IIPM, New Delhi

UG FW 2010-13: Business Organisation and Management (First Trimester)

Handout I: Meaning and Scope of Business
Rajlakshmi Saikia

Economic activities are those by which we can earn our livelihood whereas non-economic
activities are those performed out of love, sympathy, sentiments, patriotism, etc.

Economic activities may be further divided into three categories, namely business, profession
and employment.

Business may be defined as an economic activity involving the production and sale of goods
and services undertaken with a motive of earning profit by satisfying human needs in society.

– An economic activity
– Production or procurement of goods and services

– Sale or exchange of goods and services for the satisfaction of human needs

– Dealings in goods and services on a regular basis

– Profit earning
– Uncertainty of return
– Element of risk

Comparision of Business, Profession, and Employment

Profession includes those activities, which require special knowledge and skill to be applied by
individuals in their occupation. Example: doctors, lawyers, accountants.
Employment refers to the occupation in which people work for others and get remunerated in
return. Example: People who work in factories, managers, assistants, security guards.

Objectives of Business
– Earning profits
– Market standing
– Innovation
– Productivity
– Physical and financial resources
– Employee performance and development
– Social responsibility

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Types of Business Activities

Business

Industry Commerce

a. Primary d. Trade

e. Auxiliaries To
b. Secondary
Trade

c. Tertiary

a. Extractive (farming, mining, lumbering, and fishing) and Genetic (seeds and nursery
companies, cattlebreeding farms, poultry farms, and fish hatchery)
b. Manufacturing (oil refinery, cement, sugar, television) and Construction (buildings, dams,
bridges, roads, tunnels, canals)
c. Providing support services to primary and secondary industries - transport, banking,
insurance, warehousing, communication, packaging, advertising.
d. Buying and selling of goods is termed as trade. Two categories — internal and external.
– Internal or home trade is concerned with the buying and selling of goods and
services within the geographical boundaries of a country. This may further be
divided into wholesale and retail trade. When goods are purchased and sold in
bulk, it is known as wholesale trade. When goods are purchased and sold in
comparatively smaller quantities, it is referred to as retail trade.
– External or foreign trade consists of the exchange of goods and services between
persons or organisations operating in two or more countries. If goods are purchased
from another country, it is called import trade. If they are sold to other countries,
it is known as export trade. When goods are imported for export to other countries,
it is known as entrepot trade.
e. Activities which are meant for assisting trade.

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Handout II: Forms of Business Enterprise

Rajlakshmi Saikia

Sole Proprietorship
Business is owned, managed and controlled by a single individual who bears all the risks and is
the only recipient of all the profits.
Merits: Quick decision making, direct incentive, personal satisfaction, and ease of formation
and closure.
Demerits: Limited resources, unstable life span of business, unlimited liability of sole
proprietor and his/her limited managerial ability.

Partnership
An association of two or more persons who agree to carry on a business together and share the
profits as well as bear risks collectively.
Types of Partners:
1. Active partner: Take actual part in carrying out firm’s business on behalf of other partners.
2. Sleeping partner: Do not take part in the day to day activities of the business.
3. Secret partner: One whose association with the firm is unknown to the general public.
4. Nominal partner: Allows the use of his/her name, but does not contribute to its capital.
5. Partner by estoppel: Through his/her own initiative, conduct or behaviour, gives an
impression to others that he/she is a partner of the firm.
6. Partner by holding out: Person who though is not a partner in a firm but knowingly allows
himself/herself to be represented as a partner in a firm.
Merits: Ease of formation and closure, benefits of specialisation, greater funds, and reduction
of risk.
Demerits: Unlimited liability, possibility of conflicts, lack of continuity, and lack of public
confidence.

Joint Hindu Family

Business owned and carried on by the members of a Hindu Undivided Family, which is governed
by the Hindu law. Karta —the oldest male member of the family — controls the business.
Merits: Effective control, stability in existence, limited liability and increased loyalty among
family members.
Demerits: Limited resources, lack of incentives, dominance of the karta, and limited
managerial ability.

