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MANAGEMENTTHEORY AND PRACTICE

(Text & Cases)

Prof. P. Subba RaoPro Vice-Chancellor (ASA)

The University of Papua New GuineaPapua New Guinea (Australia)

Formerly: Professor and DeanFaculty of Commerce and Management

Sri Krishnadevaraya UniversityAnantapur - 515 003 (AP), INDIAE-mail: [email protected]

Assisted by:Venkatram Tej Kumar

(MS in BA and MIS)Texas Tech University at Lubbock, USA

© AuthorsNo part of this publication should be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical,photocopying, recording and/or otherwise without the prior written permission of the editors and publisher.

First Edition : 2010Second Revised Edition : 2014

Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd.,“Ramdoot”, Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004.Phone: 022-23860170/23863863, Fax: 022-23877178E-mail: [email protected]; Website: www.himpub.com

Branch Offices :New Delhi : “Pooja Apartments”, 4-B, Murari Lal Street, Ansari Road, Darya Ganj,

New Delhi - 110 002. Phone: 011-23270392, 23278631; Fax: 011-23256286

Nagpur : Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur - 440 018.Phone: 0712-2738731, 3296733; Telefax: 0712-2721215

Bengaluru : No. 16/1 (Old 12/1), 1st Floor, Next to Hotel Highlands, Madhava Nagar,Race Course Road, Bengaluru - 560 001.Phone: 080-32919385; Telefax: 080-22286611

Hyderabad : No. 3-4-184, Lingampally, Besides Raghavendra Swamy Matham, Kachiguda,Hyderabad - 500 027. Phone: 040-27560041, 27550139; Mobile: 09390905282

Chennai : 8/2 Madley 2nd street, T. Nagar, Chennai - 600 017.Phone: 044-32463737; Mobile: 09320490962

Pune : First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth(Near Prabhat Theatre), Pune - 411 030. Phone: 020-24496323/24496333;Mobile: 09370579333

Lucknow : House No 731, Shekhupura Colony, Near B.D. Convent School, Aliganj,Lucknow - 226 022. Mobile: 09307501549

Ahmedabad : 114, “SHAIL”, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura,Ahmedabad - 380 009. Phone: 079-26560126; Mobile: 09377088847

Ernakulam : 39/104 A, Lakshmi Apartment, Karikkamuri Cross Rd., Ernakulam,Cochin - 622011, Kerala. Phone: 0484-2378012, 2378016; Mobile: 09344199799

Bhubaneswar : 5 Station Square, Bhubaneswar - 751 001 (Odisha).Phone: 0674-2532129, Mobile: 09338746007

Indore : Kesardeep Avenue Extension, 73, Narayan Bagh, Flat No. 302, IIIrd Floor,Near Humpty Dumpty School, Indore - 452 007 (M.P.). Mobile: 09301386468

Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank,Kolkata - 700 010, Phone: 033-32449649, Mobile: 09910440956

Guwahati : House No. 15, Behind Pragjyotish College, Near Sharma Printing Press,P.O. Bharalumukh, Guwahati - 781009, (Assam).Mobile: 09883055590, 09883055536

DTP by : Sri Siddhi SofttekBengaluru

Printed at : Geetanjali Press Pvt. Ltd., Kundanlal Chandak Industrial Estate, Ghat Road,Nagpur - 440 018. On behalf of HPH.

P R E F A C E T O S E C O N D E D I T I O N

It is quite difficult to predict, control and manage organisations from time to time and from situation to situation.Globalisation, liberalisation and competition resulted in multiplication of situations, complicating the task of planning,organising, directing and controlling based on organisational strategies. But, the concepts, theories, principles and practicesof management help to manage organisations. Thus, the course on "Management: Theory and Practice" helps in managingorganisations.Purpose

Our purpose of revising this book is to provide all latest developments to the readers and enable them to understandconcepts, theories and principles of management in a more comprehensive manner. This in turn helps our readers toacquire skills which would enable them to manage organisations as efficiently as possible. This text will be useful tostudents as well as practicing managers at different levels in various business organisations. This book is also useful toexecutives and managers of all kind of organisations like business organisatons, public organisations, social organisations,non-government organisations (NGOs), political organisations and religious organisations.Approach

We have followed direct and lucid approaches in presenting the material in order to enable readers acquire the conceptsand skills and apply them appropriately.Pedagogical Features

We have included relevant pedagogical features like practical examples, figures, exhibits, tables, boxes, cases, exercises,games and suggestive situations for adaption of skills by the readers.

