Economics & Principles of Management Supply

Supply - Definition Supply means the quantity offered for sale by sellers at particular prices, during a certain period of time

Law of supply The higher the price, greater the supply, lower the price lower the supply

Supply Curve DVDs

Supply & Demand Price of a lunch Supply offered by restaurants Demand from consumers Rs Rs Rs Rs 3560 Rs Rs Rs

Factors of supply Price Cost of production Technical knowledge Environment Level of income of production Firm’s behavior

Factors of supply - Price If price rises  production  more profitable  supply increases If price falls  production  less profitable  supply decreases

Factors of supply - Cost of production Changes in 1) raw materials 2) wage rates 3)labour productivity 4) taxation

Factors of supply - Technical knowledge Progress of technology

Factors of supply - Environment Agricultural commodities depends on 1) Monsoons 2) Flood 3) Drought 4) Natural calamities

Factors of supply - Level of income of producers Because the price of agricultural products cultivators consumes more of the foodstuffs  send less to the market

Factors of supply - Firm’s behavior 1) If profit maximum – objective Marginal revenue = marginal cost 2) If sales maximum - objective Production then supply

Supply function q = ap + b q - supply p - price a and b - constants

Exceptions to the Law of Supply 1) Increase of wages sometimes reduce the supply of labour 2) Supply fixed eg  pictures of a dead painter

Elasticity of supply If a small change of price causes 1)more than proportional change in supply called elastic 2) less than proportional change in supply called inelastic

Elasticity of Supply ( E S ) proportional change in supply E S = proportional change in price

Factors determining Elasticity of Supply Availability of the factors of production The rate of production Length of time needed to reorganize production in order to adjust supply to demand possibilities of altering the technique of production Availability of alternative markets

Types of Elasticity of Supply Perfectly elastic supply Perfectly inelastic supply Relatively elastic supply Relatively inelastic supply Unitary elastic supply

Types of Elasticity of Supply Coefficient of Elasticity of Supply Verbal Description Perfectly elastic supplyinfiniteSellers sell at the same price Perfectly inelastic supply0Quantity supplied not changing as prices changed Relatively elastic supplyGreater than 1Quantity supplied changing by a larger % than price Relatively inelastic supplyLess than oneQuantity supplied changing by a smaller % than price Unitary elastic supply1Quantity supplied changing by the same % as price

Type of costs 1) Actual cost 2) Economics cost 3) Opportunity cost 4) Sunk costs 5) Fixed costs 6) Variable costs

Type of costs 7) Marginal cost 8) Incremental cost 9) Short – run costs 10) Long run costs 11) Historical and Replacement costs

Type of costs 1) Actual cost The amount spent for producing a product wages materials transportation salaries power Amount

Type of costs 2) Economics cost includes the resources owned by the firm as well as those hired from outside A) Explicit cost  out - of – pocket costs ie payment to outside the firm B) Implicit costs  book cost or non-cash costs refers to the payment

Type of costs 3) Opportunity cost Revenue which could have been earned employing that product

Type of costs 4) Sunk costs Costs of the past - forfeited

Type of costs 5) Fixed costs Capital Rent on leased buildings Cost of plant Equipments Deprecation Wages and salaries of permanent employees Interest on borrowings

Type of costs 6) Variable costs Cost of raw materials Wages and salaries of the temporary employees Costs of all other output that vary with output

Type of costs 7) Marginal cost On account of producing an additional unit of the product

Type of costs 8) Incremental cost Increasing the output by one or more units Arise owing to A)change in production line B)introduction of new product C)replacement of old technique of production D)replacement of worn –out plant

Type of costs 9) Short – run costs Costs within the given production capacity, the size of the firm remains the same

Type of costs 10) Long run costs all costs including fixed assets like plant, building machinery etc become variable costs

Type of costs 11) Historical and Replacement costs asset acquired in the past replacing the same asset for future

Total cost Total cost = fixed cost + variable cost

Cost calculation No of Units TFCTVCTCAFCAVCACMC

Economics & Principles of Management Pricing

Pricing Objectives Pricing for Target Return Pricing for Target Return Market Share Market Share To Meet or Prevent Competition To Meet or Prevent Competition Profit Maximization Profit Maximization Stabilize Price Stabilize Price Customer’s Ability to pay Customer’s Ability to pay Resource Mobilization Resource Mobilization

Pricing for Target Return Business needs capital in the shape of assets and working capital Business needs capital in the shape of assets and working capital Firms wants to secure a certain % of return on their investment Firms wants to secure a certain % of return on their investment The target may be for a long term or short term The target may be for a long term or short term The target chosen can be revised from time to time The target chosen can be revised from time to time

Market Share Expected volumes of sales Expected volumes of sales Lower the price to capture the market Lower the price to capture the market Low pricing policy adopted by large scale manufaturer Low pricing policy adopted by large scale manufaturer

