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Business English Text Book
Prof Prof. Mohamed Elfatih Mahmoud Bashir Elmagrabi Dr. Fatihelelah Mohammed Ahmed Mohammed
2017
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Introduction The main goal of Incident Management is to restore normal service operation as quickly as possible and minimize the adverse impact on business operations. Service Desk as the first point of contact for Information Services clients is the owner of the Incident Management Process. The main objective of Service Desk is to facilitate the restoration of normal operational service with minimal business impact on the client and within agreed service levels and business priorities. These procedures are to be used by all Information Services staff handling Incidents within the scope defined in section 2.2 “Scope.” This book has been divided into elven chapters as follows Chapter One: Management an Overview, Chapter Two: The Management Process, Chapter Three: Levels of Management, , Chapter Four: Management Functions (planning, organizing), Chapter Five: Management Functions (leading, and controlling), Chapter six: (Decision making, Leadership, Communication) an overview, Chapter seven: Consumer buyer behavior, Chapter eight: Marketing, Chapter nine: E- business and E- commerce an overview, Chapter ten: The Nature of Organizational structure, and chapter elven: Financial statement an overview.
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Objective Information Services aims to achieve the following objectives with the Incident Management Process: -
Capture information about an incident at the start of the process. Clients have confidence in Information Services capability. Consistent processes for clients. Have clear procedures for clients on how to get help. Better management of, and alignment with, client expectations. A well-defined scope of the Service Desk role which is clearly communicated. Analysis of incidents which will contribute to a better understanding of the underlying issues.
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Chapter One Management an Overview: Objectives: 1. 2. 3. 4. 5.
Definition of management as a science. Definition of business management. Administration as a science. The administration shroud. Definition Director.
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Introduction: Management is a universal phenomenon. It is a very popular and widely used term. All organizations - business, political, cultural or social are involved in management because it is the management which helps and directs the various efforts towards a definite purpose. According to Harold Koontz, “Management is an art of getting things done through and with the people in formally organized groups. It is an art of creating an environment in which people can perform and individuals and can co-operate towards attainment of group goals”. According to F.W. Taylor, “Management is an art of knowing what to do, when to do and see that it is done in the best and cheapest way”. Management is a purposive activity. It is something that directs group efforts towards the attainment of certain pre determined goals. It is the process of working with and through others to effectively achieve the goals of the organization, by efficiently using limited resources in the changing world. Of course, these goals may vary from one enterprise to another. E.g.: For one enterprise it may be launching of new products by conducting market surveys and for other it may be profit maximization by minimizing cost. Management involves creating an internal environment: - It is the management which puts into use the various factors of production. Therefore, it is the responsibility of management to create such conditions which are conducive to maximum efforts so that people are able to perform their task efficiently and effectively. It includes ensuring availability of
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raw materials, determination of wages and salaries, formulation of rules & regulations etc. Therefore, we can say that good management includes both being effective and efficient. Being effective means doing the appropriate task i.e., fitting the square pegs in square holes and round pegs in round holes. Being efficient means doing the task correctly, at least possible cost with minimum wastage of resources. The term management can be and often is used in several different ways. Mary Parker Follett, described management as "the art of getting things done through people." From Peter Drucker's viewpoint, managers give direction to their organizations, provide leadership, and decide how to use organizational resources to accomplish goals. The term management in this thesis refers to the definition of management described by Richard L. Daft: "Management is the attainment of organizational goals in an effective and efficient manner through planning, organizing, leading, and controlling organizational resources" There are two important ideas in this definition: (1) the four functions of planning, organizing, leading, and controlling and (2) the attainment of organization goals in an effective and efficient manner. Define Management: Management in businesses and organizations is the function that coordinates the efforts of people to accomplish goals and objectives by using available resources efficiently and effectively. 10
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Management includes planning, organizing, staffing, leading or directing, and controlling an organization to accomplish the goal or target. Resourcing encompasses the deployment and manipulation of human resources, financial resources, technological resources, and natural resources. Management is also an academic discipline, a social science whose objective is to study social organization. Views on the definition and scope of management include:
According to Henri Fayol, "to manage is to forecast and to plan, to organize, to command, to co-ordinate and to control." Fredmund Malik defines it as "the transformation of resources into utility." Management included as one of the factors of production - along with machines, materials and money Ghislain Deslandes defines it as “a vulnerable force, under pressure to achieve results and endowed with the triple power of constraint, imitation and imagination, operating on subjective, interpersonal, institutional and environmental levels”. Peter Drucker (1909–2005) saw the basic task of a management as twofold: marketing and innovation. Nevertheless, innovation is also linked to marketing (product innovation is a central strategic marketing issue). Peter Drucker identifies marketing as a key essence for business success, but management and marketing are generally understood as two different branches of business administration knowledge.
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Andreas Kaplan specifically defines European Management as a cross-cultural, societal management approach based on interdisciplinary principles.
Define Managers: A Manager is the person responsible for planning and directing the work of a group of individuals, monitoring their work, and taking corrective action when necessary. For many people, this is their first step into a management career. Managers may direct workers directly or they may direct several supervisors who direct the workers. The manager must be familiar with the work of all the groups he/she supervises, but does not need to be the best in any or all of the areas. It is more important for the manager to know how to manage the workers than to know how to do their work well. A manager may have the power to hire or fire employees or to promote them. In larger companies, a manager may only recommend such action to the next level of management. The manager has the authority to change the work assignments of team members. A manager's title reflects what he/she is responsible for. An Accounting Manager supervises the Accounting function. A business manager is a person who drives the work of others in order to run a major business efficiently and make a large profit. He or she should have working knowledge of the following areas, and may be a specialist in one or more: sales, marketing and public relations; research, operations 12
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analysis, data processing, mathematics, statistics and economics; production; finance; accounting, auditing, taxes and budgeting; purchasing; and personnel. Other technical areas in which a business manager may have expertise are law, science, and computer programming. In many businesses, the role of business manager may grow out of a small business owner's desire to shed some of the multiple roles mentioned above in order to focus on specific aspects of company expansion or market penetration. The business manager for a time may share duties with the owner, as the owner gains trust in the business manager. Ideally, the business manager and the owner work synergistically to ensure that the business of running a successful business is attended to. This can often be a process of the owner relinquishing the functions for which there is a comparative disadvantage for his or her continued involvement. It is true that having a specialization in a particular field such as the above-mentioned (sales, marketing, public relations, finance, etc.), a manager will be able to perform his or her work more efficiently but, despite all the academic qualities that a business manager should have, a business manager should also develop personal qualities that will be helpful in performing his or her work in a more efficient manner. For example, a business manager should be willing to accept constructive criticism from the employees, develop social skills, be organized, be honest, be able to take good decisions and develop intimate relationships with his or her employees. Also, business managers should be good listeners and listen to the needs of the employees and 13
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customers. If the business manager injects positive attitudes to the employees, the employees will be more efficient. In other words, a good business manager should be willing to work along his or her employees in order to create a better work environment and a prosperous company. Every business has to count on the services of a good business manager. For example, in the context of the music industry, a business manager is a representative of musicians and/or recording artists, whose main job is to supervise their business affairs, and the proper handling of their financial matters. The role as it is understood today was largely originated (and the term coined) by Allen Klein, who represented numerous performers through the years, helping them to both invest their incomes wisely and to recover unpaid (or underpaid) royalties and fees. We can find business managers in any industry or type of business you can think of. Nowadays, business managers commonly have an overlapping presence in both the entertainment and sports industries, as illustrated by business manager Barry Klarberg, who represents entertainer Justin Timberlake as well professional athletes C.J. Wilson, Mark Messier and Anna Kournikova. In government and the military, the equivalent position would be Chief of Staff or Executive Officer. K. Blanchard writes that a good manager does not necessarily need to spend a lot of time with his or her employees. Good managers make every minute count, and do their best to make sure everyone at the company is successful. 14
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Exercise: 1. 2. 3. 4.
What is the administration as a science؟ Define business management؟ What is the shroud administration؟ Define the Director?
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Chapter Two The Management Process Objectives -
To provide an introduction to Business Process Management. Definition of the functions of administration Definition of planning. Definition of decision-making. Regulatory definition. Definition of leadership.
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Management process is a systematic way of doing things. We refer to management as a process to emphasize that all managers, irrespective of their aptitude or skill, engage in some inter-related functions in order to achieve their desired goals. In this post I am briefly going to describe the functions of management or step of management process. Management process or functions involves for basic activities; 1. 2. 3. 4.
Planning and decision making Organizing Leading Controlling
Four Steps of Management Process 1. Planning and Decision Making: Determining Courses of Action Looking ahead into the future and predict possible trends or occurrences which are likely to influence the working situation is the most vital quality as well as job of a manager. Planning means setting an organization’s goal and deciding how best to achieve them. Planning is decision making, regarding the goals and setting the future course of action from a set of alternatives to reach them. Plan helps to maintain the managerial effectiveness as it works as a guide to the personnel’s for the future activities. Selecting goals as well as the paths to achieve them, is what planning involves. Planning involves selecting missions and objectives and the actions to achieve them, it requires decision-making or choosing future courses of action from among alternatives. 19
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In short, planning means determining what the organization’s position and situation should be at some time in the future and deciding how best to bring about that situation. Planning helps maintain managerial effectiveness by guiding future activities. For a manager, planning and decision-making requires an ability to foresee, to visualize, and to look ahead purposefully. 2. Organizing: Coordinating Activities and Resources Organizing can be defended as the process by which the established plans are moved closer to realization. Once a manager set goals and develops plans, his next managerial function is organizing human and other resources that are identified as necessary by the plan to reach the goal. Organizing involves determining how activities and resources are to be assembled and co-ordinated. Organization can also be defined as an intentionally formalized structure of positions or roles for people to fill in an organization. Organizing produces a structure of relationships in an organization and it is through these structured relationships that future plans are pursued. Organizing, then, is that part of managing which involves: establishing an intentional structure of roles for people to fill in nix organization. It is intentional in the sense of making sure that all the tasks necessary to accomplish goals are assigned to people who can do then best. The purpose of an organization structure is to create an environment for best human performance. The 20
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structure must define the task to be done. The roles so established must also be designed in the light of the abilities and motivations of the people available. Staffing is related to organizing and it involves filling and keeping filled, the positions in the organization structure. This can be done by determining the positions to be filled, identifying the requirement of manpower, filling the vacancies and training employees so that the assigned tasks are accomplished effectively and efficiently. The managerial functions of promotion, demotion, discharge, dismissal, transfer, etc. Are also included with the broad task “staffing.” staffing ensures the placement of the right person at the right position. Basically organizing is deciding where decisions will be made, who will do what jobs and tasks, who will work for whom, and how resources will assemble. 3. Leading: Managing and Motivating People The third basic managerial function is leading. The skill to influencing people for a particular purpose or reason is called leading. Leading is considered to be the most important and challenging of all managerial activities. Leading is influencing or prompting the member of the organization to work together the interest of the organization. Creating a positive attitude towards the work and goals in among the members of the organization is called leading. It is required as it helps to serve the objective of effectiveness and efficiency by changing the behavior of the employees.
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Leading involves a number of deferent processes and activates. The functions of direction, motivation, communication, and coordination are considered a part of leading process or system. Coordinating is also essential in leading. Most authors do not consider it a separate function of management. Rather they regard co- radiating as the essence of manager ship for achieving harmony among individual efforts towards accomplishing group targets. Motivating is essential quality for leading. Motivating is the management process of influencing people’s behavior based on the knowledge of what cause and channel sustain human behavior in a particular committed direction. Efficient managers need to be effective leaders. Since leadership implies fellowship and people tend to follow those who offer a means of satisfying their own needs, hopes and aspirations it is understandable that leading involves motivation leadership styles and approaches and communication. 4. Controlling: Monitoring and Evaluating activities Monitoring the organizational progress toward goal fulfillment is called controlling. Monitoring the progress is essential to ensure the achievement of organizational goal. Controlling is measuring, comparing, finding deviation and correcting the organizational activities which are performed for achieving the goals or objectives.
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Controlling consist of activities, like; measuring the performance, comparing with the existing standard and finding the deviations, and correcting the deviations. Control activities generally relate to the measurement of achievement or results of actions which were taken to attain the goal. Some means of controlling, like the budget for expenses, inspection records, and the record of labor hours lost, are generally familiar. Each measure also shows whether plans are working out. If deviations persist, correction is indicated. Whenever results are found to differ from planned action, persons responsible are to be identified and necessary actions are to be taken to improve performance. Thus outcomes are controlled by controlling what people do. Controlling is the last but not the least important function of management process. It is rightly said, “Planning without controlling is useless”. In short we can say the controlling enables the accomplishment of plan. As we can understand from above description is that all the management functions of its process is inter-related and cannot be skipped. The management process designs and maintains an environment in which personnel’s, working together in groups, accomplish efficiently selected aims. All managers carry out the main functions of management; planning, organizing, staffing, leading and controlling. But depending on the skills and position on organizational level, the time and labor spent in each function will differ.
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Exercise: 1. 2. 3. 4.
What are the management functions? What is the planning? What is regulation? What is the leadership?
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Chapter Three Levels of Management Objectives: 1. 2. 3. 4.