Each chapter contains a chapter outline, learning objectives at the beginning, key terms, questions for discussion andreferences at the end.Wide Coverage and Additions

We have covered all topis of the course on "Management: Theory and Practice". This edition contains a new chapteron 'Basic Business Concepts' which is unique to this book. This chapter deals with different types of business, objectivesof business, risks and challenges of business and business skills. We have added other new chapters on 'Globalisation andCompetition' and 'International Management'.

In addition new theories, concepts, boxes, examples, exhibits, tables and figures are added wherever necessary.Feedback

We request teachers, students and business executives to provide comments and suggestions for improvement of thetext. The same can be mailed to [email protected]. Such feedback will be highly appreciated.Acknowledgements

We would like to acknowledge the contribution of a number of individuals and organisations for their participation incompletion of this revised edition. We thank Prof. Albert C. Mellam, Vice-Chancellor of the University of Papua NewGuinea. We also thank all the teachers and students who provided feedback on the earlier edition of the book. Our specialthanks are due to the students and teachers of the University of Papua New Guinea who provided detailed comments onthe first edition of the book

We are also grateful to Sri Niraj Pandey, Ms.Nimisha, Ms.Archana, Sri Madhu, Sri Krishna Poojari and Sri G. MalleswaraRao of Himalaya Publishing House (P) Limited for their feedback and assistance.

Port Moresby, Papua New Guinea PULAPA SUBBA RAO12th April 2014 [email protected]

P R E F A C E T O F I R S T E D I T I O N

Intensified competition among domestic private and public sector companies and multinational companies consequentupon globalisation along with strides in information technology brought paradigm shifts in principles of management. In factprinciples of management took a completely a new direction. The traditional principles of management like division oflabour, unity of command and specialization were relegated by multi skills, and generalization, individual responsibility isshifted towards team work, unity of command and unity of direction is shifted to multi-direction.

The overwhelming response from the students, Lecturers, Professors and heads of various Business Schools of variousuniversities in India, Papua New Guinea and other countries to my various books viz., Management and OrganisationalBehaviour, Business Policy and Strategic Management, International Business, Essentials of Human Resource Managementand Personnel and Human Resource Management prompted me to write a separate book on ‘Principles of Management’.

Many students particularly from Indian Universities, Business Schools and Management Institutes and the School ofBusiness Administration, UPNG, Papua New Guinea and students from other universities across the developing countriesprovided on-line feedback for my earlier books. I, immensely thank them for their support and encouragement. Particularly,I would like to express my gratitude to Prof. Albert C. Mellam, Executive Dean and Prof. David Kavanamur, School ofBusiness Administration, University of Papua New Guinea, Papua New Guinea and Prof M. Gangadhara Rao, my teacherand the former Vice-Chancellor, GITAM University.

Mr. Niraj Pandey, Mrs. Ujjwale Pandey, Mr. Anju Pandey, Mr. Vijay Pandey, Mrs. Poopathi and Mrs. Nimisha ofHimalaya Publishing House have provided immense support in bringing out this revised edition. I thank all of them immensely.I specially thank Mr. Madhu Srinivasa of Sri Siddhi Softtek, Bangalore for his DTP work.

My wife Mrs. Pulapa Rama Devi and my little friends Master Nitin Sai and Rohan Sai were put in inconvenience duringthe period of revising this book. I express my gratitude to them.

I request the students, teachers and other readers to write to me with their comments and suggestions via e-mail.

Port Moresby, Papua New Guinea PULAPA SUBBA RAO7th January 2010 [email protected]

C O N T E N T S

Chapter - 1 Basic Concepts of Business 1 - 8

(A) What is Business?(B) Types of Business Organisations(C) Objectives of Business(D) Risks and Challenges of Businesses(E) Business People and Managerial Skills(F) Need for Managerial Skills

Key Terms, Questions, References.