To Meet or Prevent Competition Price of similar products produced by other firms have to be considered Price of similar products produced by other firms have to be considered At the time of introduction of new products, a low price policy to attract customers & discourages the competitors At the time of introduction of new products, a low price policy to attract customers & discourages the competitors

Profit Maximization Maximize profits on total output rather than on every item Maximize profits on total output rather than on every item Profit maximization enjoyed where monopolistic situation exists Profit maximization enjoyed where monopolistic situation exists A sort – run policy adopted for maximizing profit leads to exploiting customers & attract customers A sort – run policy adopted for maximizing profit leads to exploiting customers & attract customers a long –run policy to maximize profit no drawbacks a long –run policy to maximize profit no drawbacks

Stabilize Price A long time objective & aims at preventing fluctuations in price & price war A long time objective & aims at preventing fluctuations in price & price war During the period of depressions, During the period of depressions, prices not allowed to fall below prices not allowed to fall below& In the boom period, prices not allowed to rise beyond a certain level beyond a certain level

Customer’s Ability to pay Prices charged differ from person to Prices charged differ from person to person. Eg doctors charge fees according to the capacity of the patient

Resource Mobilization Resources made available to the firm’s expansion Resources made available to the firm’s expansion Marketers interested in getting back the amount invested as speedy as possible Marketers interested in getting back the amount invested as speedy as possible Setting higher price  trend invite competitors with low priced similar products Setting higher price  trend invite competitors with low priced similar products

Factors Affecting Pricing Decisions Internal factors Internal factors External factors External factors

Demand Competition Economic conditions Buyers Suppliers Government Organizational Factors Marketing mix Product differentiations Cost of the Product Objective of the firm

Factors Affecting Pricing Decisions-Internal factors Factors Affecting Pricing Decisions-Internal factors Organizational Factors Organizational Factors Marketing mix Marketing mix Product differentiation Product differentiation Cost of the Product Cost of the Product Objectives of the firm Objectives of the firm

Organizational Factors Overall price strategy dealt by top executives Overall price strategy dealt by top executives The actual mechanics of pricing dealt with lower levels focusing on individual product strategies The actual mechanics of pricing dealt with lower levels focusing on individual product strategies

Marketing mix A shift in any of the elements effect on A shift in any of the elements effect on Production Production Promotion Promotion Distribution Distribution A more impressive looking package may begin a new advertising campaign A more impressive looking package may begin a new advertising campaign

Product Differentiation Different characteristics added such as Different characteristics added such as Quality Quality Size Size Color Color Attractive package Attractive package Alternative uses Alternative uses Customers may pay more for the new style, fashion, better package etc Customers may pay more for the new style, fashion, better package etc

Cost of the Product What prices realistic, considering demand & competitions What prices realistic, considering demand & competitions Capacity to pay fix the cost, otherwise product flap in the market Capacity to pay fix the cost, otherwise product flap in the market

Objectives of the Firm Maximizing Maximizing 1)sales revenue 2)market share 3)customer volume & maintaining & maintaining 1)an image 2)stable price etc

Factors Affecting Pricing Decisions- External Factors Demand Demand Competition Competition Suppliers Suppliers Economic conditions Economic conditions Buyers Buyers Government Government

Demand Affected by factors Affected by factors 1) number and size of competitors 2)prospective buyers 3)their capacity and willingness to pay 4)their preference etc If demand – inelastic  high prices fixed If demand – elastic  lower prices fixed

Competition Fix the price equal to or less than that of competitors Fix the price equal to or less than that of competitors

Suppliers Suppliers of raw material have significant effect on the price of the product Suppliers of raw material have significant effect on the price of the product Price of a finished product linked with up the price of raw material Price of a finished product linked with up the price of raw material Scarcity and abundance of raw material determines pricing Scarcity and abundance of raw material determines pricing

Economic conditions To meet the demand To meet the demand 1) prices boosted to protect profits against rising cost 2)link the price on delivery 3)emphasis shifted from sales volume to profit margin & cost reduction

Buyers Various consumers & businesses influence the pricing decisions for influence the pricing decisions for purchasing in large number purchasing in large number

Government Through enactment of legislations to arrest the inflationary trend in prices of certain products Through enactment of legislations to arrest the inflationary trend in prices of certain products Government keeps a close watch over on pricing in the private sector Government keeps a close watch over on pricing in the private sector

Setting the Price Cost based Cost based Demand based Demand based Cost - demand based Cost - demand based Competition based Competition based

Cost based Price = Cost of production + anticipated profit Price = Cost of production + anticipated profit Advantages Advantages 1)Simple & fair 2)No price war 3)Safe recovery 4)Reasonabe system in changing situation Disadvantages Disadvantages 1)Demand ignored 2)Future cost not considered 3)Unaccounted competition 4)inefficiency not considered

Demand based A high demand followed by a high price A high demand followed by a high price & A low demand followed by low price Merits Merits 1)Consumer’s price elasticity &preference considered 1)Consumer’s price elasticity &preference considered 2)inefficiency penalized 2)inefficiency penalized 3)new product pricing facilitiated 3)new product pricing facilitiated Demerits Demerits 1)unfair 1)unfair 2)not competitive 2)not competitive 3)consumers at a disadvantage 3)consumers at a disadvantage