Determine the levels of management Identify middle management Identify the executive management. Definition of senior management
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The term “Levels of Management’ refers to a line of demarcation between various managerial positions in an organization. The number of levels in management increases when the size of the business and work force increases and vice versa. The level of management determines a chain of command, the amount of authority & status enjoyed by any managerial position. The levels of management can be classified in three broad categories: 1- Top level / Administrative level 2- Middle level / Executory 3- Low level / Supervisory / Operative / Firstline managers Managers at all these levels perform different functions. The role of managers at all the three levels is discussed below:
LEVELS OF MANAGEMENT
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1. Top Level of Management It consists of board of directors, chief executive or managing director. The top management is the ultimate source of authority and it manages goals and policies for an enterprise. It devotes more time on planning and coordinating functions. The role of the top management can be summarized as follows a. Top management lays down the objectives and broad policies of the enterprise. b. It issues necessary instructions for preparation of department budgets, procedures, schedules etc. c. It prepares strategic plans & policies for the enterprise. d. It appoints the executive for middle level i.e. departmental managers. e. It controls & coordinates the activities of all the departments. f. It is also responsible for maintaining a contact with the outside world. g. It provides guidance and direction. h. The top management is also responsible towards the shareholders for the performance of the enterprise. 2. Middle Level of Management The branch managers and departmental managers constitute middle level. They are responsible to the top management for the functioning of their department. 28
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They devote more time to organizational and directional functions. In small organization, there is only one layer of middle level of management but in big enterprises, there may be senior and junior middle level management. Their role can be emphasized as a. They execute the plans of the organization in accordance with the policies and directives of the top management. b. They make plans for the sub-units of the organization. c. They participate in employment & training of lower level management. d. They interpret and explain policies from top level management to lower level. e. They are responsible for coordinating the activities within the division or department. f. It also sends important reports and other important data to top level management. g. They evaluate performance of junior managers. h. They are also responsible for inspiring lower level managers towards better performance. 3. Lower Level of Management Lower level is also known as supervisory / operative level of management. It consists of supervisors, foreman, section officers, superintendent etc. According to R.C. Davis, “Supervisory management refers to those executives whose work has to be largely with personal oversight and direction of operative employees”. In other words, they are concerned with
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direction and controlling function of management. Their activities include a. Assigning of jobs and tasks to various workers. b. They guide and instruct workers for day to day activities. c. They are responsible for the quality as well as quantity of production. d. They are also entrusted with the responsibility of maintaining good relation in the organization. e. They communicate workers problems, suggestions, and recommendatory appeals etc to the higher level and higher level goals and objectives to the workers. f. They help to solve the grievances of the workers. g. They supervise & guide the sub-ordinates. h. They are responsible for providing training to the workers. i. They arrange necessary materials, machines, tools etc for getting the things done. j. They prepare periodical reports about the performance of the workers. k. They ensure discipline in the enterprise. l. They motivate workers. m. They are the image builders of the enterprise because they are in direct contact with the workers.
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Chapter Four Management Functions (Planning, organizing) Objectives: -Determine the steps in planning function. - identify characteristics of planning. - clarify the advantages and disadvantages of planning. - identify the principles of organizing. - Clarify classification of organizing.
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The successful manager must actively perform basic managerial functions. One of the earliest classifications of managerial functions was made by Fayol, who suggested that planning, organizing, coordinating, commanding, and controlling were the primary functions. Some others theorists identify additional management functions, such as staffing, communicated, or decision making. But now generally, there is agreement that the basic managerial functions are: planning, organizing, leading, and controlling. The additional functions (e.g., communicated, or decision making) will be discussed as subsets of the four primary functions. Planning Function of Management Planning means looking ahead and chalking out future courses of action to be followed. It is a preparatory step. It is a systematic activity which determines when, how and who is going to perform a specific job. Planning is a detailed programme regarding future courses of action. It is rightly said “Well plan is half done”. Therefore planning takes into consideration available & prospective human and physical resources of the organization so as to get effective co-ordination, contribution & perfect adjustment. It is the basic management function which includes formulation of one or more detailed plans to achieve optimum balance of needs or demands with the available resources. According to Urwick, “Planning is a mental predisposition to do things in orderly way, to think before acting and to act in the light of facts rather than guesses”. Planning is deciding 33
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best alternative among others to perform different managerial functions in order to achieve predetermined goals. According to Koontz & O’Donell, “Planning is deciding in advance what to do, how to do and who is to do it. Planning bridges the gap between where we are to, where we want to go. It makes possible things to occur which would not otherwise occur”. Steps in Planning Function Planning function of management involves following steps:1. Establishment of objectives a. Planning requires a systematic approach. b. Planning starts with the setting of goals and objectives to be achieved. c. Objectives provide a rationale for undertaking various activities as well as indicate direction of efforts. d. Moreover objectives focus the attention of managers on the end results to be achieved. e. As a matter of fact, objectives provide nucleus to the planning process. Therefore, objectives should be stated in a clear, precise and unambiguous language. Otherwise the activities undertaken are bound to be ineffective. f. As far as possible, objectives should be stated in quantitative terms. For example, Number of men 34
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working, wages given, units produced, etc. But such an objective cannot be stated in quantitative terms like performance of quality control manager, effectiveness of personnel manager. g. Such goals should be specified in qualitative terms. h. Hence objectives should be practical, acceptable, workable and achievable. 2. Establishment of Planning Premises a. Planning premises are the assumptions about the lively shape of events in future. b. They serve as a basis of planning. c. Establishment of planning premises is concerned with determining where one tends to deviate from the actual plans and causes of such deviations. d. It is to find out what obstacles are there in the way of business during the course of operations. e. Establishment of planning premises is concerned to take such steps that avoids these obstacles to a great extent. f. Planning premises may be internal or external. Internal includes capital investment policy, management labour relations, philosophy of management, etc. Whereas external includes
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socio- economic, political and economical changes. g. Internal premises are controllable whereas external are non- controllable. 3. Choice of alternative course of action a. When forecast are available and premises are established, a number of alternative course of actions have to be considered. b. For this purpose, each and every alternative will be evaluated by weighing its pros and cons in the light of resources available and requirements of the organization. c. The merits, demerits as well as the consequences of each alternative must be examined before the choice is being made. d. After objective and scientific evaluation, the best alternative is chosen. e. The planners should take help of various quantitative techniques to judge the stability of an alternative. 4. Formulation of derivative plans a. Derivative plans are the sub plans or secondary plans which help in the achievement of main plan.
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b. Secondary plans will flow from the basic plan. These are meant to support and expediate the achievement of basic plans. c. These detail plans include policies, procedures, rules, programmes, budgets, schedules, etc. For example, if profit maximization is the main aim of the enterprise, derivative plans will include sales maximization, production maximization, and cost minimization. d. Derivative plans indicate time schedule and sequence of accomplishing various tasks. 5. Securing Co-operation a. After the plans have been determined, it is necessary rather advisable to take subordinates or those who have to implement these plans into confidence. b. The purposes behind confidence are :-
taking
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Subordinates may feel motivated since they are involved in decision making process.
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6. Follow up/Appraisal of plans a. After choosing a particular course of action, it is put into action. b. After the selected plan is implemented, it is important to appraise its effectiveness. c. This is done on the basis of feedback or information received from departments or persons concerned. d. This enables the management deviations or modify the plan.
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e. This step establishes a link between planning and controlling function. f. The follow up must go side by side the implementation of plans so that in the light of observations made, future plans can be made more realistic. Characteristics of Planning 1. Planning is goal-oriented. a. Planning is made to achieve desired objective of business. b. The goals established should general acceptance otherwise individual efforts & energies will go misguided and misdirected. c. Planning identifies the action that would lead to desired goals quickly & economically. 38
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d. It provides sense of direction to various activities. E.g. Maruti Udhyog is trying to capture once again Indian Car Market by launching diesel models. 2. Planning is looking ahead. a. Planning is done for future. b. It requires peeping in future, analyzing it and predicting it. c. Thus planning is based on forecasting. d. A plan is a synthesis of forecast. e. It is a mental predisposition for things to happen in future. 3. Planning is an intellectual process. a. Planning is a mental exercise involving creative thinking, sound judgment and imagination. b. It is not a mere guesswork but a rotational thinking. c. A manager can prepare sound plans only if he has sound judgment, foresight and imagination. d. Planning is always based on goals, facts and considered estimates. 4. Planning involves choice & decision making. a. Planning essentially involves choice among various alternatives. 39
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b. Therefore, if there is only one possible course of action, there is no need planning because there is no choice. c. Thus, decision making is an integral part of planning. d. A manager is surrounded by no. of alternatives. He has to pick the best depending upon requirements & resources of the enterprises. 5. Planning is the primary function of management / Primacy of Planning. a. Planning lays foundation for other functions of management. b. It serves as a guide for organizing, staffing, directing and controlling. c. All the functions of management are performed within the framework of plans laid out. d. Therefore planning is the basic or fundamental function of management. 6. Planning is a Continuous Process. a. Planning is a never ending function due to the dynamic business environment. b. Plans are also prepared for specific period f time and at the end of that period, plans are subjected to revaluation and review in the light of new requirements and changing conditions.
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c. Planning never comes into end till the enterprise exists issues, problems may keep cropping up and they have to be tackled by planning effectively. 7. Planning is all Pervasive. a. It is required at all levels of management and in all departments of enterprise. b. Of course, the scope of planning may differ from one level to another. c. The top level may be more concerned about planning the organization as a whole whereas the middle level may be more specific in departmental plans and the lower level plans implementation of the same. 8. Planning is designed for efficiency. a. Planning leads to accomplishment of objectives at the minimum possible cost. b. It avoids wastage of resources and ensures adequate and optimum utilization of resources. c. A plan is worthless or useless if it does not value the cost incurred on it. d. Therefore planning must lead to saving of time, effort and money. e. Planning leads to proper utilization of men, money, materials, methods and machines.
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9. Planning is Flexible. a. Planning is done for the future. b. Since future is unpredictable, planning must provide enough room to cope with the changes in customer’s demand, competition, govt. policies etc. c. Under changed circumstances, the original plan of action must be revised and updated to make it more practical. Advantages of Planning 1. Planning facilitates management by objectives. a. Planning begins objectives.
with
determination
of
b. It highlights the purposes for which various activities are to be undertaken. c. In fact, it makes objectives more clear and specific. d. Planning helps in focusing the attention of employees on the objectives or goals of enterprise. e. Without planning an organization has no guide. f. Planning compels manager to prepare a Blueprint of the courses of action to be followed for accomplishment of objectives.
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g. Therefore, planning brings order and rationality into the organization. 2. Planning minimizes uncertainties. a. Business is full of uncertainties. b. There are risks of various types due to uncertainties. c. Planning helps in reducing uncertainties of future as it involves anticipation of future events. d. Although future cannot be predicted with cent percent accuracy but planning helps management to anticipate future and prepare for risks by necessary provisions to meet unexpected turn of events. e. Therefore with the help of planning, uncertainties can be forecasted which helps in preparing standbys as a result, uncertainties are minimized to a great extent.
3. Planning facilitates co-ordination. a. Planning revolves around organizational goals. b. All activities are directed towards common goals. c. There is an integrated effort throughout the enterprise in various departments and groups.
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d. It avoids duplication of efforts. In other words, it leads to better co-ordination. e. It helps in finding out problems of work performance and aims at rectifying the same. 4. Planning improves employee’s moral. a. Planning creates an atmosphere of order and discipline in organization. b. Employees know in advance what is expected of them and therefore conformity can be achieved easily. c. This encourages employees to show their best and also earn reward for the same. d. Planning creates a healthy attitude towards work environment which helps in boosting employees moral and efficiency. 5. Planning helps in achieving economies. a. Effective planning secures economy since it leads to orderly allocation of resources to various operations. b. It also facilitates optimum utilization of resources which brings economy in operations. c. It also avoids wastage of resources by selecting most appropriate use that will contribute to the objective of enterprise. For example, raw materials can be purchased in bulk and transportation cost can be minimized. At the 44
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same time it ensures regular supply for the production department, that is, overall efficiency. 6. Planning facilitates controlling. a. Planning facilitates existence of certain planned goals and standard of performance. b. It provides basis of controlling. c. We cannot think of an effective system of controlling without existence of well thought out plans. d. Planning provides pre-determined goals against which actual performance is compared. e. In fact, planning and controlling are the two sides of a same coin. If planning is root, controlling is the fruit. 7. Planning provides competitive edge. a. Planning provides competitive edge to the enterprise over the others which do not have effective planning. This is because of the fact that planning may involve changing in work methods, quality, quantity designs, extension of work, redefining of goals, etc. b. With the help of forecasting not only the enterprise secures its future but at the same time it is able to estimate the future motives of it’s
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competitor which challenges.
helps
in
facing
future
c. Therefore, planning leads to best utilization of possible resources, improves quality of production and thus the competitive strength of the enterprise is improved. 8. Planning encourages innovations. a. In the process of planning, managers have the opportunities of suggesting ways and means of improving performance. b. Planning is basically a decision making function which involves creative thinking and imagination that ultimately leads to innovation of methods and operations for growth and prosperity of the enterprise. Disadvantages of Planning Internal Limitations There are several limitations of planning. Some of them are inherit in the process of planning like rigidity and other arise due to shortcoming of the techniques of planning and in the planners themselves. 1. Rigidity a. Planning has tendency to make administration inflexible.