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Cooperative Society
Voluntary association of persons who get together to protect their economic interests.
Types of Societies:
1. Consumers co-op society: Aims to eliminate middlemen to achieve economy in operations.
2. Producers co-op society: Aims to fight against big capitalists and enhance bargaining power
of small producers.
3. Marketing co-op society: Pools the output of individual members and performs marketing
functions like transportation, packaging, etc., to sell the output at the best possible price.
4. Farmers co-op society: Gain the benefits of large scale farming and increase productivity.
5. Credit co-op society: Protect members from exploitation of lenders who charge high rates.
6. Housing co-op society: Construct flats or provide plots to members on which they can
7. construct the houses per their choice.
Merits: Equality in voting, members’ limited liability, stable existence, economy in operations,
support from government, and ease of formation.
Demerits: Limited resources, inefficiency in management, lack of secrecy, government control,
and differences among members in how society should be managed and organised.

Joint Stock Company

An artificial person, existing only in the eyes of the law with perpetual succession, having a
separate legal identity and a common seal.
Types of Companies:
1. Private co.: Restricts share transfer and doesn’t invite public to subscribe to its shares.
2. Public co.: Allowed to raise funds by inviting the public to subscribe to its share capital;
free transferability of shares in the case of a public company.
Merits: Members’ limited liability, transfer of interest, stable existence, scope for expansion,
and professional management.
Demerits: Complexity in formation, lack of secrecy, impersonal work environment, regulations,
delay in decision making, oligarchic management, and conflict of interest in shareholders.

Choice of Form of Organisation

-- Initial costs and setting-up ease -- Managerial ability
-- Liability -- Degree of control
-- Continuity -- Nature of business
-- Capital considerations

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Handout III: Functional Aspects of Business

Rajlakshmi Saikia

Human Resources Customer Services

• Recruitment and retention
• Dismissal and redundancy
• Motivation
• Professional development and training
• Health and safety at work
• Liaison with trade unions
• Monitoring distribution
• After-sales service
• Handling consumer enquiries
• Offering advice to consumers
• Dealing with customer complaints
• Publicity and public relations

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Marketing / Sales Research and Development

• Market research • New product development
• Promotion strategies • Product improvements
• Pricing strategies • Competitive advantage
• Sales strategies • Value added
• The sales team • Product testing
• Product –new product development, • Efficiency gains
improvement, target markets • Cost savings
Administration and IT Support Production / Operations
• Managing estates – cleaning, health • Acquiring resources
and safety, maintenance, security • Planning output – labour, capital, land
• Reception • Monitoring costs

• Clerical work –record keeping • Projections on future output

• Overview of quality control • Production methods

• Use of IT systems • Efficiency

Finance and Accounts
• Cash flow
– Monitoring income/revenue
– Monitoring expenditure
• Preparing accounts
• Raising finance
– Shares
– Loans
• Links with all other functional areas

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Handout IV: Planning

Rajlakshmi Saikia

Planning is deciding in advance what to do and how to do it. It bridges the gap between where
we are and where we want to be.
Definition: Setting objectives for a given time period, formulating various courses of action to
achieve them, and selecting the best alternative from the various courses of action available.

Planning Process
1. Setting objectives: For the entire organisation and each department or unit within it.
2. Developing premises: Managers required to make certain assumptions about the future,
called premises. Assumptions are the base material upon which plans are to be drawn.
3. Identifying alternative courses of action: Acting upon the objectives and assumptions.
4. Evaluating alternative courses: Weigh the pros and cons of each alternative.
5. Selecting an alternative: The most feasible, profitable and with least negative impact.
6. Implement the plan: Putting the plan into action, that is, doing what is required.
7. Follow-up action: To see if plans are being implemented and performed per schedule.

Importance of Planning >> Provides direction; Reduces risk of uncertainty; Reduces

overlapping and wasteful activities; Promotes innovative ideas; Facilitates decision making;
Establishes standards for controlling.

Limitations of Planning >> Leads to rigidity; Reduces creativity; Involves huge costs; Time
consuming process; Does not work in a dynamic environment; Does not guarantee success.

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Types of Plans Examples

Objectives: Desired future position that the Example: Increasing sales by 10% or earning a
management would like to reach. 20% ROI.

Strategy: Comprehensive plan for Example: A company’s marketing strategy has

accomplishing an organisation’s objectives. to address: Who are the customers? What is
the demand for the product? Which channel of
distribution to use? What is the pricing policy?
How do we advertise the product?