Cost - demand based This method removes the deficiency of cost- based &demand based pricing This method removes the deficiency of cost- based &demand based pricing Break even analysis Break even analysis Break - even occurs where total costs equals total sales revenue Break - even occurs where total costs equals total sales revenue

Competition based 1) Meeting the Competition  simply meet competitor’s price 1) Meeting the Competition  simply meet competitor’s price 2) Pricing Above the Competition  price fixed above the market price --- to impress the buyers the product  superior 2) Pricing Above the Competition  price fixed above the market price --- to impress the buyers the product  superior 3) Pricing Under the Competition  set lower prices to promote sales – less profit 3) Pricing Under the Competition  set lower prices to promote sales – less profit

Kinds of Pricing 1) Psychological Pricing 1) Psychological Pricing 2) Customary Pricing 2) Customary Pricing 3) Skimming Pricing 3) Skimming Pricing 4) Penetration Pricing 4) Penetration Pricing 5) Geographical Pricing 5) Geographical Pricing 6) Administrated Price 6) Administrated Price 7) Dual Pricing 7) Dual Pricing

Kinds of Pricing 8) Mark up Pricing 8) Mark up Pricing 9) Price Lining 9) Price Lining 10) Negotiated pricing 10) Negotiated pricing 11) Competitive Pricing 11) Competitive Pricing 12) Monopoly Pricing 12) Monopoly Pricing 13) Oligopolistic Pricing 13) Oligopolistic Pricing

Psychological Pricing Prefer high priced products, considered to be high quality Prefer high priced products, considered to be high quality Eg  diamond, gold Eg  diamond, gold Odd pricing priced at Rs 299 instead of 300 Odd pricing priced at Rs 299 instead of 300

Customary Pricing Customer expects a particular price to be charged for certain products Customer expects a particular price to be charged for certain products Eg  confectionary items Eg  confectionary items

Skimming Pricing A high introduction price in the initial stage to skim the cream of demand aiming at profit maximsation The price moves downward when the competitors enter into the market field

Penetration Pricing To capture greater market share, adoption of low price sin the initial stage Sales volume increase & competition falls down

Geographical Pricing a) F.O.B. Pricing  fright charges not included b)F.O.B (Destination)  fright charges included c) Zone Pricing  divides the market into zones 7 quotes uniform prices to all buyers who buy within a zone d) Base Point Pricing  partial absorption of transport cost by the company

Administrated Price Price resulting from managerial decision and not on the basis of cost, competition, demand etc Price resulting from managerial decision and not on the basis of cost, competition, demand etc

Dual Pricing Compulsorily to sell a part of production to the government and the rest of the product sold in the open market Compulsorily to sell a part of production to the government and the rest of the product sold in the open market

Mark up Pricing Cost + certain % Cost + certain %

Price Lining Generally followed by retailers and wholesalers Generally followed by retailers and wholesalers Selecting a limited number of prices Selecting a limited number of prices Eg  shoes priced at Rs 120, 140, 170 Eg  shoes priced at Rs 120, 140, 170 etc etc

Negotiated pricing Price to be paid based on sale depends on bargaining Price to be paid based on sale depends on bargaining

Competitive Pricing Big firms or government calls for competitive bids Big firms or government calls for competitive bids The lowest bidder gets the work The lowest bidder gets the work

Monopoly Pricing Monopolistic conditions should exist Monopolistic conditions should exist Monopoly price will maximize the profits, as there is no pricing problem Monopoly price will maximize the profits, as there is no pricing problem

Oligopolistic Pricing a) Trade Discounts  manufactures gives this type of discount to wholesalers & retailers a) Trade Discounts  manufactures gives this type of discount to wholesalers & retailers b) Quantity Discounts  to encourage a buyer to purchase in bulk b) Quantity Discounts  to encourage a buyer to purchase in bulk c) Cash Discount  concession or deduction given to consumer c) Cash Discount  concession or deduction given to consumer d) Seasonal Discount  allowed to purchase during slack season d) Seasonal Discount  allowed to purchase during slack season e) Allowances  offered to retailers – advertisement allowance, window display allowance, free sample, free display materials e) Allowances  offered to retailers – advertisement allowance, window display allowance, free sample, free display materials

Price leader Firm initiating price changes called leader & those following it price followers Firm initiating price changes called leader & those following it price followers

One Price Versus Variable Price One price basis to all buyers – by offering all like buyers the same price-eg in the USA The seller sells similar quantities at different prices

Resale Price Maintenance Retailer sells the products to his buyers Price fixed by the producer & at the same price the product will be sold Prevents unhealthy price competition, bargaining etc

Economics & Principles of Management Functions of ofManagement

Management Coordinating and getting work done through others. Guide, direct, controlling human efforts. Management uses organization for achieving the goals of an enterprise.