Chapter - 2 Nature and Functions of Management 9 - 26

(A) Introduction(B) Definition of Management(C) Management: A Science or an Art?(D) Management: A Profession?(E) Management vs. Administration(F) Management Functions(G) Managerial Skills(H) Managerial Roles(I) Management Levels(J) Functional Areas of Management(K) Universality of Management Principles(L) International Management


Chapter - 3 Development of Management Thought 27 - 46

(A) Introduction(B) Scientific Management(C) Administrative Management(D) Towards Human Relations Approach(E) Human Relations Approach(F) Systems Approach to Management(G) Contingency Approach(H) Human Resource Management Approach(I) Management Science Approach(J) Conclusion


Chapter - 4 Social Responsibilities of Business 47 - 58

(A) Introduction : Traditional View, Modern View(B) Social Responsibilities of Business(C) Influence of Environment


Chapter - 5 Business Ethics and Value-Based Management 59 - 70

(A) Ethics(B) Business Ethics(C) Unethical Practices(D) Business Code of Conduct(E) Value-Based Management


Chapter - 6 The Planning Process 77 - 86

(A) Introduction(B) Nature of Planning(C) Need for Planning(D) Types/Hierarchy of Plans(E) Steps in the Process of Planning(F) Advantages and Limitations of Planning(G) Planning practices in Japan, USA and China


Chapter - 7 Objectives of Business 87 - 102

(A) Introduction(B) Formulating Objectives(C) Characteristics of Effective Objectives(D) Importance of Objectives(E) Nature of Objectives(F) Formulation of Objectives(G) Reasons for Change of Objectives(H) Management by Objectives


Chapter - 8 The Strategic Management Process 103 - 130

(A) Why Strategy?(B) What is Strategy?(C) Why is Strategy More Complex?(D) Strategic Management(E) Strategic Management Process: Strategic Fit vs. Strategic Intent


Chapter - 9 Decision-Making 131 - 158

(A) Introduction(B) Problem and Opportunity Finding(C) Nature of Managerial Decision-Making(D) Approaches to Decision-Making(E) Types of Decisions(F) Process of Decision-Making(G) Boards and Committees in Decision-Making: Group Decision-Making(H) Tools and Techniques of Decision-Making(I) Decision-Making under Abnormal Conditions(J) Decision-Making Practices Abroad


Chapter - 10 Delegation, Decentralisation and Span of Management 159 - 170

(A) Introduction(B) Delegation of Authority(C) Centralisation and Decentralisation(D) Span of Management


Chapter - 11 Fundamentals and Forms of Organisational Structure 171 - 202

(A) Introduction to Organisations(B) Purpose of Organisations(C) Characteristics of Organisations(D) Nature of Organisation(E) Organising: Entrepreneurship, Intrapreneurship and Creativity(F) Business Process Reengineering and Organising(G) Types of Organisations: Formal and Informal(H) Organisation(I) Structuring Organisation(J) Forms of Organisation Structure

(1) Entrepreneurial Structure, (2) Functional Structure, (3) Product structure,(4) Geographical Structure, (5) De-centralised Structure, (6) Strategic BusinessStructure, (7) Matrix Structure, (8) Team Structure, (9) Virtual or Boundary-LessStructure, (10) Learning Organisation, (11) Line and Staff Organisation Structure.

(K) Responsive Organisations(L) Global Organising


Chapter - 12 Organisational Culture and Effectiveness 203 - 220

(A) Definition(B) Creating Organisational Culture(C) Approaches to Organisational Culture(D) How Employees Learn Organisation Culture?(E) How to Measure Organisational Culture?(F) Organisational Effectiveness(G) Nature of Organisational Effectiveness


Chapter - 13 Organisational Change, Innovation and Entrepreneurship 221 - 238

(A) Organisational Change: Meaning and Types(B) Technology and Change(C) Resistance to Change vs. Inviting Change: Reasons(D) Approaches to Organisational Change(E) Planning and Implementing Change(F) Innovation(G) Entrepreneurship


Chapter - 14 Staffing: Human Resource Management 239 - 274

(A) Introduction(B) What is HRM?(C) Personnel Vs. HRM(D) Significance of HRM(E) Knowledge Workers(F) Functions of HRM(G) Objectives of HRM(H) Organisation Design and Line and Staff(I) Why Study HRM?