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b. Planning implies prior determination of policies, procedures and programmes and a strict adherence to them in all circumstances. c. There is no scope for individual freedom. d. The development of employees is highly doubted because of which management might have faced lot of difficulties in future. e. Planning therefore introduces inelasticity and discourages individual initiative and experimentation. 2. Misdirected Planning a. Planning may be used to serve individual interests rather than the interest of the enterprise. b. Attempts can be made to influence setting of objectives, formulation of plans and programmes to suit one's own requirement rather than that of whole organization. c. Machinery of planning can never be freed of bias. Every planner has his own likes, dislikes, preferences, attitudes and interests which is reflected in planning. 3. Time consuming a. Planning is a time consuming process because it involves collection of information, it’s analysis and interpretation thereof. This entire process
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takes a lot of time specially where there are a number of alternatives available. b. Therefore planning is not suitable during emergency or crisis when quick decisions are required. 4. Probability in planning a. Planning is based on forecasts which are mere estimates about future. b. These estimates may prove to be inexact due to the uncertainty of future. c. Any change in the anticipated situation may render plans ineffective. d. Plans do not always reflect real situations inspite of the sophisticated techniques of forecasting because future is unpredictable. e. Thus, excessive reliance on plans may prove to be fatal. 5. False sense of security a. Elaborate planning may create a false sense of security to the effect that everything is taken for granted. b. Managers assume that as long as they work as per plans, it is satisfactory. c. Therefore they fail to take up timely actions and an opportunity is lost. 48
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d. Employees are more concerned about fulfillment of plan performance rather than any kind of change. 6. Expensive a. Collection, analysis and evaluation of different information, facts and alternatives involves a lot of expense in terms of time, effort and money b. According to Koontz and O’Donell, ’ Expenses on planning should never exceed the estimated benefits from planning. ’ External Limitations of Planning 1. Political Climate- Change of government from Congress to some other political party, etc. 2. Labour Union- Strikes, lockouts, agitations. 3. Technological changes- Modern techniques equipment, computerization.
and
4. Policies of competitors- Eg. Policies of Coca Cola and Pepsi. 5. Natural Calamities- Earthquakes and floods. 6. Changes in demand and prices- Change in fashion, change in tastes, change in income level, demand falls, price falls, etc. Organizing Function of Management Organizing is the function of management which follows planning. It is a function in which the synchronization and 49
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combination of human, physical and financial resources takes place. All the three resources are important to get results. Therefore, organizational function helps in achievement of results which in fact is important for the functioning of a concern. According to Chester Barnard, “Organizing is a function by which the concern is able to define the role positions, the jobs related and the coordination between authority and responsibility. Hence, a manager always has to organize in order to get results. A manager performs organizing function with the help of following steps:1. Identification of activities - All the activities which have to be performed in a concern have to be identified first. For example, preparation of accounts, making sales, record keeping, quality control, inventory control, etc. All these activities have to be grouped and classified into units. 2. Departmentally organizing the activities - In this step, the manager tries to combine and group similar and related activities into units or departments. This organization of dividing the whole concern into independent units and departments is called departmentation. 3. Classifying the authority - Once the departments are made, the manager likes to classify the powers and its extent to the managers. This activity of giving a rank in order to the managerial positions is called hierarchy. The top management is into formulation of policies, the middle level management into departmental 50
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supervision and lower level management into supervision of foremen. The clarification of authority help in bringing efficiency in the running of a concern. This helps in achieving efficiency in the running of a concern. This helps in avoiding wastage of time, money, effort, in avoidance of duplication or overlapping of efforts and this helps in bringing smoothness in a concern’s working. 4. Co-ordination between authority and responsibility - Relationships are established among various groups to enable smooth interaction toward the achievement of the organizational goal. Each individual is made aware of his authority and he/she knows whom they have to take orders from and to whom they are accountable and to whom they have to report. A clear organizational structure is drawn and all the employees are made aware of it. Importance of Organizing Function 1. Specialization - Organizational structure is a network of relationships in which the work is divided into units and departments. This division of work is helping in bringing specialization in various activities of concern. 2. Well defined jobs - Organizational structure helps in putting right men on right job which can be done by selecting people for various departments according to their qualifications, skill and experience. This is helping in defining the jobs properly which clarifies the role of every person.
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3. Clarifies authority - Organizational structure helps in clarifying the role positions to every manager (status quo). This can be done by clarifying the powers to every manager and the way he has to exercise those powers should be clarified so that misuse of powers do not take place. Well defined jobs and responsibilities attached helps in bringing efficiency into managers working. This helps in increasing productivity. 4. Co-ordination - Organization is a means of creating co-ordination among different departments of the enterprise. It creates clear cut relationships among positions and ensure mutual co-operation among individuals. Harmony of work is brought by higher level managers exercising their authority over interconnected activities of lower level manager. Authority responsibility relationships can be fruitful only when there is a formal relationship between the two. For smooth running of an organization, the coordination between authority- responsibility is very important. There should be co-ordination between different relationships. Clarity should be made for having an ultimate responsibility attached to every authority. There is a saying, “Authority without responsibility leads to ineffective behaviour and responsibility without authority makes person ineffective.” Therefore, co-ordination of authorityresponsibility is very important. 5. Effective administration - The organization structure is helpful in defining the jobs positions. The roles to be performed by different managers are clarified. 52
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Specialization is achieved through division of work. This all leads to efficient and effective administration. 6. Growth and diversification - A company’s growth is totally dependent on how efficiently and smoothly a concern works. Efficiency can be brought about by clarifying the role positions to the managers, coordination between authority and responsibility and concentrating on specialization. In addition to this, a company can diversify if its potential grow. This is possible only when the organization structure is welldefined. This is possible through a set of formal structure. 7. Sense of security - Organizational structure clarifies the job positions. The roles assigned to every manager is clear. Co-ordination is possible. Therefore, clarity of powers helps automatically in increasing mental satisfaction and thereby a sense of security in a concern. This is very important for job- satisfaction. 8. Scope for new changes - Where the roles and activities to be performed are clear and every person gets independence in his working, this provides enough space to a manager to develop his talents and flourish his knowledge. A manager gets ready for taking independent decisions which can be a road or path to adoption of new techniques of production. This scope for bringing new changes into the running of an enterprise is possible only through a set of organizational structure.
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Principles of Organizing The organizing process can be done efficiently if the managers have certain guidelines so that they can take decisions and can act. To organize in an effective manner, the following principles of organization can be used by a manager. 1. Principle of Specialization According to the principle, the whole work of a concern should be divided amongst the subordinates on the basis of qualifications, abilities and skills. It is through division of work specialization can be achieved which results in effective organization. 2. Principle of Functional Definition According to this principle, all the functions in a concern should be completely and clearly defined to the managers and subordinates. This can be done by clearly defining the duties, responsibilities, authority and relationships of people towards each other. Clarifications in authority-responsibility relationships helps in achieving co-ordination and thereby organization can take place effectively. For example, the primary functions of production, marketing and finance and the authority responsibility relationships in these departments should be clearly defined to every person attached to that department. Clarification in the authority-responsibility relationship helps in efficient organization.
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3. Principles of Span of Control/Supervision According to this principle, span of control is a span of supervision which depicts the number of employees that can be handled and controlled effectively by a single manager. According to this principle, a manager should be able to handle what number of employees under him should be decided. This decision can be taken by choosing either from a wide or narrow span. There are two types of span of control:a. Wide span of control- It is one in which a manager can supervise and control effectively a large group of persons at one time. The features of this span are:i.
Less overhead cost of supervision
ii.
Prompt response from the employees
iii.
Better communication
iv.
Better supervision
v.
Better co-ordination
vi.
Suitable for repetitive jobs
According to this span, one manager can effectively and efficiently handle a large number of subordinates at one time. b. Narrow span of control- According to this span, the work and authority is divided amongst many subordinates and a manager doesn't supervises and control a very big group of 55
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people under him. The manager according to a narrow span supervises a selected number of employees at one time. The features are:i.
Work which requires tight control and supervision, for example, handicrafts, ivory work, etc. which requires craftsmanship, there narrow span is more helpful.
ii.
Co-ordination is difficult to be achieved.
iii.
Communication gaps can come.
iv.
Messages can be distorted.
v.
Specialization work can be achieved.
Factors influencing Span of Control 1. Managerial abilities- In the concerns where managers are capable, qualified and experienced, wide span of control is always helpful. 2. Competence of subordinates- Where the subordinates are capable and competent and their understanding levels are proper, the subordinates tend to very frequently visit the superiors for solving their problems. In such cases, the manager can handle large number of employees. Hence wide span is suitable. 3. Nature of work- If the work is of repetitive nature, wide span of supervision is more helpful. On the other hand, if work requires mental skill or craftsmanship, tight control
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and supervision is required in which narrow span is more helpful. 4. Delegation of authority- When the work is delegated to lower levels in an efficient and proper way, confusions are less and congeniality of the environment can be maintained. In such cases, wide span of control is suitable and the supervisors can manage and control large number of subordinates at one time. 5. Degree of decentralization- Decentralization is done in order to achieve specialization in which authority is shared by many people and managers at different levels. In such cases, a tall structure is helpful. There are certain concerns where decentralization is done in very effective way which results in direct and personal communication between superiors and sub- ordinates and there the superiors can manage large number of subordinates very easily. In such cases, wide span again helps. Principle of Scalar Chain Scalar chain is a chain of command or authority which flows from top to bottom. With a chain of authority available, wastages of resources are minimized, communication is affected, overlapping of work is avoided and easy organization takes place. A scalar chain of command facilitates work flow in an organization which helps in achievement of effective results. As the authority flows from top to bottom, it clarifies the authority positions to managers at all level and that facilitates effective organization.
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Principle of Unity of Command It implies one subordinate-one superior relationship. Every subordinate is answerable and accountable to one boss at one time. This helps in avoiding communication gaps and feedback and response is prompt. Unity of command also helps in effective combination of resources, that is, physical, financial resources which helps in easy co-ordination and, therefore, effective organization. Authority Flows from Top to Bottom Managing Director ↓ Marketing Manager ↓ Sales/ Media Manager ↓ Salesmen According to the above diagram, the Managing Director has got the highest level of authority. This authority is shared by the Marketing Manager who shares his authority with the Sales Manager. From this chain of hierarchy, the official chain of communication becomes clear which is helpful in achievement of 58
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results and which provides stability to a concern. This scalar chain of command always flow from top to bottom and it defines the authority positions of different managers at different levels. Classification of Organizations Organizations are basically classified on the basis of relationships. There are two types of organizations formed on the basis of relationships in an organization 1. Formal Organization - This is one which refers to a structure of well defined jobs each bearing a measure of authority and responsibility. It is a conscious determination by which people accomplish goals by adhering to the norms laid down by the structure. This kind of organization is an arbitrary set up in which each person is responsible for his performance. Formal organization has a formal set up to achieve predetermined goals. 2. Informal Organization - It refers to a network of personal and social relationships which spontaneously originates within the formal set up. Informal organizations develop relationships which are built on likes, dislikes, feelings and emotions. Therefore, the network of social groups based on friendships can be called as informal organizations. There is no conscious effort made to have informal organization. It emerges from the formal organization and it is not based on any rules and regulations as in case of formal organization.
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Relationship Organizations
between
Formal
and
Informal
For a concerns working both formal and informal organization are important. Formal organization originates from the set organizational structure and informal organization originates from formal organization. For an efficient organization, both formal and informal organizations are required. They are the two phase of a same concern. Formal organization can work independently. But informal organization depends totally upon the formal organization. Formal and informal organization helps in bringing efficient working organization and smoothness in a concern. Within the formal organization, the members undertake the assigned duties in co-operation with each other. They interact and communicate amongst themselves. Therefore, both formal and informal organizations are important. When several people work together for achievement of organizational goals, social tie ups tends to built and therefore informal organization helps to secure co-operation by which goals can be achieved smooth. Therefore, we can say that informal organization emerges from formal organization. Staffing Function of Management The managerial function of staffing involves manning the organization structure through proper and effective selection, appraisal and development of the personals to fill the roles assigned to the employers/workforce.
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According to Theo Haimann, “Staffing pertains to recruitment, selection, development and compensation of subordinates.” Nature of Staffing Function 1. Staffing is an important managerial functionStaffing function is the most important managerial act along with planning, organizing, directing and controlling. The operations of these four functions depend upon the manpower which is available through staffing function. 2. Staffing is a pervasive activity- As staffing function is carried out by all mangers and in all types of concerns where business activities are carried out. 3. Staffing is a continuous activity- This is because staffing function continues throughout the life of an organization due to the transfers and promotions that take place. 4. The basis of staffing function is efficient management of personals- Human resources can be efficiently managed by a system or proper procedure, that is, recruitment, selection, placement, training and development, providing remuneration, etc. 5. Staffing helps in placing right men at the right job. It can be done effectively through proper recruitment procedures and then finally selecting the most suitable candidate as per the job requirements.
