead to take a more informal or incremental approach.
Either way, whether you choose to create a formal knowledge management strategy or not, a large-scale, high-
cost, “big bang” roll-out is not recommended. Knowledge management is more an iterative process of
continuous development. Hence, it is far better to gradually introduce a series of practical, manageable changes.
Then, as interest develops, you can look to expand your initiatives.

4.1.9 Don’t take off without a pilot

When looking to implement any major new initiative, conducting a pilot is essential. A pilot involves “test
driving” the initiative on a relatively small scale in order to learn what works and what doesn’t, make any
necessary changes accordingly, and gather clear, demonstrable evidence about the benefits, before rolling out
the initiative on a larger scale. This means that when you come to roll it out, you have already made most of
your mistakes, and you have something that has been proven to work well in practice. In terms of securing
resources and support, this is a whole different proposition to having an idea in theory.

4.1.10 Remember the “big three”: people, processes, technology

In implementing knowledge management tools and techniques, never forget the importance of creating the
right kind of environment. Your organisation’s people, processes and technology will at all times be acting as
either enablers of, or barriers to, the effective use of your knowledge management tools. You need to identify
the barriers and remove them, and build on the enablers. If you have already tried to implement something and
it hasn’t worked, this is where you need to look. If you are about to implement something, look before you leap.

4.1.11 The ultimate aim: institutionalisation

Granted, you are just starting out with knowledge management. This is the beginning of the road. However it is
worth keeping one eye on the horizon further down that road. It is useful to bear in mind that success in
knowledge management does not involve building up a big new department or a whole network of people with
“knowledge” in their job title. You may need to do these things to some degree in the medium-term. However
the ultimate aim is for knowledge management to be fully “institutionalised”. Or in other words, so embedded
in the way your organisation does things, so intrinsic in people’s day-to-day ways of working, that nobody even
talks about knowledge management any more – they just do it. So if you are a knowledge manager, you will
know that you have fully succeeded when you have worked yourself out of a job!

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 4 Getting started

4.2 KM toolbox – inventory of tools and techniques

The following “toolbox” presents some of the most common tools and techniques currently used in knowledge
management programmes. The aim is to give an introduction, to present an overview of what is involved, and to
provide some pointers to further resources.
1 After Action Reviews (AARs)
A tool pioneered by the US army and now widely used in a range of organisations to capture lessons
learned both during and after an activity or project.
2 Communities of Practice
Widely regarded as “the killer KM application’, communities of practice link people together to
develop and share knowledge around specific themes, and are already being established in the NHS.
3 Conducting a knowledge audit
A systematic process to identify an organisation’s knowledge needs, resources and flows, as a basis
for understanding where and how better knowledge management can add value.
4 Developing a knowledge management strategy
Approaches to developing a formal knowledge management plan that is closely aligned with an
organisation’s overall strategy and goals.
5 Exit interviews
A tool used to capture the knowledge of departing employees.
6 Identifying and sharing best practices
Approaches to capturing best practices discovered in one part of the organisation and sharing them
for the benefit of all.
7 Knowledge centres
Similar to libraries but with a broader remit to include connecting people with each other as well as
with information in documents and databases.
8 Knowledge harvesting
A tool used to capture the knowledge of “experts” and make it available to others.
9 Peer assists
A tool developed at BP-Amoco used to learn from the experiences of others before embarking on an
activity or project.
10 Social network analysis
Mapping relationships between people, groups and organisations to understand how these
relationships either facilitate or impede knowledge flows.
11 Storytelling
Using the ancient art of storytelling to share knowledge in a more meaningful and interesting way.
12 White pages
A step-up from the usual staff directory, this is an online resource that allows people to find
colleagues with specific knowledge and expertise.

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 Data & Information
◆ "Data are facts, observations, or measures
that have been recorded but not put into
meaningful context. A single musical note is
data."

◆ Then data becomes information as soon as it

is put into a context, and linked to an object.

Data that has been arranged in a systematic

way to yield order and meaning. A series of
notes arranged into a tune is information."
 The Five Cs
Data is summarized in more concise form,
Condensed
and unnecessary dept is eliminated

Contextualized We know why the data was collected

Calculated Tabulate, relate and data to form bases for

analysis

Categorized The basis of Analysis is known

Errors have been removed, missing ‘data-

Corrected
holes’ have been accounted for
 What is Knowledge?