Chapter - 15 Performance Appraisal and Development 275 - 304

(A) Introduction(B) Strategic Management and Performance Appraisal(C) Meaning, Need and Purpose of Performance and Development(D) Who Will Appraise?(E) Performance Analysis and Development(F) Methods of Performance Appraisal(G) System of Performance Appraisal(H) The Post Appraisal Interview(I) Managerial Appraisal(J) Use of Performance Appraisal(K) Problems of Performance Appraisal


Chapter - 16 Employee Training 305 - 332

(A) Introduction(B) Stages in Training(C) Stage-2: Designing the Training Programme(D) Stage-3: Implementation(E) Stage-4: Evaluation of Training Programme(F) Special Aspects of Training


Chapter - 17 Directing (Morale, Committees and Co-ordination) 333 - 348

(A) Directing(B) Morale(C) Committees(D) Co-ordinating


Chapter - 18 Motivation: Concepts, Theories and Applications 349 - 376

(A) Introduction(B) Motivating(C) Types of Motivation(D) Theories of Motivation(E) Motivation: Applications


Chapter - 19 Communication 377 - 400

(A) Meaning(B) Management Information System and Information Technology(C) Methods of Communication(D) Communication Channels(E) Communication Networks(F) Organisational Communication(G) Barriers to Communication


Chapter - 20 Leadership 401 - 428

(A) Introduction(B) Leader vs. Manager(C) Leadership Theories(D) Leadership Styles(E) Followership Styles – A New Approach(F) Outstanding Leaders(G) Leadership Skills(H) Leadership Under Cross-Cultural Environment(I) Women and Leadership(J) Global Leading(H) Key Terms, Questions, References.

Chapter - 21 Controlling 429 - 458

(A) Introduction(B) Feedback and Feed-forward Control(C) Basic Process of Control(D) Control Techniques(E) Problems of Control Process(F) Requirements for Effective Control(G) Human Response to Control(H) Overall Control Techniques(I) Total Quality Control and Integrated Control(J) Global Control(H) Key Terms, Questions, References.

Chapter - 22 Operations Management 459 - 468

(A) The Operations Function(B) Decision-Making in Operations(C) Product Design(D) Who Will Appraise?(E) Process Selection(F) Facilities Design(G) Inventory Management(H) Quality Planning and Control(H) Key Terms, Questions, References.

Chapter - 23 Globalisation and Competition 469 - 492

(A) Introduction(B) Emerging Global Economy(C) Drivers of Economic Globalisation(D) Globalisation of Markets(E) Globalisation of Production(F) Globalisation of Investment(G) Globalisation of Technology(H) Globalisation: Advantages and Disadvantages(I) Globalisation and Competition(J) Competition among National and Global Business Centres(H) Key Terms, Questions, References.

Chapter - 24 International Management 493 - 522

(A) Introduction to International Business(B) Advantages of International Business(C) What is International Management?(D) Challenges of International Management(E) Factors influencing International Management(F) International Planning and Decision-Making Practices(G) International Organising(H) Motivation in International Organisations(I) Communication in International Organisation(J) Global Leading(K) Global Controlling(H) Key Terms, Questions, References.

Chapter - 25 Contemporary Issues in Management 523 - 536

(A) Introduction(B) Deregulated Environment(C) Competition and Customisation(D) Information Technology Revolutions(E) Contemporary Issues in Management(F) Team Management(G) Situational Approach to Management(H) Key Terms, Questions, References.

Chapter - 26 Methods of Case Analysis 537 - 544

(A) Introduction(B) How to Analysis a Case?(C) Participating in a Class Discussion(D) Methods of Case Discussion(E) Format of the Written Case Analysis Report

Chapter - 27 Management Games 545 - 558

(A) Management: A Profession(B) Why Management Games?(C) Benefits of Management Games(D) Need for Management Development Programmes(E) Management Games

Index 559 - 564

About the Book

The second edition of the book covers all significant and recent areas of Management.