WHAT IS MANAGEMENT? 1.Field of Study 1.Field of Study -Management principles, techniques, functions, etc -Management principles, techniques, functions, etc -Profession -Profession 2.Team or Class of people 2.Team or Class of people -Individual who performs managerial activities or may be a group of persons -Individual who performs managerial activities or may be a group of persons 3.Process 3.Process -Managerial activities -planning, organising, staffing, directing, controlling.

WHAT IS MANAGEMENT WHAT IS MANAGEMENT F.W. Taylor -“Art of knowing what you want to do and then seeing that it is done the best and cheapest way”. F.W. Taylor -“Art of knowing what you want to do and then seeing that it is done the best and cheapest way”. Henry Fayol –“To Manage is to forecast, to plan, to organise, to command, to co- ordinate and to control”. Henry Fayol –“To Manage is to forecast, to plan, to organise, to command, to co- ordinate and to control”. Peter F.Drucker –”Management is work and as such it has its own skills, its own tools and its own techniques”. Peter F.Drucker –”Management is work and as such it has its own skills, its own tools and its own techniques”. “Management is the art of getting things done through and with people”. “Management is the art of getting things done through and with people”.

Functions of Management Planning Planning Organising Organising Directing Directing Controlling Controlling Co-ordination Co-ordination

Functions of Management Planning Planning Look ahead and chart out future course of operation Look ahead and chart out future course of operation Formulation of Objectives, Policies, Procedure, Rules, Programmes and Budgets Formulation of Objectives, Policies, Procedure, Rules, Programmes and Budgets

Functions of Management Organising Organising Bringing people together and tying them together in the pursuit of common objectives. Bringing people together and tying them together in the pursuit of common objectives. Enumeration of activities, classification of activities, fitting individuals into functions, assignment of authority for action. Enumeration of activities, classification of activities, fitting individuals into functions, assignment of authority for action.

Functions of Management Directing Directing Act of guiding, overseeing and leading people. Act of guiding, overseeing and leading people. Motivation, leadership, decision making. Motivation, leadership, decision making.

Functions of Management Controlling Controlling Laying standards, comparing actual and correcting deviation-achieve objectives according to plans. Laying standards, comparing actual and correcting deviation-achieve objectives according to plans.

Functions of Management Co-ordination Co-ordination Synchronizing and unifying the actions of a group of people. Synchronizing and unifying the actions of a group of people.

MANGEMENT IS AN ART & SCIENCE Art Art Practical know how Technical skills Concrete results Creativity Personalised nature

MANGEMENT IS AN ART & SCIENCE MANGEMENT IS AN ART & SCIENCE MANAGEMENT AS A SCIENCE PROVIDES PRINCIPLES AND AS AN ART HELPS IN TACKLING SITUATIONS. MANAGEMENT AS A SCIENCE PROVIDES PRINCIPLES AND AS AN ART HELPS IN TACKLING SITUATIONS.

MANGEMENT IS AN ART & SCIENCE Science Science Empirically Derived Critically tested General principles Cause and effect relationship Universal applicability

Different Schools of Management 1.Management process school (Henri Fayol) 2.Empirical School: (Harvard Business school) 3.Human Behavior School: (Elton Mayo) 4.Social System School: (Max Weber) 5.Decision theory school: (Chester Bernard) 6.Mathematical School: (Taylor) 7.Systems Approach Schools: (Kenneth) 8.Contingency approach School: (Joan Woodward)

Management process school (Henri Fayol) – Management is the study of functions of managers. – The functions of managers are the same irrespective of the type of organization. – The functions of the management are planning, organizing, staffing, directing and controlling.

Empirical School: (Harvard Business school) Management is the study of managerial experience. The techniques used in successful cases can be used by future managers. Today manager has to work under dynamic conditions, history does not exactly repeats itself.

Human Behavior School: (Elton Mayo) Based on psychology, sociology, human relation, inter personnel relationships, satisfaction of worker’s need.

Social System School: (Max Weber) Management is a social system, a system of cultural relationships. Cooperation and team spirit among the group members is necessary for the achievement of organizational objectives. Management has to direct its efforts towards establishing harmony between the goals of the organization and those of the working groups.

Decision theory school: (Chester Bernard) Management is essentially a decision making. Quality of decision is a prime factor for increase in the efficiency of the organization.

Mathematical School: (Taylor) Management must make use of mathematical tools and techniques for the purpose. Management problems can be described in mathematical models.

Systems Approach Schools: (Kenneth) A system has a number of sub systems, parts and subparts. They all are mutually related to each other. The system approach to management brings the complexity of a real life management problem.

Contingency approach School: (Joan Woodward) It is based upon the fact that there is no other best way to handle any of the management problems. The applications of management principles and practice should be contingent upon the existing circumstances It should be applied situationally

HENRI FAYOL HENRI FAYOL Henri Fayol ( ) is generally hailed as Henri Fayol ( ) is generally hailed as the founder of the classical management school –not because he was the first to investigate managerial behavior but because he was the first to systematize it.