Knowledge is reasoning about

information and data to actively
enable performance, problem –
solving, decision – making, learning,
and teaching.
(Beckman, T 1997)
 Definition of Knowledge
Knowledge is a mix of framed experience, values,
contextual information, expert insight and intuition that
provides an environment and framework for evaluating
and incorporating new experiences and information. It
originates in individuals’ minds but is often embedded in
organizational routines, processes, practices, systems,
software and norms.
 Elements of Knowledge
KNOW L EDGE

L
◆Be Aware of •An intense or striking quality
E (a quality or factor which gives
◆Be Familiar
A superiority over close rivals)
with
R •A slight advantage over
◆Be somebody/ something
N
Acquainted
with
•To be Informed
•To gain Knowledge,
Skill or Ability
•To be Skilful

•The term KNOWLEDGE is a process of learning to know to have an edge over others.
 D I K W Relationship

Information + Knowledge applied X

Experiences + Insights + Results Interpreted -
Judgment - Interpreted Knowledge
Interpreted Information

Wisdom
Knowledge

Information

Data

Data
Unformatted, assorted,
processed through
numerous transactional
5Cs – Interpreted
records –
Data
Transactions
From Facts to Wisdom
(Haeckel & Nolan, 1993)

Volume Value
Less is
Completeness More Structure
Objectivity Wisdom

Knowledge

Information

Facts
 Categories of Knowledge
Technological
Type Business
Environmental
Operational
Focus
Strategic
Individual
Knowledge Involvement
Collective
Explicit
Complexity
Tacit

Low
Perishability
High
Knowledge – Explicit, Tacit and
Potential
 Building Blocks
KNOWLEDGE

Explicit Tacit

Recorded Residing in
Peoples’ Heads
Procedures, Manuals, Skills, Ideas,
Documents, Practices…. Experience….
 Definition of Knowledge Management

• Knowledge Management (KM) is the creation,

distribution and exploitation of knowledge to create
and retain greater value of core business competencies.

• KM addresses business problems particular to your

business – whether it is creating and delivering
innovative products or services; managing and
enhancing relationships with customers, partners and
suppliers; or improving work processes.
◆ primary goal : To facilitate opportunistic
application of fragmented knowledge through
integration.

◆ KM is a newly emerging, interdisciplinary

business model dealing with all aspects of
knowledge within the context of the firm,
including knowledge creation, codification,
sharing, and how these activities promote
learning and innovation. In practice, KM
encompasses both technological tools and
organizational routines in overlapping parts.
 Knowledge Assets
An organization’s schematic and content
knowledge resources, including
knowledge held by the organization’s
participants, various artifacts belonging
to the organization (e.g., documents,
manuals, videos), the organization’s
culture, and its particular infrastructure
of roles, relationships, and regulations.
 Knowledge Worker
A knowledge worker (also referred to as
an intellectual worker or brain worker)
is a person employed due to his or her
knowledge of a subject matter, rather
than their ability to perform manual
labor.

The term was coined by Peter Drucker in

1959, as one who works primarily with
information or one who develops and
uses knowledge in the workplace.
 Major Drivers behind KM
◆ Globalizationof Business
◆ Learner organizations

◆ Corporate Amnesia

◆ Technological advances
 The Knowledge Economy
◆ The new source of wealth is knowledge, and not
labor, land, or financial capital. It is the intangible,
intellectual assets that must be managed.
The key challenge of the knowledge-based economy
is to foster innovation.

Two Questions:
Is KM related to innovation?
Is there any difference between KE and KBE?
 Definition
◆ Knowledge economy as one that
creates, disseminates, and uses
knowledge to enhance its growth and
development.
 The Knowledge Economy

For several decades the world's best-known

forecasters of societal change have
predicted the emergence of a new economy
in which brainpower, not machine power, is
the critical resource. But the future has
already turned into the present, and the era
of knowledge has arrived.
--"The Learning Organization," Economist Intelligence
Unit
 Intellectual Capital
Intangible Assets could be any asset that can be or
cannot be measured, but is used by a company to its
advantage.

◆ An intangible asset if measured and valued for become

the intellectual capital of the company.

◆ Skilled people & their competencies (knowledge /

expertise), market positions, goodwill, recognition,
achievements, patents, contracts, support,
collaborations, brand value, leadership, and loyal
customer bases.

◆ Knowledge, collective expertise, goodwill, brand value

and patents are not regularly shown up on
conventional financial statements.
 Intellectual Capital
◆ Relational capital: All relations a company
entertains with external subjects, such as
suppliers, partners, clients (brands, ...),
research centres, etc.;
◆ Human capital: The sum total of the useful
knowledge of your employees and your
customers with more emphasis on knowledge
and competences residing with the
company's employees;
◆ Organizational capital: Collective know-how,
beyond the capabilities of individual
employees. E.g.: information systems;
policies; intellectual property.
 Characteristics of Knowledge
Management
◆ Pervasive

◆ Formal management
◆ Involves management of
organization
◆ Consists of integrated processes

◆ Technology serves as backbone

◆ Disciplinary approach
 Barriers to Knowledge
Implementation
Barriers

Immaturity of
Technology
19% Immaturity of Industry

48% Cost
16%
Lack of need
5% 12%
Cultural resistance
MODEL OF KM
Externalization
 Wonders of Knowledge Management
Reducing costs/ time for information
collection, dissemination & reuse

Improving Customer/Vendor service Accelerated

& support processes Organizational
learning
KNOWLEDGE Identifying innovative business/revenue
MANAGEMENT generation opportunities

Enhanced
Shrinking cycle times for product /
market development Enterprise
Profitability

Stemming intellectual losses linked

to employee turnover