Distinctive Features of the Book:

• Learner-Friendly Approach ;

• Wide and Comprehensive coverage;

• Integrated presentation of the text with boxes, figures, exhibits and tables;

• Refreshing modes like points to be remembered, key words and questions;

• Numerous examples;

• Presents Methods of Case Analysis, Cases and Management Games;

• Customised and Lucid Language; and

• On-line student and teacher manuals

About the AuthorProf. PulapaSubbaRao has acquired his Ph.D. degree in Management area from Andhra University and has been

teaching various courses in the areas of Business Management since 1976. He is a teacher, researcher, trainer, consultant,academic administrator and author in the areas of business and management, with a blend of national and internationalsystems and cultures. He is currently working as Pro Vice-Chancellor (Academic and Student Affairs) of the University ofPapua New Guinea. He was the Founding Professor of Business Administration, the Convener, Executive MBA Program,Head,Human Resource Management Division of the School of Business Administration and the Director-Academic Audit, Universityof Papua New Guinea. He worked earlier in Sir CRR College, Sri SathyaSai University, University of Asmara, and SKInstitute of Management, Sri Krishnadevaraya University, Anantapur, India.

He was the recipient of 'National Merit Scholarship' from Government of India, the 'Meritorious Teacher' awardfrom the Government of Andhra Pradesh, India and the President of the India Association of PNG Inc. He is a member ofthe Advisory Board, Internal Revenue Commission and Technical Advisor, Papua New Guinea Vision: 2010-2050, Governmentof Papua New Guinea.

C H A P T E R

Basic Concepts of Business

1

CHAPTER OUTLINE

(A) What is Business?

(B) Types of Business Organisations

(C) Objectives of Business

(D) Risks and Challenges of Businesses

(E) Business People and Managerial Skills

(F) Need for Managerial Skills

Key Terms, Questions, References

LEARNING OBJECTIVESAfter studying this chapter you should be able to:

• Understand the meaning of business

• Discuss various types of business

• Analyse the objectives of business

• Understand various risks and challenges that business organisations encounter

12

(A) What is Business?We often use three terms viz., business, commerce and trade. Trade means buying and selling of goods and

services. Commerce is trade plus supporting services necessary to carryout trade. These services include banking,logistics including transportation, warehousing and handling materials, insurance, communication, and options andfutures. Business is commerce plus manufacturing. Thus business is broader than trade and commerce.

Trade= Buying and selling of goods and services for a profit.Commerce= Trade + Supporting services to trade.Business= Commerce+ manufacturing/rendering servicesBusiness is an economic activity carried-out by individuals and/or organisations on a continuous basis that involves

one or more of activities like buying of goods/services, selling of goods/services, manufacturing of goods or renderingservices for a profit and with a purpose of satisfying a particular need of the society.

Business activities are carried-out by different types of business organisations. Now, we study various types ofbusiness organisations

(B) Types of Business OrganisationsBusiness organisations are of several types. Now we study different types of business organisations.

1. Types of business organisations based on Economic ActivityBusiness organisations based on economic activates are of three types viz., businesses engaged in primary activities,

businesses based on secondary activities and businesses based on tertiary activities.• Types of Business based on primary economic activities: These businesses are of two types

viz., (1) Extractive Businesses and (2) Genetic Businesses.Extractive Business: These businesses include businesses engaged in agriculture, forestry, fishing,extracting, mining, procuring and processing of natural resources like minerals and oil.Genetic Business: These businesses include businesses engaged in breeding of plants, fish,birds and animals covering horticulture farming, and floriculture.

Types of Business based on Secondary Activit ies: These businesses are of two types viz. ,(1) Manufacturing Businesses and (2) Construction Businesses.

• Manufacturing Business: These businesses convert raw materials like minerals, metals,components into finished products. Examples of this category include chemical producing business,pharmaceuticals manufacturing business and textile business.

• Construction Businesses: Businesses of this category engage in construction of various typesof buildings, dams, roads, railway lines and airports.