HENRI FAYOL 1. DIVISION OF LABOR 2. AUTHORITY 2. AUTHORITY 3. DISIPLINE MEMBERS IN AN ORGANIZATION 3. DISIPLINE MEMBERS IN AN ORGANIZATION 4. UNITY OF COMMANDS 4. UNITY OF COMMANDS 5. UNITY OF DIRECTION 6. SUBORDINATE OF INDIVIDUAL INTEREST TO COMMON GOOD 7. REMUNERATION

HENRI FAYOL 8. CENTRALIZATION 9. THE HIERARCHY 10. ORDER 11. EQUITY 12. STABILTY OF STAFF 13. INITIATIVE 14. ESPRIT DE CROPS

HENRI FAYOL 1.DIVISION OF LABOR The most people specialize the more The most people specialize the more efficiency they can perform their work. efficiency they can perform their work. This principle is epitomized by the modern assembly line. This principle is epitomized by the modern assembly line.

HENRI FAYOL 2. AUTHORITY Managers must give orders so that they can get things done while this format give them a right to command.Managers will not always compel obedience unless they have personal authority (such as relevant )expert as well Managers must give orders so that they can get things done while this format give them a right to command.Managers will not always compel obedience unless they have personal authority (such as relevant )expert as well

HENRI FAYOL 3. DISIPLINE MEMBERS IN AN ORGANIZATION need to respect the rules and agreement that govern the organization need to respect the rules and agreement that govern the organization To Fayol,discipline leadership at all levels of the organization fair agreements and judiciously enforced penalties for infractions. To Fayol,discipline leadership at all levels of the organization fair agreements and judiciously enforced penalties for infractions.

HENRI FAYOL 4. UNITY OF COMMANDS Each employee must receive instruction from one person,Fayol believe that if employee reported. Each employee must receive instruction from one person,Fayol believe that if employee reported. More than one manager conflict in instruction and confusion in of authority would result. More than one manager conflict in instruction and confusion in of authority would result.

HENRI FAYOL 5. UNITY OF DIRECTION 5. UNITY OF DIRECTION Those operation with in the same organization that have the same objective should be directed by only one manager using one plan. Those operation with in the same organization that have the same objective should be directed by only one manager using one plan. For example the personnel department in the company should not have a two directors each with a different hiring policy. For example the personnel department in the company should not have a two directors each with a different hiring policy.

HENRI FAYOL 6. SUBORDINATE OF INDIVIDUAL INTEREST TO COMMON GOOD In any undertaking the interest of employees should not take the precedence over the interest of organization as a whole In any undertaking the interest of employees should not take the precedence over the interest of organization as a whole

HENRI FAYOL 7. REMUNERATION Compensation of work done should be common to both employees and employers. Compensation of work done should be common to both employees and employers.

HENRI FAYOL 8. CENTRALIZATION – Decreasing the role of subordinates in decision making is centralization, increasing their role is decentralization. – Fayol believed that the managers should retain the final responsibility. – But should at the same time give their subordinate enough authority to do the jobs properly. – The problem is finding the proper degree of centralization in each case.

HENRI FAYOL 9. THE HIERARCHY The line of authority in an organization should represent in the neat box and the line of chart runs in order of rank from top management and lowest levels of enterprise. The line of authority in an organization should represent in the neat box and the line of chart runs in order of rank from top management and lowest levels of enterprise.

HENRI FAYOL 10. ORDER Materials and the order should be in the right place at the right time. People in particular should be in job or position they are most suited to. Materials and the order should be in the right place at the right time. People in particular should be in job or position they are most suited to.

HENRI FAYOL 11. EQUITY Managers should be fair and friendly to their subordinate. Managers should be fair and friendly to their subordinate.

HENRI FAYOL 12. STABILTY OF STAFF A high employee turnover rate undermines A high employee turnover rate undermines the efficient functioning of an organization. the efficient functioning of an organization.

HENRI FAYOL 13. INITIATIVE Subordinate should be given the freedom to conceive and carry out their plans even though some mistake may result. Subordinate should be given the freedom to conceive and carry out their plans even though some mistake may result.

HENRI FAYOL 14. ESPRIT DE CROPS – Promoting team spirit will give the organization a sense of unity. – To Fayol even the small factor help to develop the spirit. – He suggested for example the use of verbal communication instead of formal, written communication whenever possible.

Economics & Principles of Management Types of Organization

Authority 1.Power to take decision 2.Right to get orders and obey orders 3.Power – Ability of individual to influence the action of other person 4.Authority – right in a position to exercise discretion in making decision affecting others.

Authority Def “ Authority may be defined as legitimate right to give orders and to get orders obeyed. It denotes certain rights to take decision and get them executed by their subordinates.