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6. Staffing is performed by all managers depending upon the nature of business, size of the company, qualifications and skills of managers, etc. In small companies, the top management generally performs this function. In medium and small scale enterprise, it is performed especially by the personnel department of that concern. Staffing Process - Steps involved in Staffing 1. Manpower requirements- The very first step in staffing is to plan the manpower inventory required by a concern in order to match them with the job requirements and demands. Therefore, it involves forecasting and determining the future manpower needs of the concern. 2. Recruitment- Once the requirements are notified, the concern invites and solicits applications according to the invitations made to the desirable candidates. 3. Selection- This is the screening step of staffing in which the solicited applications are screened out and suitable candidates are appointed as per the requirements. 4. Orientation and Placement- Once screening takes place, the appointed candidates are made familiar to the work units and work environment through the orientation programmes. placement takes place by putting right man on the right job. 5. Training and Development- Training is a part of incentives given to the workers in order to develop and 62
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grow them within the concern. Training is generally given according to the nature of activities and scope of expansion in it. Along with it, the workers are developed by providing them extra benefits of in depth knowledge of their functional areas. Development also includes giving them key and important jobs as a test or examination in order to analyze their performances. 6. Remuneration- It is a kind of compensation provided monetarily to the employees for their work performances. This is given according to the nature of job- skilled or unskilled, physical or mental, etc. Remuneration forms an important monetary incentive for the employees. 7. Performance Evaluation- In order to keep a track or record of the behavior, attitudes as well as opinions of the workers towards their jobs. For this regular assessment is done to evaluate and supervise different work units in a concern. It is basically concerning to know the development cycle and growth patterns of the employees in a concern. 8. Promotion and transfer- Promotion is said to be a non- monetary incentive in which the worker is shifted from a higher job demanding bigger responsibilities as well as shifting the workers and transferring them to different work units and branches of the same organization. Manpower Planning Manpower Planning which is also called as Human Resource Planning consists of putting right number of people, right 63
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kind of people at the right place, right time, doing the right things for which they are suited for the achievement of goals of the organization. Human Resource Planning has got an important place in the arena of industrialization. Human Resource Planning has to be a systems approach and is carried out in a set procedure. The procedure is as follows: 1. Analyzing the current manpower inventory 2. Making future manpower forecasts 3. Developing employment programmes 4. Design training programmes Steps in Manpower Planning 1. Analyzing the current manpower inventory- Before a manager makes forecast of future manpower, the current manpower status has to be analyzed. For this the following things have to be noted
Type of organization
Number of departments
Number and quantity of such departments
Employees in these work units
Once these factors are registered by a manager, he goes for the future forecasting. 2. Making future manpower forecasts- Once the factors affecting the future manpower forecasts are known, planning can be done for the future manpower requirements in several work units. 64
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The Manpower forecasting techniques commonly employed by the organizations are as follows: i.
Expert Forecasts: This includes informal decisions, formal expert surveys and Delphi technique.
ii.
Trend Analysis: Manpower needs can be projected through extrapolation (projecting past trends), indexation (using base year as basis), and statistical analysis (central tendency measure).
iii.
Work Load Analysis: It is dependent upon the nature of work load in a department, in a branch or in a division.
iv.
Work Force Analysis: Whenever production and time period has to be analyzed, due allowances have to be made for getting net manpower requirements.
v.
Other methods: Several Mathematical models, with the aid of computers are used to forecast manpower needs, like budget and planning analysis, regression, new venture analysis.
3. Developing employment programmes- Once the current inventory is compared with future forecasts, the employment programmes can be framed and developed accordingly, which will include recruitment, selection procedures and placement plans.
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4. Design training programmes- These will be based upon extent of diversification, expansion plans, development programmes,etc. Training programmes depend upon the extent of improvement in technology and advancement to take place. It is also done to improve upon the skills, capabilities, knowledge of the workers. Importance of Manpower Planning 1. Key to managerial functions- The four managerial functions, i.e., planning, organizing, directing and controlling are based upon the manpower. Human resources help in the implementation of all these managerial activities. Therefore, staffing becomes a key to all managerial functions. 2. Efficient utilization- Efficient management of personnels becomes an important function in the industrialization world of today. Setting of large scale enterprises require management of large scale manpower. It can be effectively done through staffing function. 3. Motivation- Staffing function not only includes putting right men on right job, but it also comprises of motivational programmes, i.e., incentive plans to be framed for further participation and employment of employees in a concern. Therefore, all types of incentive plans becomes an integral part of staffing function. 4. Better human relations- A concern can stabilize itself if human relations develop and are strong. Human 66
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relations become strong trough effective control, clear communication, effective supervision and leadership in a concern. Staffing function also looks after training and development of the work force which leads to cooperation and better human relations. 5. Higher productivity- Productivity level increases when resources are utilized in best possible manner. higher productivity is a result of minimum wastage of time, money, efforts and energies. This is possible through the staffing and it's related activities (Performance appraisal, training and development, remuneration) Need of Manpower Planning Manpower Planning is a two-phased process because manpower planning not only analyses the current human resources but also makes manpower forecasts and thereby draw employment programmes. Manpower Planning is advantageous to firm in following manner: 1. Shortages and surpluses can be identified so that quick action can be taken wherever required. 2. All the recruitment and selection programmes are based on manpower planning. 3. It also helps to reduce the labour cost as excess staff can be identified and thereby overstaffing can be avoided.
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4. It also helps to identify the available talents in a concern and accordingly training programmes can be chalked out to develop those talents. 5. It helps in growth and diversification of business. Through manpower planning, human resources can be readily available and they can be utilized in best manner. 6. It helps the organization to realize the importance of manpower management which ultimately helps in the stability of a concern.
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Chapter Five Management Functions (Leading, and controlling) Objectives: -clarify importance of directing function. -Determine the features of controlling function. - clarify the relationship between planning and controlling.
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Directing Function of Management DIRECTING is said to be a process in which the managers instruct, guide and oversee the performance of the workers to achieve predetermined goals. Directing is said to be the heart of management process. Planning, organizing, staffing has got no importance if direction function does not take place. Directing initiates action and it is from here actual work starts. Direction is said to be consisting of human factors. In simple words, it can be described as providing guidance to workers is doing work. In field of management, direction is said to be all those activities which are designed to encourage the subordinates to work effectively and efficiently. According to Human, “Directing consists of process or technique by which instruction can be issued and operations can be carried out as originally planned” Therefore, Directing is the function of guiding, inspiring, overseeing and instructing people towards accomplishment of organizational goals. Direction has got following characteristics: 1. Pervasive Function - Directing is required at all levels of organization. Every manager provides guidance and inspiration to his subordinates. 2. Continuous Activity - Direction is a continuous activity as it continuous throughout the life of organization. 3. Human Factor - Directing function is related to subordinates and therefore it is related to human factor.
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Since human factor is complex and behaviour is unpredictable, direction function becomes important. 4. Creative Activity - Direction function helps in converting plans into performance. Without this function, people become inactive and physical resources are meaningless. 5. Executive Function - Direction function is carried out by all managers and executives at all levels throughout the working of an enterprise, a subordinate receives instructions from his superior only. 6. Delegate Function - Direction is supposed to be a function dealing with human beings. Human behaviour is unpredictable by nature and conditioning the people’s behaviour towards the goals of the enterprise is what the executive does in this function. Therefore, it is termed as having delicacy in it to tackle human behaviour. Importance of Directing Function Directing or Direction function is said to be the heart of management of process and therefore, is the central point around which accomplishment of goals take place. A few philosophers call Direction as “Life spark of an enterprise”. It is also called as on actuating function of management because it is through direction that the operation of an enterprise actually starts. Being the central character of enterprise, it provides many benefits to a concern which are as follows:-
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1. It Initiates Actions - Directions is the function which is the starting point of the work performance of subordinates. It is from this function the action takes place, subordinates understand their jobs and do according to the instructions laid. Whatever are plans laid, can be implemented only once the actual work starts. It is there that direction becomes beneficial. 2. It Ingrates Efforts - Through direction, the superiors are able to guide, inspire and instruct the subordinates to work. For this, efforts of every individual towards accomplishment of goals are required. It is through direction the efforts of every department can be related and integrated with others. This can be done through persuasive leadership and effective communication. Integration of efforts bring effectiveness and stability in a concern. 3. Means of Motivation - Direction function helps in achievement of goals. A manager makes use of the element of motivation here to improve the performances of subordinates. This can be done by providing incentives or compensation, whether monetary or non - monetary, which serves as a “Morale booster” to the subordinates Motivation is also helpful for the subordinates to give the best of their abilities which ultimately helps in growth. 4. It Provides Stability - Stability and balance in concern becomes very important for long term sun survival in the market. This can be brought upon by the managers with the help of four tools or elements of direction function - judicious blend of persuasive 73
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leadership, effective communication, strict supervision and efficient motivation. Stability is very important since that is an index of growth of an enterprise. Therefore a manager can use of all the four traits in him so that performance standards can be maintained. 5. Coping up with the changes - It is a human behaviour that human beings show resistance to change. Adaptability with changing environment helps in sustaining planned growth and becoming a market leader. It is directing function which is of use to meet with changes in environment, both internal as external. Effective communication helps in coping up with the changes. It is the role of manager here to communicate the nature and contents of changes very clearly to the subordinates. This helps in clarifications, easy adoptions and smooth running of an enterprise. For example, if a concern shifts from handlooms to power looms, an important change in technique of production takes place. The resulting factors are less of manpower and more of machinery. This can be resisted by the subordinates. The manager here can explain that the change was in the benefit of the subordinates. Through more mechanization, production increases and thereby the profits. Indirectly, the subordinates are benefited out of that in form of higher remuneration. 6. Efficient Utilization of Resources - Direction finance helps in clarifying the role of every subordinate towards his work. The resources can be utilized properly only when less of wastages, duplication of efforts, overlapping of performances, etc. doesn’t take 74
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place. Through direction, the role of subordinates become clear as manager makes use of his supervisory, the guidance, the instructions and motivation skill to inspire the subordinates. This helps in maximum possible utilization of resources of men, machine, materials and money which helps in reducing costs and increasing profits. From the above discussion, one can justify that direction, surely, is the heart of management process. Heart plays an important role in a human body as it serves the function pumping blood to all parts of body which makes the parts function. In the similar manner, direction helps the subordinates to perform in best of their abilities and that too in a healthy environment. The manager makes use of the four elements of direction here so that work can be accomplished in a proper and right manner. According to Earnest Dale, “Directing is what has to be done and in what manner through dictating the procedures and policies for accomplishing performance standards”. Therefore, it is rightly said that direction is essence of management process. Role of a Supervisor Supervisor has got an important role to play in factory management. Supervision means overseeing the subordinates at work at the factory level. The supervisor is a part of the management team and he holds the designation of first line managers. He is a person who has to perform many functions which helps in achieving productivity. Therefore, supervisor can be called as the only manager who has an important role at execution level. There are certain philosophers who call supervisors as workers. There are yet some more 75
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philosophers who call them as managers. But actually he should be called as a manager or operative manager. His primary job is to manage the workers at operative level of management. A supervisor plays multi role at one time like : 1. As a Planner - A supervisor has to plan the daily work schedules in the factory. At the same time he has to divide the work to various workers according to their abilities. 2. As a Manager - It is righty said that a supervisor is a part of the management team of an enterprise. He is, in fact, an operative manager. 3. As a Guide and Leader - A factory supervisor leads the workers by guiding them the way of perform their daily tasks. In fact, he plays a role of an inspirer by telling them. 4. As a Mediator - A Supervisor is called a linking pin between management and workers. He is the spokesperson of management as well as worker. 5. As an Inspector - An important role of supervisor is to enforce discipline in the factory. For this, the work includes checking progress of work against the time schedule, recording the work performances at regular intervals and reporting the deviations if any from those. He can also frame rules and regulations which have to be followed by workers during their work.
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6. As a Counselor - A supervisor plays the role of a counselor to the worker’s problem. He has to perform this role in order to build good relations and cooperation from workers. This can be done not only by listening to the grievances but also handling the grievances and satisfying the workers. Therefore, we can say that effective and efficient supervision helps in serving better work performance, building good human relations, creating a congenial and co-operative environment. This all helps in increasing productivity. Functions of a Supervisor Supervisor, being the manager in a direct contact with the operatives, has got multifarious function to perform. The objective behind performance of these functions is to bring stability and soundness in the organization which can be secured through increase in profits which is an end result of higher productivity. Therefore, a supervisor should be concerned with performing the following functions 1. Planning and Organizing - Supervisor’s basic role is to plan the daily work schedule of the workers by guiding them the nature of their work and also dividing the work amongst the workers according to their interests, aptitudes, skills and interests. 2. Provision of working conditions - A supervisor plays an important role in the physical setting of the factory and in arranging the physical resources at right place. This involves providing proper sitting place, ventilation, lighting, water facilities etc. to workers.
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His main responsibility is here to provide healthy and hygienic condition to the workers. 3. Leadership and Guidance - A supervisor is the leader of workers under him. He leads the workers and influences them to work their best. He also guides the workers by fixing production targets and by providing them instruction and guidelines to achieve those targets. 4. Motivation - A supervisor plays an important role by providing different incentives to workers to perform better. There are different monetary and non-monetary incentives which can inspire the workers to work better. 5. Controlling - Controlling is an important function performed by supervisor. This will involve i.
Recording the actual performance against the time schedule.
ii.
Checking of progress of work.
iii.
Finding out deviations if any and making solutions
iv.
If not independently solved, reporting it to top management.
6. Linking Pin - A supervisor proves to be a linking pin between management and workers. He communicates the policies of management to workers also passes instructions to them on behalf of management. On the other hand, he has a close contact with the workers and 78
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therefore can interact the problems, complaints, suggestions, etc to the management. In this way, he communicates workers problems and brings it to the notice of management. 7. Grievance Handling - The supervisor can handle the grievances of the workers effectively for this he has to do the following things :i.
He can be in direct touch with workers.
ii.
By winning the confidence of the workers by solving their problems.
iii.
By taking worker problems on humanitarian grounds.
iv.
If he cannot tackle it independently, he can take the help and advice of management to solve it.
8. Reporting - A supervisor has got an important role to report about the cost, quality and any such output which can be responsible for increasing productivity. Factors like cost, output, performance, quality, etc can be reported continually to the management. 9. Introducing new work methods - The supervisor here has to be conscious about the environment of market and competition present. Therefore he can innovate the techniques of production. He can shift the workers into fresh schedules whenever possible. He can also try this best to keep on changing and improving to the physical environment around the workers. This will result in 79
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i.
Higher productivity,
ii.
High Morale of Workers,
iii.
Satisfying working condition,
iv.
Improving human relations,
v.
Higher Profits, and
vi.