Policy: Guides to managerial action and Example: Recruitment Policy: Do we recruit

decisions in the implementation of strategy. internally or externally? Which sources do we
use? How do we publicise our job openings?
What are the criteria for selection?

Procedure: Sequence of chronological steps to Example: Procedure for carrying out the
be taken to enforce a policy & perform work. recruitment policy. (job portals / referrals)

Method: Deals with a task comprising one step Example: How to institute a job referral
of a procedure and specifies how this step is system and which portals to tie up with
to be performed.

Rule: Specific statements that inform what is Example: Employees must be in the office by
to be done; do not allow for any flexibility. 8:30 am everyday.

Programme: Detailed statements about a Example: Preparing a Sales programme and

project which outlines the objectives, presenting it to the Board of Directors.
policies, procedures, rules, tasks, human and
physical resources required and the budget.

Budget: Statement of expected results in Example: A sales budget may forecast the
numerical terms; quantifies future facts and sales of different products in each area for a
figures. particular month.

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Handout V: Organising

Organizing: Process of identifying and grouping the work to be performed, defining and
delegating responsibility and authority, and establishing relationships to enable people to work
most effectively together in accomplishing objectives.

Process of Organizing:
1. Identification and division of work: Work is divided into manageable activities so that
duplication can avoided and burden can be shared.
2. Departmentalisation: Similar activities are grouped together. Eg.: Railways, HUL
3. Assignment of Duties: Jobs are allocated to employees in accordance to their skills.
4. Establishing reporting relationships: Each individual should know who he has to take
orders from and to whom he is accountable.

Importance: Process by which the manager brings order out of chaos, removes conflict among
people over work or responsibility sharing, and creates an environment suitable for
teamwork.

Organizational Structure is the outcome of the organizing process - the framework within
which managerial and operating tasks are performed. The type of structure adopted varies with
the nature and types of activities performed by an organization.
Types of Organizational Structures
1. Functional Structure: Grouping of similar jobs as separate departments. Most suitable
for large organisations, diversified activities, and operations require high specialisation.
2. Divisional Structure: Groups activities on the basis of products. Suitable for businesses
where a large variety of products are manufactured using different resources.
Functional Structure Divisional Structure
Formation Based on functions Based on product lines and
supported by functions.
Specialisation Functional specialisation. Product specialisation.
Responsibility Difficult to fix on a department. Easy to fix responsibility for
performance.
Managerial Difficult, as each functional Easier, autonomy as well as the
Development manager reports to top chance to perform multiple
management. functions.
Cost Functions not duplicated, hence Duplication of resources in
economical. various departments.
Coordination Difficult for a multi-product Easy; all functions of a product
company. are in one department.

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Elements of Organising (4)

1. Formal vs. Informal Organisation

1. Formal organisation 2. Informal organisation
Meaning Structure of authority relationships Network of social relationships
created by the management. arising out of interactions among
employees.
Origin Arises as a result of company rules Arises as a result of social
and policies. interaction.
Authority Arises by virtue of position in Arises out of personal qualities.
management
Behaviour It is directed by rules. There is no set behaviour pattern.
Flow of Communication takes place Flow of communication can take
Communication through the scalar chain. place in any direction.
Nature Rigid. Flexible.
Leadership Managers are leaders. Leaders are chosen by the group.

2. Delegation is the downward transfer of authority from superior to subordinate - the

entrustment of responsibility and authority and the creation of accountability for
performance.
– Authority (right of an individual to command his subordinates and to take action
within the scope of his position)
– Responsibility (obligation of a subordinate to properly perform the assigned duty)

– Accountability (being answerable for the final outcome.)

3. Centralisation and Decentralisation: Those organisations in which decision making authority

lies with the top management are termed as centralised organisations whereas those in which
such authority is shared with lower levels are decentralised organisations (delegation of
authority throughout the organisation).
The Concept of gang-plank.

4. Span of Control: How many individuals can a manager efficiently and effectively handle.

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Handout VI: Staffing

Staffing: Filling and keeping filled the positions in the organisation structure. Staffing is closely
linked to organising (what we studied in the last class) since after the structure and positions
have been decided, people are required to work in these positions.