Types of Authority 1.Line authority 2.Staff authority 3.Functional authority

Line authority are those that have direct impact on the accomplishment of the objectives of the enterprises is the direct authority which a superior exercises over his subordinates to carry out orders and instructions. The flow of line authority is always downward, that is from a superior to a subordinate

Line authority 1.Creates a direct relationship between a superior and his subordinate 2.Line authority is the direct authority which a superior exercises over his subordinates to carry out orders and inspections such authority delegated top those positions or elements of the organization which have direct responsibility for accomplishing the primary objectives.

Line authority Line relationship performs the following roles 1)as a chain of command 2) as a carrier of accountability (subordinate is answerable to his superior) 3) as a channel of communication

Line Organisation GM DGM/F MGR/F DGM/P MGR/P DGM/HR MGR/HR

Staff authority 1.Staff refers to those elements of the Organisation which help the line to work most effectively in accomplishing the primary objectives of the enterprises. 2.are those that help the line person work most effectively in accomplishing the objectives.

Line & Staff Organisation GM MGR/MMMGR/P DyMGR/P Foreman2 Foreman3 Service Engineer Foreman1 Office Spares MGR/QC

Difference between Line and Staff Authority Sl noLine AuthorityStaff Authority 1Right to decide and commandRight to provide advice, assistance and information 2Contributes directly to the accomplishment of Organisational objectives Assist line in the effective accomplishment of Organisation objectives 3Relatively unlimited and generalRelatively restricted to a particular function 4Flow downward from a superior to subordinate May flow in any direction depending upon the need of advice

Difference between Line and Staff Authority Sl noLine AuthorityStaff Authority Creates superior and subordinate relation Extension of line and support line Exercise controlInvestigates and reports Makes operating decisionProvides idea for decision Bears final responsibility for results Does not bear final responsibility Doing functionsThinking function Provides channel of communication No channel of communication is created

Functional authority is the right which an individual or department has delegated to it over specialized processes, practices, policies or other matters relating to activities undertaken by personnel in department other than its own.

Functional authority 1.generally relates to laying down systems and procedures. For Eg. The personnel manager may lay down the grievances procedure to be followed in all departments 2.granted to a staff specialist to issue instruction to line executives directly in a specific and limited area of operation.

Functional Organisation GM MGR/P Foreman worker Foreman worker MGR/MKTG SO SA SO SA MGR/HR O/HR

Project organization Each project team has specialized in different fields

Project organization GM MGR/Project A Engineering R&D Quality Control Accounts MGR/Project B Engineering R&D Quality Control Accounts

Project organization Merits 1.Designed to suit individual project 2.Use of specialized knowledge and skill required 3.Fixes responsibility on individuals

Project organization Demerits 1.Project manager has a tough time 2.Decision making difficult 3.Within the allotted time the project to be completed

Creating Matrix Organizations Matrix Organization – An organization structure in which employees are permanently attached to one department but also simultaneously have ongoing assignments in which they report to project, customer, product, or geographic unit heads.

Matrix Organizational Structure

Matrix Organizations Advantages Access to expertise. Stability of permanent department assignments for employees. Allows for focus on specific projects, products, or customers. Disadvantages Confusion of command. Power struggles and conflicts. Lost time in coordinating. Excess overhead for managing matrix functions.

Designing Effective Organization 1)Researchers concerning organization structures are not conclusive enough to support any specific organization structures. 2) The type of structure useful for a particular organization depends on number of factors

Designing Effective Organization 3) Environment  skills, problem solving, decision making 4) Culture  what may/ may not be done 5) Task  benefit owners, clients, public 6) Technology  unit, mass, process technology, latest equipments, improved technology

Designing Effective Organization 7) Size  small, large 8) Managerial Characteristics  authoritarian,democratic 9) Employee Characteristics  under control 10) Firm  cooperative, private or a government agency

Roles of a manager 1.Interpersonal Role - Interacting with people inside and outside the Orgn 2. Figurehead – as a symbolic head of an organisation, the manager performs routine duties of a legal nature 3.Leader – Hiring, Training, motivating and guiding subordinates 4.Liason - Interacting with other managers outside the orgn to obtain favours and information

Roles of a manager 5) Informational Role – Serving as a focal point for exchange of Information 6) Monitor – Seeks and receive information concerning internal and external events so as to gain understanding of the Orgn and its environment. 7) Disseminator – Transmits information to subordinates, peers and superiors within the Organisation 8) Spokesperson – Speaking on behalf of the Orgn and transmitting information on Orgn plans, policies and actions to outsiders.