Types of Businesses based on Tertiary Activities: Businesses of this type provide services in order to enable thebusinesses of primary and secondary types to perform various operations. Types of businesses of tert iary categoryinclude:

• Transport businesses like road transport, rail transport, sea transport and air transportbusinesses;

• Banking organisations;• Communication organisations;• Insurance organisations;

• Discount firms;• Credit guarantee firms;• Warehousing firms;• Law firms; and• Other service firms.

2. Types of business organisations based on Public and PrivateOwnership

Business organisations based on public and private ownership are of three types viz., public sector businessorganisations, private sector organisations and joint sector business organisations.

Public sector business organisations: Public sector businesses are owned, managed and controlled by theGovernment of the country concerned. Public sector businesses are of three types viz., departments, statutorycorporations and government companies.

Departments: Government creates a department under its own administration to operate andmanage a particular business. Government discharges its responsibilities to the public throughthese businesses like providing communication services, transport services, water and power.Government creates these types of organisations to provide public utilities and as such they arerun based on business and social principles. Thus these businesses don’t run purely based onbusiness principles. For example Department of Posts, Department of Telecommunications andDepartment of Railways of Government of India.

Statutory Corporations: Statutory corporations are also called public corporations.Government by an Act of Parliament or State Legislature establishes a business unit to run thebusiness on business principles subject to the provisions of the Act concerned. These are corporateentities, having perpetual successions and common seal with powers subject to the provisions ofthe Act concerned. For example, University of Hyderabad, Andhra University, Coal Authority ofIndia Limited, and Steel Authority of India Limited.

Government Company: Governments establish businesses on joint-stock company basis torun then purely based on business principles. Government owns at least 51% of the paid-up sharecapital of these companies. These companies are called public sector companies or state ownedenterprises.

Private sector business organisations: Private sector businesses are owned, managed and controlled by privateindividual investors and/or group of investors. These businesses are of four types’ viz., sole proprietorship, partnership,joint-stock companies and cooperative societies.

Sole proprietorship: Sole proprietor means single owner. Individual invests capital, operates,manage and controls business activities.

Partnership: Two or more than two individuals invest and/ or manage businesses in partnershiporganisations.

Joint-stock Companies: Many individuals join together to invest large amount of capital toestablish large-size businesses. These large numbers of individuals contribute to capital to establishbusiness. Such businesses are called joint stock companies. Stock here is referred to capital.These companies are established under the company’s act of the country concerned. Thesecompanies enjoy limited liability of the shareholder (or owner who contribute to the stock) Thusthe stock is contributed jointly. Joint stock companies are of two types viz., private limited andpublic limited companies. Private limited companies are normally established by a few individualsand/or organisations whereas public limited companies are established by a large number ofindividuals and/or organisations.

Cooperative Societies: Cooperative society is a business established by the consumers/producers who contribute capital, operate, manage and control all operations and share profit,benefits and bear risks.

Joint sector Business organisations: Government and private individuals and/organisations jointly establishlarge size business. Such business is called joint sector business.

3. Types of business organisations based on GeographicalSpread

Domestic Business: Domestic businesses are those business organisations operating their activities includinginvestment and management within a country.

Global Companies: Global companies produces in home country (home country means the country in which thebusiness organisation is incorporated or registered) or in a single country and focuses on marketing the productsglobally or produces globally and focuses on marketing these products domestically.

International Companies: International Company conducts business operations in one or more foreign countries,but with domestic orientation. These companies believe that the practices adapted in domestic business, the people andproducts of domestic business are superior to those of other countries. These companies extend the domestic products,price, promotion and other practices to foreign markets.

Multinational Companies: Multinational companies respond to specific needs of different countries regardingproducts, price, promotion and the like. These companies operate in more than one country, but operate like a domesticcompany of the country concerned it operates.

Transnational Companies: Transnational companies produce, market, invest and operate across the world, treatingthe entire world as a single country.

(C) Objectives of BusinessBusiness organisations carry-out various activities in order to achieve various objectives. These objectives can be

classified as general and corporate objectives, production objectives, financial objectives, marketing objectives,human resource objectives, social objectives and corporate governance objectives.

1) General and Corporate Objectives include:• Survival even in during recessionary periods;• Growth of activities;• Survival and growth;• Sustainable growth;• Maximisation of shareholders’ wealth; and• Maximisation of corporate brand image.