Steps In Staffing Process

1. HR Planning: Estimating manpower requirement

2. Recruitment: Inviting applications

3. Selection: Choosing best candidate

4. Placement and Orientation: Right person in right

job and introduction to company

5. Performance Appraisal: Checking performance

against targets

6. Career Management and Training and

Development (T&D)

Step 1: Human Resource (HR) Planning

Process by which managers have the right number and kinds of people in the right places, and
at the right times, who are capable of effectively and efficiently performing their tasks.
– Steps in HR planning:
(a) Assessing current human resources (Human Resource Inventory = A review of the
current make-up of the organisation’s current resource status)
(b) Assessing future needs for human resources
(c) Developing a program to meet those future needs
– Job Analysis
(a) Assessment that defines a job and the behaviors necessary to perform the job
(b) Knowledge, skills, and abilities (KSAs)
(c) Includes the following:

• Job Description: A written statement of what the job holder does, how it is
done, and why it is done.

• Job Specification: A written statement of the minimum qualifications that a

person must possess to perform a given job successfully.
Step 2: Recruitment

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Process of searching for prospective employees and stimulating them to apply for jobs in the
organisation. Uses the information that was developed in the Job Analysis and the essential
objective is to create a pool of the prospective job candidates.
– Typical Sources of Recruitment
(a) Internal searches – Lateral hiring, transfers, promotions
(b) Advertisements
(c) Employee referrals
(d) Employment agencies
(e) Campus placement

Step 3: Selection
Process of screening job applicants to ensure that the most appropriate candidates are hired.

Step 1
Preliminary Screening Interview

Step 2
Application Blank Completed

Step 3
Employment Interview

Step 4 Step 5 Step 6 Step 7 Step 8

Employment More Background Conditional Physical
Tests Interviews and Offer Examination
Reference
Checks

Step 9
Decision

Step 4: Placement and Orientation

Transitioning a new employee into the organisation.
– Work-unit orientation
(a) Familiarise employee with work-related goals and how it contributes to big picture

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(b) Introduce employee to co-workers

– Organisation orientation
(a) Inform employee about organisation’s objectives, history, rules, values
(b) May include a tour of the whole facility

Step 5: Performance Appraisal

Process of establishing performance standards and evaluating performance in order to arrive at
objective human resources decisions and to provide documentation to support actions.
(a) Defining the job: Making sure that you and your subordinate agree on his or her duties
and job standards.
(b) Appraising performance: Comparing your subordinate’s actual performance to the
standards that have been set; this usually involves some type of rating form.
(c) Providing feedback: Discussing the subordinate’s performance and progress, and
making plans for any development required.

Step 6: Career Management and T&D

– Training: Systematic process of altering employees’ behaviour to further organisational
goals
– Development: The acquisition of knowledge and skills that employees may use in the
present or future.
– Career Management: The process for enabling employees to better understand and
develop their career skills and interests, and to use these skills and interests more
effectively.

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Handout VII: Leading

What is the process of stimulating people to accomplish desired goals? How can we make
subordinates act in a desired manner to achieve organisational goals? ______________________

1. Motive: An inner state that energises, activates or moves and directs behaviour towards
goals. Eg.: The need for food causes hunger, on account of which a man searches for food.
2. Motivation: Definition above. Motivation depends upon satisfying needs of people.
3. Motivators: Technique used to motivate people in an organisation. Eg.: Higher pay, bonus,
promotion, recognition, praise, responsibility etc.,

Maslow’s Need Hierarchy Theory of Motivation

Abraham Maslow (a well known psychologist), 1943 => Within every human being, there exists a
hierarchy of five needs.

1. Basic Physiological Needs: Most basic, primary needs in the hierarchy. Eg.: Hunger, thirst,
shelter, sleep, and basic salary.
2. Safety/Security Needs: Provide security and protection from physical and emotional harm.
Examples: job security, stability of income, pension plans etc.,
3. Affiliation/Belonging Needs: Affection, sense of belonging, acceptance, friendship.
4. Esteem Needs: Factors such as self-respect, autonomy status, recognition and attention.
5. Self Actualisation Needs: Highest level of need in hierarchy. Refers to the drive to become
what one is capable of becoming. Eg.: Growth, self-fulfillment and goal achievement.

Maslow’s theory is based on the following assumptions:

1. People behaviour is based on their needs, and their satisfaction influences their behaviour.

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2. People’s needs are in hierarchical order, starting from basic to other higher level needs.
3. A satisfied need can no longer motivate a person; only next higher level need can do so.
4. A person moves to the next higher level of hierarchy only when the lower need is satisfied.