Roles of a manager 9) Decisional Role – Makes important decision 10) Entrepreneur – Initiating changes or improvements in the activities of the Orgn 11) Disturbance handler- Taking charge and corrective action when Orgn faces unexpected crises 12) Resource allocator – Distributing Orgn’s resources like money, time, equipment and labour 13) Negotiator – Representing the Orgn in bargaining and negotiations with outsiders and insiders

Economics & Principles of Management Industrial Ownership Ownership

Types of Ownership Single ownership(Private Undertakings ) Single ownership(Private Undertakings )Partnership Joint Stock Companies Joint Stock Companies Cooperative organizations Cooperative organizations State & central Government owned State & central Government owned

Single ownership Concepts A business owned by one man A business owned by one man eg  Printing press, a small fabrication shop eg  Printing press, a small fabrication shop Contributes the original assets and reaps full profit Contributes the original assets and reaps full profit

Single ownership Advantages Owner free to take all decisions Owner free to take all decisions Simplicity of organization Simplicity of organization Secrecy kept as regards to method of manufacture Secrecy kept as regards to method of manufacture

Single ownership Disadvantages Limited opportunities for employees as regards monetary benefits Limited opportunities for employees as regards monetary benefits Firm may cease to exist with the death of the propritier Firm may cease to exist with the death of the propritier

Single ownership Applications Business not involving high risk of failure Business not involving high risk of failure A small capital to start ith and to run A small capital to start ith and to run

Partnership - Concept A single owner becomes inadequate as the business grows A single owner becomes inadequate as the business grows More persons have either capital to invest or special skill to make the business more profitable. Such combinations of traders called Partnership More persons have either capital to invest or special skill to make the business more profitable. Such combinations of traders called Partnership

Kinds of Partners Partnership defined as they have agreed to share the profits Partnership defined as they have agreed to share the profits They put together their property, ability, skill, knowledge etc They put together their property, ability, skill, knowledge etc Associations of 2 or more (up - to 20 ) Associations of 2 or more (up - to 20 ) Partnership –agreement in writing (how profit, loss etc divided among partners) Partnership –agreement in writing (how profit, loss etc divided among partners)

Kinds of Partners Active partners  take part in the business Sleeping partners  do not take part in the business Both are responsible for debts

General Duties of Partners Faithful to one another Faithful to one another Render true accounts Render true accounts Cooperate Cooperate Mutual understanding Mutual understanding Respect the views of one -another Respect the views of one -another

Types of Partnership- General Partnership Each partner may act as though he were an individual proprietor Each partner may act as though he were an individual proprietor

Types of Partnership- General Partnership Advantages Advantages Large capital available Large capital available Better talents, judgement and skills Better talents, judgement and skills Easy to form Easy to form High incentive High incentive Definite legal status Definite legal status Full control of the business & profits Full control of the business & profits Tax advantage Tax advantage Borrow money easily from the bank Borrow money easily from the bank Losses shared Losses shared

Types of Partnership- General Partnership Applications Applications Law firms Law firms Retail trade organization Retail trade organization Medical clinics Medical clinics Small engg firms Small engg firms

Types of Partnership- General Partnership Disadvantages Disadvantages Each partner has unlimited liability for the debts Each partner has unlimited liability for the debts Danger of disagreement & distrust Danger of disagreement & distrust Authority divided Authority divided Lacks permanence & stability in case partner dies. Therefore investors &lenders hesitate to provide money Lacks permanence & stability in case partner dies. Therefore investors &lenders hesitate to provide money All partners suffer if wrong steps taken by one partner All partners suffer if wrong steps taken by one partner

Limited Partnership Overcomes some disadvantages of general partnership Overcomes some disadvantages of general partnership Liability limited to the capital they have invested in the business Liability limited to the capital they have invested in the business Share the profit & their liabilities limited to the amount of their investment Share the profit & their liabilities limited to the amount of their investment Investors and lenders not to hesitate to provide money Investors and lenders not to hesitate to provide money Easy and less costly to form Easy and less costly to form Though he invests in the business has no voice in the management Though he invests in the business has no voice in the management

Concept of Joint stock company Overcomes the disadvantages associated with partnership types of industries 1) raising capital 2) Easy disruption 3) lack of facility 4) unlimited liability

Concept of stock company Association of individuals called shareholders Death, insolvency disablement of shareholders does not affect Consists of more than 20 persons After issue of a certificate from Registrar of Companies, the company starts functioning

Concept of stock company Board of Directors elected by the shareholders.They make 1) policies 2) decisions 3) runs the company

Concept of stock company Liability of the members limited to the capital only Finance raised by issuing shares, debentures, bank loans from industrial and financial corporations

Types of Stock Company Private limited company Public limited company

Private Limited Company Some active partners & others sleeping partners Restricts the right to transfer shares &avoids public to take up debentures Members in between 2 and 50 Need not file documents with Registrar of Joint Stock Companies

Private Limited Company Need not obtain a certificate of commencement of business Need not circulate Balance sheet, Profit & Loss Account, but to hold annual general meeting Accounts audited Annual return to the Registrar of Joint Stock Companies

Public Limited Company Issuing shares – face value of Rs10,20,50 Numbers of shareholders should not be less than 7 & no limit for maximum To file with the Register of Joint Stock Companies To issue a prospectus to the public To allot shares within 180 days

Public Limited Company Start only after receipt of the certificate to commence business To hold Statutory Meeting No restriction on transfer of shares Directors subject to rotation Account audited every year