2) Production/Service Objectives include:• Maximisation of production in terms of quantity;• Producing best quality first time itself;• Producing the best quality;• Producing at the lowest cost;• Producing based on customer needs; and• Rendering services based on customer needs.

3) Financial Objectives include:• Profit maximisation;• Maximisation of rate of return on capital employed or maximisation of profitability;• Minimisation of cost of capital; and• Declaration of maximum rate of dividend.

4) Marketing Objectives include:• Maximisation of sales growth;• Expansion of markets;• Maximisation of customer satisfaction; and• Sustainable customer relationship.

5) Human Resource Objectives include:• Maximisation of employee productivity;• Maximisation of employee satisfaction;• Maximisation of employee commitment and loyalty to the organisation;• Maximisation of human resource development; and• Providing protection to physically socially disadvantaged persons.

6) Social Objectives include:• Production of socially desirable goods and rendering of socially desirable acceptable services;• Resort to ethical business practices;• Maximisation of contribution to solve various social problems;• Rendering service to various communities;• Providing various facilities like education facilities, medical facilities and recreation facilities

to various sections of the society.7) Corporate Governance Objectives include:

• Maintenance of disclosures and transparency of business operations;• Treating the shareholders equitably and discharging obligations to them;• Performance of business ethically and an integrated manner;• Following all legislations concerned;• Behaving as a responsible corporate citizen of the nation;

8) National Objectives include:• Creation of employment opportunities to the people;• Contribution to the self-reliance of the country; and• Utilisation of natural resources more responsibly.

9) Global Objectives include:• Contribute to the balanced development of various countries;• Production and marketing of globally qualitative goods and services;• Practice globally best and acceptable culture and norms;• Contribution of the overall development of the host countries; and• Sustainable and responsible use of natural resources of host countries.

Why Profit is a Basic Objective?Basically business firms aim at earning profit as profit is the basic concern for earning a return on investment,

survival, growth and development, measure of efficiency, motivating investors and employees.Businesses while striving for earning profit, they face some risks and challenges. Now, we study them.

(D) Risks and Challenges to BusinessesRisks and challenges that the businesses can be categories as:1) Commercial Risks and Challenges: These risks and challenges include:

• Fluctuations in demand for goods and services;• Fluctuations in supply of goods and services;• Supply of complementary goods and services. For example coffee is complementary to tea.

2) Economic Risks and Challenges: These risks and challenges include:• Economic fluctuations like economic boom, economic recession of the total global economy;• Economic fluctuations like economic boom, economic recession of the entire national economy

of a country;• Economic fluctuations like economic boom, economic recession in a particular industry. For

example, there is boom in computer industry while there is recession in traditional movietheatre industry.

3) Political Risks and Challenges: These risks and challenges include:• Changes in political parties in power;• Changes in policies of the government;• Involvement of politicians in business activities and industrial relations.

4) Social Risks and Challenges: These risks and challenges include:• Changes in social structures in business activities like entry of various castes, and communities

into business.• Changes in culture in terms of eating habits, dressing habits, usage of variety of goods and

services and shifts in housing;• Changes in customers’ tastes and preferences due to cultural shifts.

5) Technological Risks and Challenges: These risks and challenges include:• Technological revolutions in manufacturing technology that results in development of new

machinery and production process. These cause challenges of adapting new manufacturingmachinery and technology.

• Developments in service technologies like transportation technology, banking machines andthe like.

• Fast changes in information technology like development of new versions of computers,development of various gadgets, creation of new software cause risk of becoming obsoleteof existing information technologies.

6) Natural Risks and Challenges: These risks and challenges include:• Natural calamities like floods, earth quakes, fire accidents etc;• Climate changes due to global warming.

(E) Business People Need Managerial Skills: Some Cases

Mr. Prakash Chaturvedi while doing his Bachelor degree in Computer Engineering from Mumbai was inspired byhis professor to start a business to provide software solutions to small businesses. His instructor told the class that theone who provides employment even for five people is great than a senior manager of a multinational company. But, Mr.Prakash underestimated his managerial skills and competencies as he doesn’t have even an MBA degree.