Incentives

Financial Non-financial

Pay and allowances Status

Productivity-linked wage
incentive Organisational culture

Career advancement
Bonus opportunity

Profit sharing Job enrichment

Co - partnership / Employee recognition

stock option programme

Retirement benefits Job security

Perquisites Employee participation

Employee empowerment

LEADERSHIP

Who Are The Leaders Of These Global Organisations?

Microsoft

Reliance Group

Infosys

Tata

Wipro

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Handout VIII: Communication

Unless you're at the very top of your business there is always someone to answer to and there are usually
people who answer to you further down the line. Sometimes this two-way street can become minefield of
office gossips, politics and general bad behaviour. As a frontline leader how do you ensure that you create
genuine relationships with your manager and your direct reports that are good for business?

It's not about being the nice guy, although manners never go astray! Building a genuine working
relationship take time and effort and revolves around respect. Starting with your direct reports the best
place to start is to develop a habit of providing balanced feedback.

The key to giving balanced feedback is to make sure that it's timely. You need to give it there and then -
don't wait until the end of the week, or for the weekly catch up. It's relevant in the moment. When you're
in the moment giving the feedback you also need to make sure it's accurate and detailed. Don't just give a
vague, great job response. Make sure you drill down into the behaviour that is being done well, that will
meet your goals. These are the critical behaviours required to lift performance from average to high
performer.

With a good technique of delivering feedback you then need to concentrate on the ratio. Unfortunately it
is human nature to comment mostly on the things that need correcting or changing, and only occasionally
give positive feedback. And, when we do give positive feedback it is often nothing more than a pat on the
back with 'great job' attached to it.

The most effective ratio for frontline leaders to their people is to provide at least four positive comments
to every corrective comment. Your people will gradually begin to realise that with your genuine feedback
you are really making a difference to how they do their job, and helping them to perform better.

Building a constructive relationship with the manager you report to is just as important as the people who
report to you. Don't leave it to your manager to ensure this relationship works, you need to do your share
of the work.

As organisations give more responsibilities to their frontline leaders this relationship comes into its own.
Your manager can delegate some of their activities to you, such as policies that affect frontline
employees. Given the creative scope, the appropriate support and coaching from a second-level manager,
frontline leaders have far more to contribute to your average organisation than most senior leaders give
them credit for.

Genuine relationships form the ground work for engaged employees, and engaged employees go the extra
mile in their work and are open to change. It's not only good for business but it's good for sustainably
improving your business. Source: James Brava, a specialist in Frontline Leadership Training.

How can you develop good relationships with your managers and direct reports, per the author?
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1. ___________________________________________________________________________
2. ___________________________________________________________________________
3. ___________________________________________________________________________
4. ___________________________________________________________________________
5. ___________________________________________________________________________

Communication: The process of transmitting information from one person to another.

Effective Communication: The process of sending a message in such a way that the message
received is as close in meaning as possible to the message intended.
• Accurate
• Timely
• Complete
• Relevant

The Communication Process

• Deciding to transmit a fact, idea, opinion, or other information to the receiver.

• Encoding the meaning into a form appropriate to the situation.
• Transmitting through the appropriate channel or medium.
• Decoding the message back into a form that has meaning to the receiver.
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• “Noise” is anything disrupting the communication process.

Forms of Communication in Organizations

Form Advantages Disadvantages

Oral 1. Promotes feedback and interchange 1. May suffer from inaccuracies

2. Is easy to use 2. Leaves no permanent record

Written 1. Tends to be more accurate 1. Inhibits feedback and exchange

2. Provides a record of communication 2. Is more difficult and time consuming

Oral vs. Written Communication

The situation determines the most appropriate medium
• Oral communication and e-mail is preferred for personal, nonroutine, or high priority
communications.
• Formal written communication (e.g., memos, letters, reports, and notes) are used for
messages that are impersonal, routine, and lower priority.

Management Information System (MIS): Supports an organization’s managers by providing daily

reports, schedules, plans, and budgets.

Communication in Networks and Teams

Communication network: Pattern through which members of a group or team communicate.