High Stability
10. Enforcing Discipline - A supervisor can undertake many steps to maintain discipline in the concern by regulating checks and measures, strictness in orders and instructions, keeping an account of general discipline of factory, implementing penalties and punishments for the indiscipline workers. All these above steps help in improving the overall discipline of the factory. Controlling Function of Management What is Controlling? Controlling consists of verifying whether everything occurs in conformities with the plans adopted, instructions issued and principles established. Controlling ensures that there is effective and efficient utilization of organizational resources so as to achieve the planned goals. Controlling measures the deviation of actual performance from the standard performance, discovers the causes of such deviations and helps in taking corrective actions According to Brech, “Controlling is a systematic exercise which is called as a process of checking actual performance 80
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against the standards or plans with a view to ensure adequate progress and also recording such experience as is gained as a contribution to possible future needs.” According to Donnell, “Just as a navigator continually takes reading to ensure whether he is relative to a planned action, so should a business manager continually take reading to assure himself that his enterprise is on right course.” Controlling has got two basic purposes 1. It facilitates co-ordination 2. It helps in planning Features of Controlling Function Following are the characteristics of controlling function of management1. Controlling is an end function- A function which comes once the performances are made in conformities with plans. 2. Controlling is a pervasive function- which means it is performed by managers at all levels and in all type of concerns. 3. Controlling is forward looking- because effective control is not possible without past being controlled. Controlling always look to future so that follow-up can be made whenever required. 4. Controlling is a dynamic process- since controlling requires taking reviewable methods, changes have to be made wherever possible. 81
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5. Controlling is related with planning- Planning and Controlling are two inseparable functions of management. Without planning, controlling is a meaningless exercise and without controlling, planning is useless. Planning presupposes controlling and controlling succeeds planning. Process of Controlling Controlling as a management function involves following steps: 1. Establishment of standards- Standards are the plans or the targets which have to be achieved in the course of business function. They can also be called as the criterions for judging the performance. Standards generally are classified into twoa. Measurable or tangible - Those standards which can be measured and expressed are called as measurable standards. They can be in form of cost, output, expenditure, time, profit, etc. b. Non-measurable or intangible- There are standards which cannot be measured monetarily. For example- performance of a manager, deviation of workers, their attitudes towards a concern. These are called as intangible standards. Controlling becomes easy through establishment of these standards because controlling is exercised on the basis of these standards.
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2. Measurement of performance- The second major step in controlling is to measure the performance. Finding out deviations becomes easy through measuring the actual performance. Performance levels are sometimes easy to measure and sometimes difficult. Measurement of tangible standards is easy as it can be expressed in units, cost, money terms, etc. Quantitative measurement becomes difficult when performance of manager has to be measured. Performance of a manager cannot be measured in quantities. It can be measured only bya. Attitude of the workers, b. Their morale to work, c. The development in the attitudes regarding the physical environment, and d. Their communication with the superiors. It is also sometimes done through various reports like weekly, monthly, quarterly, yearly reports. 3. Comparison of actual and standard performanceComparison of actual performance with the planned targets is very important. Deviation can be defined as the gap between actual performance and the planned targets. The manager has to find out two things hereextent of deviation and cause of deviation. Extent of deviation means that the manager has to find out whether the deviation is positive or negative or whether the actual performance is in conformity with the planned performance. The managers have to 83
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exercise control by exception. He has to find out those deviations which are critical and important for business. Minor deviations have to be ignored. Major deviations like replacement of machinery, appointment of workers, quality of raw material, rate of profits, etc. should be looked upon consciously. Therefore it is said, “ If a manager controls everything, he ends up controlling nothing.” For example, if stationery charges increase by a minor 5 to 10%, it can be called as a minor deviation. On the other hand, if monthly production decreases continuously, it is called as major deviation. Once the deviation is identified, a manager has to think about various cause which has led to deviation. The causes can bea. Erroneous planning, b. Co-ordination loosens, c. Implementation of plans is defective, and d. Supervision and communication is ineffective, etc. 4. Taking remedial actions- Once the causes and extent of deviations are known, the manager has to detect those errors and take remedial measures for it. There are two alternatives herea. Taking corrective measures for deviations which have occurred; and
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b. After taking the corrective measures, if the actual performance is not in conformity with plans, the manager can revise the targets. It is here the controlling process comes to an end. Follow up is an important step because it is only through taking corrective measures, a manager can exercise controlling. Relationship between planning and controlling Planning and controlling are two separate functions of management, yet they are closely related. The scope of activities if both are overlapping to each other. Without the basis of planning, controlling activities becomes baseless and without controlling, planning becomes a meaningless exercise. In absence of controlling, no purpose can be served by. Therefore, planning and controlling reinforce each other. According to Billy Goetz, " Relationship between the two can be summarized in the following points 1. Planning precedes controlling and controlling succeeds planning. 2. Planning and controlling are inseparable functions of management. 3. Activities are put on rails by planning and they are kept at right place through controlling. 4. The process of planning and controlling works on Systems Approach which is as follows : Planning → Results → Corrective Action
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5. Planning and controlling are integral parts of an organization as both are important for smooth running of an enterprise. 6. Planning and controlling reinforce each other. Each drives the other function of management. In the present dynamic environment which affects the organization, the strong relationship between the two is very critical and important. In the present day environment, it is quite likely that planning fails due to some unforeseen events. There controlling comes to the rescue. Once controlling is done effectively, it gives us stimulus to make better plans. Therefore, planning and controlling are inseparable functions of a business enterprise. EXERCISES 1. 2. 3. 4. 5. 6.
What are the management functions that comprise the P-O-L-C framework؟ Are there any criticisms of this framework؟ What function does planning serve؟ What function does organizing serve؟ What function does leading serve؟ What function does controlling serve?
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Chapter Six (Decision making, Leadership, Communication) an overview Objectives: -Determine the Types of Decisions. - Identify the Steps in the Decision Making Process. - Definition of Leadership. - identify Leadership skills. - Clarify the Major styles of Leadership. - Clarify Types of Communication.
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Decision making Decision-making is an essential skill for operational team leaders. Applying a systematic method to solve problems is critical to team performance and the safety of operations.
Definition of decision making: Decision making is the study of identifying and choosing alternatives based on the values and preferences of the decision maker. Making a decision implies that there are alternative choices to be considered, and in such a case we want not only to identify as many of these alternatives as possible but to choose the one that best fits with our goals, objectives, desires, values, and so on.
Managerial Decision Making: Managerial decision making is the process of making a conscious choice between two or more rational alternatives in order to select the one that will produce the most desirable consequences (benefits) relative to unwanted consequences (costs).
Types of Decisions: There are two types of decision: Routine decision: usually can be delegated to lower levels to be made within established policy limits. Non routine decisions: deal with unstructured situations of a novel, nonrecurring nature, often involving incomplete knowledge, high uncertainty, and the use of subjective judgment or even intuition, where no alternative can be proved to be the best possible solution to the particular problem.
Steps in the Decision Making Process: General decision making process can be divided into the following steps:
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Step 1: Define the problem: Scan the environment for changing circumstances categorize the situation as problems (or no problem) diagnose the problem’s nature and classes. Step 2: Determine requirements Requirements are conditions that any acceptable solution to the problem must meet. Requirements spell out what the solution to the problem must do. Step 3: Establish goals Goals are broad statements of intent and desirable programmatic values.... Goals go beyond the minimum essential must have’s (i.e. requirements) to wants and desires. The goals may be conflicting but this is a natural concomitant of practical decision situations. Step 4: Identify alternatives
Alternatives offer different approaches for changing the initial condition into the desired Condition. Step 5: Define criteria Decision criteria, which will discriminate among alternatives, must be based on the goals. It is necessary to define discriminating criteria as objective measures of the goals to measure how well each alternative achieves the goals.. Since the goals will be represented in the form of criteria, every goal must generate at least one criterion but complex goals may be represented only by several criteria. Step 6: Select a decision making tool There are several tools for solving a decision problem. The selection of an appropriate tool is not an easy task and depends on the concrete decision problem, as well as on the objectives of the decision makers. Step 7: Evaluate alternatives against criteria Every correct method for decision making needs, as input data, the evaluation of the alternatives against the criteria. Depending on the criterion, the assessment may be objective (factual), with 90
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respect to some commonly shared and understood scale of measurement (e.g. money) or can be subjective (judgmental), reflecting the subjective assessment of the evaluator. After the evaluations the selected decision making tool can be applied to rank the alternatives or to choose a subset of the most promising alternatives. Step 8: Validate solutions against problem statement The alternatives selected by the applied decision making tools have always to be validated against the requirements and goals of the decision problem. It may happen that the decision making tool was misapplied. In complex problems the selected alternatives may also call the attention of the decision makers that further goals or requirements should be added to the decision model.
Categories of Decision Making: Decision making can be discussed conveniently in three categories: 1-Decision making under certainty: implies that we are certain of the future state of nature (or we assume that we are). 2- Decision making under risk: In decision making under risk one assumes that there exist a number of possible future states of nature and there may not be one future state that results in the best outcome for all alternatives. 3- Decision making under uncertainty: At times a decision maker cannot assess the probability of occurrence for the various states of nature. Uncertainty occurs when there exist several (i.e., more than one) future states of nature but the probabilities of each of these states occurring are not known. The decision maker's behavior is purely based on his/her attitude toward the unknown. Some of these behaviors are optimistic, pessimistic and least regret, among others.
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Leadership Leadership is a process whereby an individual influences a group of individuals to achieve a common goal. Leaders carry out this process by applying their leadership knowledge and skills. This is called Process Leadership. However, we know that we have traits that can influence our actions. This is called Trait Leadership. Definition of Leadership: Leadership is a process by which a person influences others to accomplish an objective and directs the organization in a way that makes it more cohesive and coherent. According to French and Raven, leaders have access to five distinct sources of power: 1. Legitimate: This source of power comes from a belief that the leader has the authority to make demands and can expect compliance from others. 2. Reward: This source of power stems from a leader’s ability to provide rewards or inducements to employees. 3. Expert: This source of power is acquired from the knowledge and skills possessed by a leader. 4. Referent. This source of power results from the leader’s perceived attractiveness, charisma or likeability. 5. Coercive: This source of power is based on fear of the leader and the belief that the leader can punish others for noncompliance. The above power can be interpreted in following table: Type of Description Power Reward power
The target person complies in order to obtain rewards he or she believes are controlled by the agent. 92
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Coercive power Legitimate power
Expert power
Referent power
The target person complies in order to avoid punishments he or she believes are controlled by the agent. The target person complies because he or she believes the agent has the right to make the request and the target person has the obligation to comply. The target person complies because he or she believes that the agent has special knowledge about the best way to do something. The target person complies because he or she admires or identifies with the agent and wants to gain the agent’s approval.
Distributed leadership: Means empowering people to take leadership at every level in an organisation. It means giving the work back to people, instead of trying to be the leader who knows everything and solves all the problems. Global leadership: Today’s organisations need to be able to deal with crosscultural working, political crises, natural disasters and still behave as responsible corporate citizens. Roffey Park research (Building Global Leadership, 2004) has identified some key capabilities that distinguish effective global leaders: • Strategic thinking – the ‘helicopter’ view that bridges boundaries between local allegiances. • Intercultural competence – the creation of inclusive work environments. • Crisis management – the anticipation of risks and a focus on response to change. 93
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• Political astuteness – the ability to network with a wide range of stakeholders. • Ethical leadership – an understanding and demonstration of social responsibility and governance. • Improvisation – at ease in dealing with uncertainty and ambiguity. • Global mindset – a broad outlook that is open to the unfamiliar. Leadership skills: Leadership skills are the tools, behaviors, and capabilities that person needs in order to be successful at motivating and directing others. And the most important, the following: 1- Communication/listening Communication is identified as the most critical leadership skill. The ability to listen, read body language, ask questions, provide feedback, and generate effective two-way communication builds trust and can prevent performance problems down the road. 2-Effective management skills: This means taking a situational approach to leadership. In addition, respondents stated that the most effective leaders acted as a model for the behaviors they were seeking and also as a coach for both individuals and teams. 3- Emotional Intelligence and empathy: Another significant and critical skill leaders can possess is the ability to put the needs, issues, and concerns of their people ahead of their own. The ability to empathize, understand, build rapport, show concern, encourage, engage, and connect with direct reports is key. Valuing others, focusing on individual uniqueness, and preserving an individual’s dignity provides an environment of empowerment. 94
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4-Values and integrity: In order to inspire and lead others, a leader must possess tremendous honesty and integrity, and be a role model who leads by example. 5-Vision: Leaders must have a sense of the big picture and the ability to communicate and mobilize people around a shared vision. Being able to translate the vision and goals into the language of each person and then cascading that into their everyday job is seen as a critical skill. 6-Empowerment Leaders need to put their people first, translate the vision, and empower their people to achieve it by providing the knowledge, skills, and the opportunity to perform. Involving others and encouraging them to take ownership instills a sense of pride that can unleash performance and productivity. Definition of Leadership Traits: Leader traits are relatively stable and coherent integrations of personal characteristics that foster a consistent pattern of leadership performance across a variety of group and organizational situations. These characteristics reflect a range of stable individual differences, including personality, temperament, motives, cognitive abilities, skills, and expertise. Leaders differ from non-leaders on six traits: drive, the desire to lead, honesty and integrity, selfconfidence, cognitive ability, and knowledge of the business. Major styles of Leadership: 1- Authoritarian leadership:
This style, sometimes called autocratic (do what I tell you), is used when leaders tell their followers what they want done and how they want it accomplished, without input or advice 95
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from their followers. The leader identifies a problem, considers alternative solutions, chooses one, and then tells others what to do. 2- Democratic leadership:
This style, also called participative, (Let's work together to solve this) the leader includes one or more other individuals in the decision making process to determine what to do and how to do it. However, the responsibility and authority for making the final decision remains with the leader. Using this style is not a sign of weakness but rather a sign of strength which others will respect. The leader presents the problem to the group, requesting ideas on how to solve it. 3- Laissez Faire leadership:
Laissez faire comes from the French - "to allow to do," and is essentially the noninterference in the affairs of others. In this style, also known as delegative or free reign (you take care of the problem while I go elsewhere); the leader allows others to make the decisions. However, the leader is still responsible for the decisions that are made. In discussing a problem, the leader participates as "one of the group," agreeing in advance to carry out whatever decision the group makes, within the limits set by regulations and policies from higher headquarters. Thus leadership is the manner and approach of providing direction, implementing plans, and motivating people to perform at the very peak of their abilities, and can be placed into one of the three major styles (authoritarian, democratic, or laissez faire) discussed above. No one style is the "best" method of leadership; each may work effectively under the right conditions.