Public Limited Company To send financial statements to all members To hold general meeting every year Managing agent gets a fixed percentage of profit

Advantages of Joint Stock Companies Huge sum of money raised Associates limited liability Shares transferable Company’s life not affected by death of shareholders

Advantages of Joint Stock Companies Services of specialists obtained Risk of loss divided Flexibility of management

Disadvantages of Joint Stock Companies Legal formalities required Managed by big shareholders High paid officials manage the whole show People may commit frauds

Disadvantages of Joint Stock Companies Board of directors & managers may sell or buy shares for their personal profits Difficult to maintain secrecy Lack of team sprit Divided responsibility

Applications of stock companies Steel mills Fertilizer factories Engineering concerns etc

Concept of Cooperative Organization Contains features of large partnership & corporation  Provide goods & services  Members buy shares & profits redistributed to them  Each member has only one vote

Concept of Cooperative Organization Shareholders, a board of Directors elected officers Periodic meetings of shareholders Special democratic ownership formed by some motivated individuals

Forms of Cooperative Enterprises Consumer’s cooperative  retail trade Producer cooperatives  dairy products, grain etc Cooperative farming  farms Cooperative housing  providing houses Cooperative credit society  loans,

Forms of Cooperative Enterprises Advantages Daily necessities at low rates democratic form of ownership Overheads reduced Self help Black marketing eliminated No one can make huge profits Common man benefited Monetary help secured from government Goods sold at lower rates

Forms of Cooperative Enterprises Disadvantages Members may not be competent Finance limited Conflict may arise among the members Members in position may take personal advantage Members may not be able to devote necessary attention

Concepts of Public Sector 1) owned by the state 1) owned by the state 2) managed by the state 2) managed by the state 3) owned and managed by the state 3) owned and managed by the state

Concepts of Public Sector Public enterprises operated either by government or associations with private enterprises Public enterprises operated either by government or associations with private enterprises To produce and supply goods and services required by the society and runs it with service motto To produce and supply goods and services required by the society and runs it with service motto No dearth of capital & expansion not difficult No dearth of capital & expansion not difficult

Concepts of Public Sector Accountable in terms of results to Parliament and State Legislature Accountable in terms of results to Parliament and State Legislature Seldom as efficient as a private enterprise Seldom as efficient as a private enterprise

Evolution of Public Sector Consumers and workers were exploited & the intervention by the State led to evolution Consumers and workers were exploited & the intervention by the State led to evolution Prior to 1947, Railways and posts and telegraphs etc managed by the Central Government Prior to 1947, Railways and posts and telegraphs etc managed by the Central Government

Evolution of Public Sector Since independence, the following established by Central &State governments Since independence, the following established by Central &State governments The Hindustan Shipyard The Hindustan Shipyard Bharat Heavy Electricals Limited Bharat Heavy Electricals Limited Indian Telephone Industries Indian Telephone Industries Indian Airlines Indian Airlines Life Insurance Corporation of India Life Insurance Corporation of India etc etc

Objectives of Public Sector To provide infrastructure for the growth of economy To provide infrastructure for the growth of economy To promote economic development To promote economic development Balanced development throughout the country Balanced development throughout the country To avoid economic power in a few hands To avoid economic power in a few hands

Objectives of Public Sector To create employment opportunities To create employment opportunities To earn foreign exchange To earn foreign exchange To look after welfare of the people To look after welfare of the people To minimise exploitation of workers and customers To minimise exploitation of workers and customers

Merits of Public Sector Helps in growth of private sector Helps in growth of private sector Helps in the implementation of the economic plans Helps in the implementation of the economic plans Consumers benefited by cheaper and better products Consumers benefited by cheaper and better products Prevents the concentration of wealth in the hands of few Prevents the concentration of wealth in the hands of few

Merits of Public Sector Encourages industrial growth of under developed regions Encourages industrial growth of under developed regions Profits earned used for the welfare Profits earned used for the welfare Offers equitable employment opportunities to all Offers equitable employment opportunities to all Raw material, power, 7 transport easily made available Raw material, power, 7 transport easily made available

Demerits of Public Sector Wastages & inefficiency seldom be reduced to a minimum Wastages & inefficiency seldom be reduced to a minimum Mostly runs at a loss Mostly runs at a loss Interference by Government & Politicians Interference by Government & Politicians Delay in decisions Delay in decisions Incompetence persons may occupy at high levels Incompetence persons may occupy at high levels Workers shirk work Workers shirk work

Concept of Private Sector Non –government sector Non –government sector Profit rather service Profit rather service Mainly consumer’s good industries Mainly consumer’s good industries Does not undertake risky ventures Does not undertake risky ventures Run by businessmen Run by businessmen

Merits of Private Sector Profits incurred high Efficiency – high Wastage and labor minimum Decision – making prompt No interference by Government or politicians Competent persons occupy high levels

Demerits of Private Sector Exploitation motive Dearth of capital for expansion Concentration of wealth in the hands of few Lead to unbalanced growth of industries

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