Mr. Krisha Nair – a college drop-out was working as an accountant in a hotel in Bangalore. He is lured by themoney that the hotel owner was earning without much investment. He thought of starting his own hotel with themoney he saved, inherited and a loan. But his wife cautioned him as well discouraged him as he doesn’t have managementqualification and hence no managerial skills.

Mrs. Kranthi Sowjanya could not accept a number of job offers she got after acquiring a Bachelor degree inPharmacy due to her family commitments. Her children grew up and were admitted to high schools. Now she isrelieved of the family commitments. She applied for a number of jobs, but could not succeed in getting even a singlejob offer. Then she decided to start a small pharmacy store in her home town. But her husband terrified her saying thatshe may lose even capital as she doesn’t know how to run a business firm in view of lack of management qualification.

Mr. Prasanna Chandra has started a social organisation after completing his intermediate. He has been running theorganisation successfully since 2001. The organisation’s activities increased significantly and the number of employeesincreased from just 5 in 2001 to 256 in 2012. Similarly the financial and marketing and public relations increased byfour-fold. He has been facing a variety of problems in managing the activities effectively. He felt that his inability inmanaging the increased volume of activities was mostly due to lack of management qualification.

Mr. Chaitnya Chakravarhy – a chemical engineer in Hindustan Petroleum and Chemicals Limited was offered apromotion from Senior Engineer to Manager of Visakhapatnam Unit based on his performance at the current job andseniority. He was inclined to decline the offer as he doesn’t have a qualification in Management.

Mrs. Jayanti Natarajan has started a Bio-Chemical company after completing her Master degree in Bio-Chemistryin 1991. She has been managing the company successfully and the profitability of the company increased from 12% in1992 to 23% in 2008, when her daughter joined the business after completing her MBA degree. Ms. Sirisha daughter ofMrs. Jayanthi has been confronting with her mother on several occasions and concluded that her mother has not beenmanaging the business professionally. Mrs. Jayanthi strongly felt that her daughter is right as she has an MBA degreeand hence able to assess the management of the company.

Dr. Yaswant – a cardiologist started a clinic in 1991 and became one of the top most cardiologist in Hyderabad by2003. He was unable to manage his clinic due to abnormal increase in the number of patients. His managerial skills thathe acquired by experience could not help him in managing the increased activities of his clinic. He wanted to do MBAfrom any university/college in Hyderabad, but could not find time to attend classes.

(F) Need for Managerial SkillsThere are several cases like those discussed above in which absence of management skills, knowledge and expertise

was felt by even experienced executives, professionals and owners particularly of small business firms, family businessfirms, service organisations, social organisations, religious organisations and the like. Similarly the executives withbasic qualifications in Engineering, Medicine, Pharmacy, Bio-Technology and the like also felt that lack of managerialskills, knowledge and expertise has been

the reason for low promotional opportunities for them. Thus a wide gap in managerial skills, knowledge andexpertise is identified among those who have been in need of the same.

Having acquired the basic concepts of business, we study the basic principles, theories, functions and practices ofmanagement in the next chapter.

Key Termsl BusiNess l Tradel Commerce l Extractive Businessesl Genetic Businesses. l Manufacturing Business

l Construction Business l Transport Businessl Banking Organisations l Communicationl Insurance Organisations l Discount Firmsl Credit Guarantee Firms l Warehousing Firmsl Law Firms l Public Sector Businessl Private Sector Business l Departmental Organisations

l Corporations l Government Companiesl Sole Proprietorship l Partnershipl Joint Stock Companies l Cooperative Societiesl Joint Sector Business l Domestic Businessl Global Companies l International Companies

l Transnational Companies l General Objectivesl Corporate Objectives l Production Objectivesl Service Objectives l Financial Objectivesl Marketing Objectives l Human Resource Objectivesl Social Objectives l Corporate Governancel Global Objectives

Questions1) What is business?2) What are the types of businesses?3) Discuss the types of business organisations based on public and private ownership.4) What are the different types of business organisations based on geographical spread?5) What are the different types of business organisations based on economic activity?6) What are the different types of business objectives?

NEW DELHI NAGPUR - Himalaya Publishing HouseBehaviour, Business Policy and Strategic Management,...

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