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Communication Communication is an important aspect of human behavior. It stands for natural activity of all human beings to convey opinions, feelings, information, and ideas to others through words (written or spoken), body language, or signs. Communication is the most vital ingredient of an organization. In fact, an organization cannot be conceived of without communication. Definition of communication: Communication may be broadly defined as the process of meaningful interaction among human beings. More specifically, it is the process by which meanings are perceived and understandings are reached among human beings. Types of Communication: Communication can be classified on the basis of the medium employed: 1-Verbal Communication: It means communicating with
words, written or spoken. Verbal communication consists of speaking, listening, writing, reading, and thinking. It may further be classified as Oral or written Communication. - Written Communication occurs through a variety of means, such as business letters, office memorandums, reports, resumes, written telephone messages, newsletters, and policy manuals. - Oral Communication takes place largely through faceto-face conversation with another individual, meetings with several individuals, and telephone conversations.
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2-Non-verbal communication: It includes using of pictures,
signs, gestures, and facial expressions for exchanging information between persons. It is done through sign language, action language, or object language. 3-Formal Communication: communication that is formally controlled by managers or people occupying positions in an organization. The communication flows through formal channels, that is, officially recognized positions along the line in the organization. This ensures that the information flows orderly, timely, and accurately. 4-Informal Communication: Communication that takes place without regard to hierarchical or task requirements. 5-Downward Communication: The Communication that
flows from Top to Bottom is known as downward communication. Any organization has an inbuilt hierarchical system, and in that, in the first instance, communication invariably flows downwards. 6-Upward Communication: The Communication that flows from bottom to top, which is from lower hierarchical level to higher level, is called Upward Communication. The main function of upward communication is to supply information to the upper levels about what is happening at the lower levels. It is just the reverse of the previous dimension. 7-Lateral Communication: When communication takes place between two or more persons who are subordinates working under the same person, or those who are working on the same level, it is called lateral or horizontal communication. A good example of this kind of communication is that between functional managers. It is necessary for the reviewing of the activities assigned to various subordinates having identical positions. 98
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Diagonal or Crosswise communication includes flow of information among persons at different levels who have no direct reporting relationships. As an example, the Communication between the Training Supervisor and Marketing Manager, regarding the Training of a few employees of Marketing Department, is Diagonal Communication. This kind of communication is used to speed up information flow, to improve understanding, and to coordinate efforts for the achievement of organizational objectives. 8-Diagonal
Communication:
Basic components of the Communication Process: -
-
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Sender: The initiator of the message. Encoding: The process of translating the intended
message into words and gestures. Message: The encoding-process outcome, which consists of verbal and nonverbal symbols that have been developed to convey meaning to the receiver. Medium: the method used to convey the message to the intended receiver. Receiver: The person with whom the message is exchanged. Decoding: the process of translating the symbols into the interpreted message. Noise: Any factor in the communication process that interferes with exchanging messages and achieving common meaning. Feedback: the receiver’s basic response to the interpreted message.
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Chapter seven Consumer Buyer Behavior Objectives: - An overview of consumer buyer behavior.
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Consumer Buyer Behavior The study of consumer buyer behavior focuses on how individuals make decisions to spend their available resources (time, money, effort) on consumption-related items (Schiffman and Kanuk, 1997). The field of consumer behavior covers a lot of ground. According to Solomon (1996), consumer behavior is a study of the processes involved when individuals or groups select, purchase, use, or dispose of products, services, ideas, or experiences to satisfy needs and desires. The official definition of consumer buyer behavior given by Belch (1998) is ‘the process and activities people engage in when searching for, selecting, purchasing, using, evaluating, and disposing of products and services so as to satisfy their needs and desires’. Behavior occurs either for the individual, or in the context of a group, or an organization. Consumer behavior involves the use and disposal of products as well as the study of how they are purchased. Product use is often of great interest to the marketer, because this may influence how a product is best positioned or how we can encourage increased consumption. Andreason (1965) proposed one of the earliest models of consumer buyer behavior. This model is shown in Figure 2.1.The model recognizes the importance of information in the consumer decision-making process. It also emphasizes the importance of consumer attitudes although it fails to consider attitudes in relation to repeat purchase behavior. Figure 2.1 Andreason, A.R (1965 Attitudes and Consumer Behavior: A Decision Model in New Research in Marketing (ed. l. Preston). Institute of Business and Economic Research, University of California, Berkeley, pp.1-61
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A second model, which concentrates on the buying decision for a new product, was proposed by Nicosia (1976). This model is shown in Figure 2.2. The model concentrates on the firm's attempts to communicate with the consumer, and the consumers' predisposition to act in a certain way. These two features are referred to as Field One. The second stage involves the consumer in a search evaluation process, which is influenced by attitudes. This stage is referred to as Field Two. The actual purchase process is referred to as Field Three, and the post-purchase feedback process is referred to as Field Four. This model was criticized by commentators because it was not empirically tested (Zaltman, Pinson and Angelman, 1973), and because of the fact that many of the variables were not defined (Lunn, 1974). Perhaps, the most frequently quoted of all consumer buyer behavior models is the Howard-Sheth model of buyer behavior, which was developed in 1969. This model is shown in Figure 2.3. The model is important because it highlights the importance of inputs to the consumer buying process and suggests ways in which the consumer orders these inputs before making a final decision. The Howard-Sheth model is not perfect as it does not explain all buyer behavior. It is however, a comprehensive theory of buyer behavior that has been developed as a result of empirical research (Horton, 1984). Schiffman and Kanuk (1997) mentioned that many early theories concerning consumer behavior were based on economic theory, on the notion that individuals act rationally to maximize their benefits (satisfactions) in the purchase of goods and services. A consumer is generally thought of as a person who identifies a need or desire, makes a purchase, and then disposes of the product during
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the three stages in the consumption process in Figure2.2 (Solomon, 1996) 1-
NICOSIA MODEL
This model focuses on the relationship between the firm and its potential consumers. The firm communicates with consumers through its marketing messages (advertising), and the consumers react to these messages by purchasing response. Looking to the model we will find that the firm and the consumer are connected with each other, the firm tries to influence the consumer and the consumer is influencing the firm by his decision.
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Figure2-2. Nicosia Model of Consumer Decision Processe Source: Nicosia, (1976). The Nicosia model is divided into four major fields: Field 1: The consumer attitude based on the firms’ messages. The first field is divided into two subfields. The first subfield deals with the firm’s marketing environment and communication efforts that affect consumer attitudes, the competitive environment, and characteristics of target market. Subfield two specifies the consumer characteristics e.g., experience, personality, and how he perceives the promotional idea toward the product in this stage the consumer forms his attitude toward the firm’s product based on his interpretation of the message. Field 2: search and evaluation The consumer will start to search for other firm’s brand and evaluate the firm’s brand in comparison with alternate brands. In this case the firm motivates the consumer to purchase its brands. Field 3: The act of the purchase The result of motivation will arise by convincing the consumer to purchase the firm products from a specific retailer. Field 4: Feed back This model analyses the feedback of both the firm and the consumer after purchasing the product. The firm will benefit from its sales data as a feedback, and the consumer will use his experience with the product affects the 107
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individuals attitude and predisposition’s concerning future messages from the firm. The Nicosia model offers no detail explanation of the internal factors, which may affect the personality of the consumer, and how the consumer develops his attitude toward the product. For example, the consumer may find the firm’s message very interesting, but virtually he cannot buy the firm’s brand because it contains something prohibited according to his beliefs. Apparently it is very essential to include such factors in the model, which give more interpretation about the attributes affecting the decision process. 2-
HOWARD-SHETH MODEL
This model suggests three levels of decision making: 1. The first level describes the extensive problem solving. At this level the consumer does not have any basic information or knowledge about the brand and he does not have any preferences for any product. In this situation, the consumer will seek information about all the different brands in the market before purchasing. 2. The second level is limited problem solving. This situation exists for consumers who have little knowledge about the market, or partial knowledge about what they want to purchase. In order to arrive at a brand preference some comparative brand information is sought. 3. The third level is a habitual response behavior. In this level the consumer knows very well about the different brands and he can differentiate between the different characteristics of each product, and he already decides to
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purchase a particular product. According to the HowardSheth model there are four major sets of variables; namely: a) Inputs. These input variables consist of three distinct types of stimuli (information sources) in the consumer’s environment. The marketer in the form of product or brand information furnishes physical brand characteristics (significative stimuli) and verbal or visual product characteristics (symbolic stimuli). The third type is provided by the consumer’s social environment (family, reference group, and social class). All three types of stimuli provide inputs concerning the product class or specific brands to the specific consumer. Inputs Perceptual Constructs Learning Constructs Outputs Stimuli display
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Figure 2-3 A Simplified Description of the Theory of Buyer Behavior Source: Howard, and Sheth,Pp32 (1969) b) Perceptual and Learning Constructs, The central part of the model deals with the psychological variables involved when the consumer is contemplating a decision. Some of the variables are perceptual in nature, and are concerned with how the consumer receives and understands the information from the input stimuli and other parts of the model. For example, stimulus ambiguity happened when the consumer does not understand the message from the environment. Perceptual bias occurs if the consumer distorts the information received so that it fits his or her established needs or experience. Learning constructs category, consumers’ goals, information about brands, criteria for evaluation alternatives, preferences and buying intentions are all included. The proposed interaction In between the different variables in the perceptual and learning constructs and other sets give the model its distinctive advantage. c) Outputs The outputs are the results of the perceptual and learning variables and how the consumers will response to these variables (attention, brand comprehension, attitudes, and intention). d) Exogenous(External) variables Exogenous variables are not directly part of the decisionmaking process. However, some relevant exogenous variables include the importance of the purchase, consumer personality traits, religion, and time pressure. The decision-making process, which Howard-Sheth Model tries to explain, takes place at three Inputs stages: 110
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Significance, Symbolic and Social stimuli. In both significative and symbolic stimuli, the model emphasizes on material aspects such as price and quality. These stimuli are not applicable in every society. While in social stimuli the model does not mention the basis of decision-making in this stimulus, such as what influence the family decision? This may differ from one society to another. Finally, no direct relation was drawn on the role of religion in influencing the consumer’s decision-making processes. Religion was considered as external factor with no real influence on consumer, which give the model obvious weakness in anticipation the consumer decision. 3
ENGEL-KOLLAT-BLACKWELL MODEL
This model was created to describe the increasing, fastgrowing body of knowledge concerning consumer behavior. This model, like in other models, has gone through many revisions to improve its descriptive ability of the basic relationships between components and subcomponents, this model consists also of four stages; First stage: decision-process stages The central focus of the model is on five basic decisionprocess stages: Problem recognition, search for alternatives, alternate evaluation (during which beliefs may lead to the formation of attitudes, which in turn may result in a purchase intention) purchase, and outcomes. But it is not necessary for every consumer to go through all these stages; it depends on whether it is an extended or a routine problem-solving behavior.
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Figure 2-4.The Engel-Kollat-Blackwell Consumer Behavior.
Model
of
Source: Engel , Blackwell, and Miniard,(1995) page No 95
Second stage: Information input At this stage the consumer gets information from marketing and non-marketing sources, which also influence the problem recognition stage of the decision-making process. If the consumer still does not arrive to a specific decision, the search for external information will be activated in order to arrive to a choice or in some cases if the consumer experience dissonance because the selected alternative is less satisfactory than expected. Third stage: information processing This stage consists of the consumer’s exposure, attention, perception, acceptance, and retention of incoming information. The consumer must first be exposed to the message, allocate space for this information, interpret the stimuli, and retain the message by transferring the input to long-term memory. Fourth stage: variables influencing the decision process This stage consists of individual and environmental influences that affect all five stages of the decision process. Individual characteristics include motives, values, lifestyle, and personality; the social influences are culture, reference groups, and family. Situational influences, such as a consumer’s financial condition, also influence the decision process.