Vertical vs. Horizontal Communication

1. Vertical: Communication that flows up and down the organization, usually along formal
reporting lines. Takes place between managers and subordinates and may involve
several levels of the organization.
– Upward communication: Consists of messages from subordinates to superiors and is
more subject to distortion.
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– Downward communication: Occurs when information flows down the hierarchy from
superiors to subordinates.
2. Horizontal: Communication that flows laterally within the organization; involves
persons at the same level of the organization.
– Facilitates coordination among independent units.
– Useful in joint problem solving.
– Plays a major role in communications among members of work teams drawn from
different departments.

Types of Informal Communication

1. Grapevine

2. Management by Wandering Around: Managers keep in touch with what’s going on by

wandering around and talking to people on all levels in the organization.
3. Informal Communications: Informal exchanges among employees that take place
outside the normal work setting.

Barriers to Effective Communication

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Handout IX: Controlling

Control: The regulation of organisational activities so that some targeted element of

performance remains within acceptable limits.
Helps the organisation:
– Provides organizations with indications of how well they are performing in relation to their
goals.
– Provides a mechanism for adjusting performance to keep organizations moving in the right
direction.

Steps in the Control Process

• Establish Standards
– Control standards: A target against which subsequent performance will be
compared.
• Control standards should be expressed in measurable terms.
• Control standards should be consistent with organisational goals.
• Control standards should be identifiable indicators of performance.
• Measure Performance
– Performance measurement is an ongoing process.
– Performance measures must be valid indicators (e.g., sales, costs, units
produced) of performance.
• Compare Performance Against Standards
– Define what is a permissible deviation from the performance standard.
– Utilise the appropriate timetable for measurement.
• Consider Corrective Action
– Maintain the status quo (do nothing).
– Correct the deviation to bring operations into compliance with the standard.
– Change the standard if it was set too high or too low.

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TYPES OF CONTROL

1. Strategic Control
a. Control aimed at ensuring that the organisation is maintaining an effective
alignment with its environment and moving toward achieving its strategic plan.
b. Focuses on structure, leadership, technology, human resources, and informational
and operational systems.
c. Focuses on the extent to which an implemented strategy achieves the
organisation’s goals.

2. Structural Control
a. Bureaucratic Control: A form of organisational control characterised by formal and
mechanistic structural arrangements.
b. Decentralised Control: An approach to organisational control characterised by
informal and organic structural arrangements.

3. Operations Control
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4. Financial Control: Control of financial resources (i.e., revenues, shareholder investment)

as they flow into the organisation, are held by the organisation (i.e., working capital,
retained earnings), and flow out of the organisation (i.e., payment of expenses).
a. Budgetary Control:
i. Budgets may be established at any organisational level.
ii. Budgets are typically for one year or less.
iii. Budgets may be expressed in financial terms, units of output, or other
quantifiable factors.

Strengths
Budgets facilitate effective operational controls.
Budgets facilitate coordination and
communication between departments.
Budgets establish records of organisational
performance, which can enhance planning.
Weaknesses
Budgets can hamper operations if applied too
rigidly.
Budgets can be time consuming to develop.
Budgets can limit innovation and change.

b. Financial Statements
i. A financial statement is a profile of some aspect of an organisation’s
financial circumstances.
ii. Balance sheet: A listing of assets (current and fixed), liabilities (short- and
long-term), and stockholders’ equity at a specific point in time (typically
year-ending) that summarises the financial condition of the organisation.
iii. Income statement: Summary of financial performance—revenues less
expenses as net income (i.e., profit or loss)—over a period of time, usually
one year.
c. Ratio Analysis: The calculation of financial ratios to assess some aspect of the
organisation’s financial health.

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i. Liquidity ratios show how readily the firm’s assets can be converted to
cash.
ii. Debt ratios reflect the firm’s ability to meet long-term financial
obligations.
iii. Return ratios show how much investment return the firm is generating
relative to the value of its assets.
iv. Coverage ratios estimate the ability of the firm to pay the interest
expenses on money it has borrowed.
v. Operating ratios demonstrate the efficiency of the firm’s functional
operations.
d. Financial Audits: An audit is an independent appraisal of an organisation’s
accounting, financial, and operational systems.
i. External audits: Financial appraisals conducted by experts who are not
employees of the organisation.
ii. Internal audits: Appraisals conducted by employees of the organisation.

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