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This model incorporates many items, which influence consumer decision-making such as values, lifestyle, personality and culture. The model did not show what factors shape these items, and why different types of personality can produce different decision-making? How will we apply these values to cope with different personalities? Religion can explain some behavioral characteristics of the consumer, and this will lead to better understanding of the model and will give more comprehensive view on decision-making. 4- Bettman’s Information Processing Model of Consumer Choice Bettman (1979) in his model describes the consumer as possessing a limited capacity for processing information. He implicate that the consumers rarely analyze the complex alternatives in decision making and apply very simple strategy. In this model there are seven major stages. Stage No. 1: Processing capacity In this step he assumes that the consumer has limited capacity for processing information, consumers are not interested in complex computations and extensive information processing. To deal with this problem, consumers are likely to select choice strategies that make product selection an easy process. Stage No. 2: Motivation Motivation is located in the center of Bettman model, which influence both the direction and the intensity of consumer choice for more information in deciding
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Figure 2.5 the Bettman Information-Processing Model of Consumer Choice Source: Bettman. (1979). Pp 402 Between the alternatives Motivation is provided with hierarchy of goals’ mechanism that provides a series of different sub-goals 115
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to simplify the choice selection. This mechanism suggests that the consumers own experience in a specific area of market and he doesn’t need to go through the same hierarchy every time to arrive at a decision, which make this mechanism serves as an organizer for consumer efforts in making a choice. No concern was given on religious motives, and how religion may motivate the consumer in his decision. Most of the general theories of motivation such as Maslow’s hierarchy of needs (1970) emphasizes self-achievement, the need for power, and the need for affiliation. Stage No. 3: Attention and perceptual encoding. The component of this step is quite related to the consumer's goal hierarchy. There are two types of attention; the first type is voluntary attention, which is a conscious allocation of processing capacity to current goals. The second is involuntary attention, which is automatic response to disruptive events (e.g., newly acquired complex information). Both different types of attention influence how individuals proceed in reaching goals and making choices. The perceptual encoding accounts for the different steps that the consumer needs to perceive the stimuli and whether he needs more information. Stage No. 4: Information acquisition and evaluation If the consumer feels that the present information is inadequate, he will start to look for more information from external sources. Newly acquired information is evaluated and its suitability or usefulness is assessed. The consumer continues to acquire additional information until all relevant information has been secured, or until he finds that acquiring additional information is more costly in terms of time and money.
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Stage No. 5: Memory In this component the consumer keeps all the information he collects, and it will be the first place to search when he need to make a choice. If this informations is not sufficient, no doubt he will start looking again for external sources.
Stage No. 6: Decision Process This step in Bettman’s model indicates that different types of choices are normally made associated with other factors, which may occur during the decision process. Specifically, this component deals with the application of heuristics or rules of thumb, which are applied in the selection and evaluation of specific brand. These specific heuristics a consumer uses are influenced by both individual factors (e.g., personality differences) and situational factors (e.g., urgency of the decision); thus it is unlikely that the same decision by the same consumer will apply in different situation or other consumer in the same situation.
Stage No. 7: Consumption and Learning Process In this stage, the model discusses the future results after the purchase is done. The consumer in this step will gain experience after evaluating the alternative. This experience provides the consumer with information to be applied to future choice situation. Bettman in his model emphasize on the information processing and the capacity of the consumer to analyze this information for decision making, but no explanation was given about the criteria by which the consumer accepts or refuses to process some specific information.
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5- Sheth-Newman Gross Model of Consumption Values Functional Value
Conditional Value
Social Value
Consumer Choice Behavior
Epistemic Value
Emotional Value
According to this model, there are five consumption values influencing consumer choice behavior. These are functional, social, conditional, emotional, and epistemic values. Any or all of the five consumption values may influence the decision. Various disciplines (including economics, sociology, several branches of psychology, marketing and consumer behavior) have contributed theories and research findings relevant to these values, (Sheth et al. 1991). Each consumption value in the theory is consistent with various components of models advanced by Maslow (1970), Katona (1971), Katz (1960), and Hanna (1980). Five consumption values form the core of the model: Figure 2-6: The five values influencing Consumer Choice Behavior Source: Sheth, Newman, and Gross (1991) Pp159-170
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Chapter Eight Marketing Objectives: -
Definition of Marketing. Difference between Selling and Marketing. Clarify Process of Marketing. Clarify marketing tasks. Determine Concepts of marketing.
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Introduction to Marketing This chapter focuses on following issues of marketing: 1. The definition of marketing, marketing process, marketing task and scope of marketing 2. Core marketing concept 3. Demand Management in marketing 4. Company orientation toward the marketplace: Marketing Management philosophies Defining Marketing Marketing, more than any other business activities deals with customers. Although there are a number of detailed definitions of marketing perhaps the simplest definition of marketing is managing profitable customer relationship. We can distinguish between a social and a managerial definition for marketing. According to a social definition, marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and exchanging products and services of value freely with others. As a managerial definition, marketing has often been described as “the art of selling products.” But Peter Drucker, a leading management theorist, says that “the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Marketing is the management process that identifies, anticipates and satisfies customer requirements profitably - The Chartered Institute of Marketing (CIM). The American Marketing Association (offers this managerial definition):
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Marketing (management) is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals. Marketing Management: Marketing Management is the process of choosing target markets and getting, keeping and growing customers through creating, delivering and communicating superior customer value and satisfaction. Difference between Selling and Marketing The old sense of making a sale is telling and selling, but in new sense it is satisfying customer needs. Selling occurs only after a product is produced. By contrast, marketing starts long before a company has a product. Marketing is the homework that managers undertake to assess needs, measure their extent and intensity, and determine whether a profitable opportunity exists. Marketing continues throughout the product’s life, trying to find new customers and keep current customers by improving product appeal and performance, learning from product sales results, and managing repeat performance. Thus selling and advertising are only part of a larger marketing mix-a set of marketing tools that work together to affect the marketplace. Process of Marketing: The marketing process involves five steps: The first four steps create value for customers and build strong customer relationships in order to capture value from customers in return. At the primary stage, marketers must assess and understand the marketplace and customers needs and demands. Next, marketers design a customer driven marketing strategy with the goal of getting, keeping and growing target customers. This stage 122
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includes market segmentation, targeting and position. The third step involves designing a marketing program that actually delivers the superior value. This step includes designing products and services, pricing the product, distribution and finally promoting the product. . The first three steps provide the basis for the fourth step that is building profitable customer relationships and creating customer satisfaction. And finally, the company reaps the reward of strong customer relationship and satisfaction by capturing value from customers. Value creation for customers Understand the market place and customer needs and wants
Design customerdriven marketing strategy
a
Construct a marketing program that delivers superior value
Build profitable relationships and create customer delight
Capture Value from customers in return
Figure 1: Marketing Process
MARKETING TASKS According to market experts John Evans & Berry Bergmen- there are nine functions of marketing. These are: 1. 2. 3. 4. 5. 6. 7. 8. 9.
Customer analysis Buying supplies Selling products and services Product and service planning Pricing Distribution Marketing research Opportunity analysis Social responsibility.
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Scope of marketing: Now a day, marketing offers are not confined into products and services. The scope of marketing is now becoming larger. Marketing people are involved in marketing several types of entities: Goods: Physical goods constitute the bulk of most countries’ production and marketing effort. Most of the country produces and markets various types of physical goods, from eggs to steel to hair dryers. In developing nations, goods— particularly food, commodities, clothing, and housing—are the mainstay of the economy. Services: As economies advance, a growing proportion of their activities are focused on the production of services. The U.S. economy today consists of a 70–30 services-to-goods mix. Services include airlines, hotels, and maintenance and repair people, as well as professionals such as accountants, lawyers, engineers, and doctors. Many market offerings consist of a variable mix of goods and services. Experiences: By orchestrate several services and goods, one can create, stage, and market experiences. Walt Disney World’s Magic Kingdom is an experience. Event: Marketers promote time-based events, such as the Olympics, trade shows, sports events, and artistic performances. Persons: Celebrity marketing has become a major business. Artists, musicians, CEOs, physicians, high profile lawyers and financiers, and other professionals draw help from celebrity marketers. Place: Cities, states, regions, and nations compete to attract tourists, factories, company headquarters, and new residents. 124
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Place marketers include economic development specialists, real estate agents, commercial banks, local business associations, and advertising and public relations agencies. Properties: Properties are intangible rights of ownership of either real property (real estate) or financial property (stocks and bonds). Properties are bought and sold, and this occasions a marketing effort by real estate agents (for real estate) and investment companies and banks (for securities). Organizations: Organizations actively work to build a strong, favorable image in the mind of their publics. Philips, the Dutch electronics company, advertises with the tag line, “Let’s Make Things Better.” The Body Shop and Ben & Jerry’s also gain attention by promoting social causes. Universities, museums, and performing arts organizations boost their public images to compete more successfully for audiences and funds. Information: The production, packaging, and distribution of information is one of society’s major industries. Among the marketers of information are schools and universities; publishers of encyclopedias, nonfiction books, and specialized magazines; makers of CDs; and Internet Web sites. Ideas: Every market offering has a basic idea at its core. In essence, products and services are platforms for delivering some idea or benefit to satisfy a core need. Core Concepts of marketing: 1. Needs, Wants and Demands: The successful marketer will try to understand the target market’s needs, wants, and demands. Needs: The most basic concept of marketing is the human needs. Human needs are states of felt deprivation. Human needs can be physical needs (Hunger, thirst, shelter etc) social needs 125
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(belongingness and affection) and individual needs (knowledge and self-expression). There are five types of needs. These are Stated need (Minimum price) Real need (Psychological price) Unstated need (Service for post purchase) Delighted need (Supplementary-Gift) Secret need (Show up, gesture). Wants: It is the form of human needs shaped by culture and individual personality. Needs become wants when they are directed to specific objects that might satisfy the need. For example, An American needs food but wants hamburger, French fries and soft drink but a British wants fish, chicken, chips and soft drinks. So, it differs. Demands: Wants become demand when backed by purchasing power. Consumers view products as bundles of benefits and choose product that add up to the most satisfaction. Demand comprises of three steps first, desire to acquire something, second, willingness to pay for it, and third, ability to pay for it. Many people want a Mercedes; only a few are able and willing to buy one. Companies must measure not only how many people want their product, but also how many would actually be willing and able to buy it. However, marketers do not create needs; Needs preexist marketers. Marketers, along with other societal influences, influence wants. Marketers might promote the idea that a Mercedes would satisfy a person’s need for social status. They do not, however, create the need for social status. 2. Product or Offering and Value Proposition People satisfy their needs and wants with products. A product is any offering that can satisfy a need or want, such as one of the 10
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basic offerings of goods, services, experiences, events, persons, places, properties, organizations, information, and ideas. By an offering customer get the value proposition to use or consume the deliver product or services. So Value proposition is the set of benefits or values it promises to deliver to customers to satisfy their needs. It is actually the answer of customer’s question: ‘Why should I buy your product?’ 3. Value and satisfaction: Value can be defined as a ratio between what the customers get and what they give in return. The customers gets benefit and assumes costs. Value = Benefits / Costs. Marketers’ concern should be to raise the value in the minds of the customers. When value of the products or services is high, customers are willing to pay more for the products. Thus; Functional Benefit+ Emotional Benefit Value = Monetary costs +Time costs + Energy costs +Psychic costs Customer satisfaction is the extent to which a product’s perceived performance matches a buyer’s expectation. If performance matches expectation level, the customer becomes satisfied but if the product’s performance falls short of expectations, the customer will be dissatisfied. If performance exceeds expectation, the customer will be highly satisfied or delighted. 4. Exchanges and Transactions: Exchange: Marketing occurs when people decide to satisfy needs and wants through exchange. Exchange is defined as the act of obtaining a desired object from someone by offering 127
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something in return. For exchange potential to exist, five conditions must be satisfied: There are at least two parties Each party has something that might be of value to the other party Each party is capable of communication and delivery Each party is free to accept or reject the exchange offer Each party believes it is appropriate or desirable to deal with the other party. Transaction: If exchange is the core concept of marketing, transaction is the marketing’s unit of measurement. Two parties are engaged in exchange if they are negotiating- trying to arrive at mutually agreeable terms. When an agreement is reached, we say the transaction takes place. Thus, a transaction is a trade of values between two or more parties. When the exchange is made, it results into transaction. A transaction involves several dimensions: at least two things of value agreed-upon conditions a time of agreement and a place of agreement. 5. Relationships and Networks Transaction marketing is part of a larger idea called relationship marketing. Relationship marketing aims to build long-term mutually satisfying relations with key parties —customers, suppliers, distributors—in order to earn and retain their long-term preference and business. Effective marketers accomplish this by promising and delivering high-quality products and services at fair prices to the other parties over time. Relationship marketing builds strong economic, technical, and social ties among the parties. It cuts down on transaction costs 128
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and time. The ultimate outcome of relationship marketing is the building of a unique company asset called a marketing network. A marketing network consists of the company and its supporting stakeholders (customers, employees, suppliers, distributors, university scientists, and others) with whom it has built mutually profitable business relationships. 6. Market: From the view point of modern marketing, market doesn’t stand for a place where buyers and sellers gathered to buy or sell goods. A market is the set of actual and potential buyers. More specifically, a market is an arrangement of all customers who have needs that may be fulfilled by an organization’s offerings. The size of a market depends of the number of people who exhibit the need, have resources to engage in exchange and are willing to offer these resources in exchange for what they want. The key customer markets can be: Consumer market, Business Market, Global Market and Non-profit and Government market. Now marketers view the sellers as the industry and the buyers as the market. The sellers send goods and services and communications (ads, direct mail, e-mail messages) to the market; in return they receive money and information (attitudes, sales data). The inner loop in the diagram in Figure 1-1 shows an exchange of money for goods and services; the outer loop shows an exchange of information.
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Figure 2: Modern Market System Today we can distinguish between a marketplace, a marketspace and metamarket. The marketplace is physical, as when one goes shopping in a store; marketspace is digital, as when one goes shopping on the Internet. E commerce—business transactions conducted on-line—has many advantages for both consumers and businesses, including convenience, savings, selection, personalization, and information. For example, on-line shopping is so convenient that 30 percent of the orders generated by the Web site of REI, a recreational equipment retailer, is logged from 10 P.M. to 7 A.M., sparing REI the expense of keeping its stores open late or hiring customer service representatives. However, the e-commerce marketspace is also bringing pressure from consumers for lower prices and is threatening intermediaries such as travel agents, stockbrokers, insurance agents, and traditional retailers. The metamarket concept describes a cluster of complementary products and services that are closely related in the minds of consumers but are spread across a diverse set of industries. The automobile metamarket consists of automobile manufacturers, new and used car dealers, financing companies, insurance companies, mechanics, spare parts dealers, service shops, auto magazines, classified auto ads in newspapers, and auto sites on the Internet. Car buyers can get involved in many parts of this metamarket. This has created an opportunity for metamediaries to assist buyers to move seamlessly through these groups. 7. Marketing Channels: Marketing channels means the parties that help the company to promote, sell and distribute its goods to final buyers. To reach a target market, the marketer uses three kinds of marketing channels:
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1. Communication channels: deliver and receive messages form target buyers and include newspapers, magazines, radio, television, mail, telephone and the internet. 2. Distribution channels: The marketers use this channel to display, sell or deliver the physical products or services to the buyer or user. They include distributors, wholesalers, retailers and agents. 3. Service channels: The marketer also uses service channels to carry out transaction with potential buyers. Service channels include warehouses, transportation companies, banks and insurance companies that facilitate transaction. 8. Segmentation, Target market and Positioning: Market Segmentation means dividing a market into smaller groups of buyers on the basis of different needs, characteristics or behavior. Market segments can be identified by examining geographic, demographic, psychographic and behavioral differences. The marketer then decides which segments present the greatest opportunity which is its target market. For each chosen target market, the firm develops a market offering. The offering is positioned in the minds of the target buyers as delivering some central benefits. Thus, product positioning is the way a product occupies a place in the minds of the customers relative to competing products. Like, Volvo, positions its car as the safest a customer can buy, where Ford positioned on economy and Mercedes and Cadillac positioned on Luxury. 9. Supply Chain It is the channel stretching from raw materials to components to final products that are carried to final buyers. The supply chain of women’s’ purse starts with hides and moves through tanning, cutting, manufacturing, and the marketing channels to bring to 131
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bring products to final customers. This supply chain represents a value delivery system. Each company captures only a certain percentage of the total value generated by the supply chain. When a company acquires competitors or moves upstream or downstream, its aim is to capture a higher percentage of supply chain value. 10. Competition: Competition includes all the actual and potential rival offerings and substitutes a buyer might consider. There are several possible level of competition: Brand competition: A company sees its competitors as other companies that offer similar products and services to the same customers at similar prices. Volkswagen might see its major competitor as Toyota, Honda and other manufacturers of medium period automobiles. It would not see itself to compete with Mercedes or Hyundai. Industry competition: A company sees its competitors as all companies that make the same product or class of products. Volkswagen would see itself competing against all other automobile manufacturers. Form competition: A company sees its competitors as all companies that manufacture products that supply the same service. Volkswagen might see itself as competing against not only other auto mobile but also against manufacturers of motor cycle, bicycles and trucks. Generic competition: A company sees its competitors as all companies that compete for the same consumer dollars. Volkswagen might see itself competing with companies that sell major consumer durables, foreign vacations and new homes as substitutes of spending on a Volkswagen.
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11.Marketing Environment Competition represents only one force in the environment in which all marketers operate. The overall marketing environment consists of the task environment and the broad environment. The task environment includes the immediate actors involved in producing, distributing, and promoting the offering, including the company, suppliers, distributors, dealers, and the target customers. Material suppliers and service suppliers such as marketing research agencies, advertising agencies, Web site designers, banking and insurance companies, and transportation and telecommunications companies are included in the supplier group. Agents, brokers, manufacturer representatives, and others who facilitate finding and selling to customers are included with distributors and dealers. The broad environment consists of six components: demographic environment, economic environment, natural environment, technological environment, political-legal environment, and social-cultural environment. These environments contain forces that can have a major impact on the actors in the task environment, which is why smart marketers track environmental trends and changes closely. 12. The marketing program and marketing mix A marketing program consists of numerous decisions on the mix of marketing tools to use for their target market. The marketing mix is the set of marketing tools the firm uses to pursue its marketing objectives in the target market. McCarthy classified these tools into four broad groups that he called the four P’s of marketing: product, price, place and promotion.
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a. Product: Product means the combination of goods and services that the company offers to the target market. b. Price: Price is the amount of money customers have to pay to obtain the product. c. Place: Place includes company activities that make the product available to target consumers. d. Promotion: Promotion means the activities that communicate the merits of the product and persuade target customers to buy it. Product
Price
Variety Quality Design Brand name Packaging
List Price Discounts Allowances Credit terms Target Market
Place Channels Coverage Locations Inventory Transportation
Promotion
Marketing Mix: 4 P’s
Advertising Sales Promotion Personal Selling Direct marketing Public Relation
Figure 3 The Four P Components of the Marketing Mix Four P’s represent the sellers view of the marketing tools available for influencing buyers. From a buyer’s point of view, each marketing tool is designed to deliver a customer benefit. Robert Lauterbom suggested that the seller’s four P’s corresponded to the customer’s four C’s.
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Four P’s
Four C’s
Product -------------- Customer solution Price
-------------- Customer cost
Place
-------------- Convenience
Promotion ---------- Communication The latest way to view four P’s from buyers’ perspective is SIVA which stands for Solution: How can I get a solution of my problem? (Represents the product) Information: Where can I learn more about it? (Represents promotion) Value: What is m total sacrifice to get this solution? (Represents Price) Access: Where can I find it? (Represents place).
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Chapter Nine (E- business, E- commerce) an overview Objectives: -
Definition of e-business. Clarify e-business requirements. Definition of e-commence. Clarify Categories of e-commerce
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Electronic Business (E- business) Electronic Business or e-business is a term which can be used for any kind of business or commercial transaction that includes sharing information across the internet. Commerce constitutes the exchange of products and services between businesses, groups and individuals and can be seen as one of the essential activities of any business. Electronic commerce focuses on the use of ICT to enable the external activities and relationships of the business with individuals, groups and other businesses or e business refers to business with help of internet i.e. doing business with the help of internet network. The term "e-business" was coined by IBM's marketing and Internet team in 1996. E-business Requirements: 1- Security: Customers, suppliers, employees, and numerous other people use any particular e-business system daily and expect their confidential information to stay secure. 2- Privacy and confidentiality: Means protecting any electronic records and files from unauthorized access, as well as ensuring safe transmission and data storage of such information. Tools such as encryption and firewalls manage this specific concern within e-business. 3-Authenticity: Both parties in an e-business transaction want to have the assurance that the other party is who they claim to be, especially when a customer places an order and then submits a payment electronically. 4- Data integrity: A business needs to be confident that data is not changed in transit, whether deliberately or by accident. To help with data 139
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integrity, firewalls protect stored data against unauthorized access. 5- Availability: This concern is specifically pertinent to a business' customers as certain information must be available when customers need it. Messages must be delivered in a reliable and timely fashion, and information must be stored and retrieved as required. Because availability of service is important for all e-business websites, steps must be taken to prevent disruption of service by events such as power outages and damage to physical infrastructure. 6- Encryption: Encryption, which is actually a part of cryptography, involves transforming texts or messages into a code which is unreadable. These messages have to be decrypted in order to be understandable or usable for someone. 7- Digital certificates: The point of a digital certificate is to identify the owner of a document. This way the receiver knows that it is an authentic document. Companies can use these certificates in several different ways. They can be used as a replacement for user names and passwords. Each employee can be given these to access the documents that they need from wherever they are. 8- Digital signatures To secure information online e-business uses a digital signature. If a document has a digital signature on it, no one else is able to edit the information without being detected. E-commerce an overview: E-commerce (electronic commerce or EC) is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the internet. These business 140
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transactions occur either as business-to-business, business-toconsumer, consumer-to-consumer or consumer-to-business. The terms e-commerce and e-business are often used interchangeably. The term e-tail is also sometimes used in reference to transactional processes for online shopping. Ecommerce allows consumers to electronically exchange goods and services with no barriers of time or distance. Electronic commerce has expanded rapidly over the past five years and is predicted to continue at this rate, or even accelerate. In the near future the boundaries between "conventional" and "electronic" commerce will become increasingly blurred as more and more businesses move sections of their operations onto the Internet. E-commerce businesses may employ some or all of the following:
Online shopping web sites for retail sales direct to consumers. Providing or participating in online marketplaces, which process third-party business-to-consumer or consumer-toconsumer sales. Business-to-business buying and selling. Gathering and using demographic data through web contacts and social media. Business-to-business (B2B) electronic data interchange. Marketing to prospective and established customers by e-mail or fax (for example, with newsletters). Engaging in pretail for launching new products and services. Online financial exchanges for currency exchanges or trading purpose.
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E-commerce applications: E-commerce is conducted using a variety of applications, such as email, online catalogs and shopping carts, EDI, File Transfer Protocol, and web services. This includes businessto-business activities and outreach such as using email for unsolicited ads (usually viewed as spam) to consumers and other business prospects, as well as to send out e-newsletters to subscribers. More companies now try to entice consumers directly online, using tools such as digital coupons, social media marketing and targeted advertisements. The benefits and downsides of e-commerce: The benefits of e-commerce include its around-the-clock availability, the speed of access, the wide availability of goods and services for the consumer, easy accessibility, and international reach. It's perceived downsides include sometimes-limited customer service, consumers not being able to see or touch a product prior to purchase, and the necessitated wait time for product shipping. Categories of e-commerce: As with traditional commerce, there are four principal categories of e-commerce: B2B, B2C, C2B and C2C - See more at: 1- B2B (Business to Business) — This involves companies doing business with each other. One example is manufacturers selling to distributors and wholesalers selling to retailers. 2- B2C (Business to Consumer) — B2C consists of businesses selling to the general public through shopping cart software, without needing any human interaction. This 142
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is what most people think of when they hear "ecommerce." An example of this would be Amazon. 3- C2B (Consumer to Business) — In C2B e-commerce, consumers post a project with a set budget online, and companies bid on the project. The consumer reviews the bids and selects the company. Elance is an example of this. 4- C2C (Consumer to Consumer) — This takes place within online classified ads, forums or marketplaces where individuals can buy and sell their goods. Examples of this include Craigslist, eBay and Etsy.
Differences between Electronic Commerce and traditional commerce: The major difference is the way information is exchanged and processed: -Traditional commerce: •face-to-face, telephone lines, or mail systems •manual processing of traditional business transactions. 143
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•individual involved in all stages of business transactions. E-Commerce: •using Internet or other network communication technology. •automated processing of business transactions. •individual involved in all stages of transactions. •pulls together all activities of business transactions, marketing and advertising as well as service and customer support.
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Chapter Ten The Nature of Organizational structure Objectives: -
Clarify Organizational Structure Determine Organizational Structure Types.
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The Nature of Organizational structure History Organizational structures developed from the ancient times of hunters and collectors in tribal organizations through highly royal and clerical power structures to industrial structures and today's post-industrial structures. As pointed out by Lawrence B. Mohr, the early theorists of organizational structure, Taylor, Fayol, and Weber "saw the importance of structure for effectiveness and efficiency and assumed without the slightest question that whatever structure was needed, people could fashion accordingly. Organizational structure was considered a matter of choice... When in the 1930s, the rebellion began that came to be known as human relations theory, there was still not a denial of the idea of structure as an artifact, but rather an advocacy of the creation of a different sort of structure, one in which the needs, knowledge, and opinions of employees might be given greater recognition." However, a different view arose in the 1960s, suggesting that the organizational structure is "an externally caused phenomenon, an outcome rather than an artifact." In the 21st century, organizational theorists such as Lim, Griffiths, and Sambrook (2010) are once again proposing that organizational structure development is very much dependent on the expression of the strategies and behavior of the management and the workers as constrained by the power distribution between them, and influenced by their environment and the outcome 147
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Introduction Any operating organization should have its own structure in order to operate efficiently. For an organization, the organizational structure is a hierarchy of people and its functions. The organizational structure of an organization tells you the character of an organization and the values it believes in. Therefore, when you do business with an organization or getting into a new job in an organization, it is always a great idea to get to know and understand their organizational structure. Depending on the organizational values and the nature of the business, organizations tend to adopt one of the following structures for management purposes. Although the organization follows a particular structure, there can be departments and teams following some other organizational structure in exceptional cases. Sometimes, some organizations may follow a combination of the following organizational structures as well. Organizational Structure Types: Following are the types of organizational structures that can be observed in the modern business organizations.
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Bureaucratic Structures:
Bureaucratic structures maintain strict hierarchies when it comes to people management. There are three types of bureaucratic structures: 1 - Pre-bureaucratic structures
This type of organizations lacks the standards. Usually this type of structure can be observed in small scale, start-up companies. Usually the structure is centralized and there is only one key decision maker. The communication is done in one-on-one conversations. This type of structures is quite helpful for small organizations due to the fact that the founder has the full control over all the decisions and operations. 2 - Bureaucratic structures
These structures have a certain degree of standardization. When the organizations grow complex and large, bureaucratic structures are required for management. These structures are quite suitable for tall organizations. 3 - Post-bureaucratic Structures
The organizations that follow post-bureaucratic structures still inherit the strict hierarchies, but open to more modern ideas and methodologies. They follow techniques such as total quality management (TQM), culture management, etc.
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Functional Structure: The organization is divided into segments based on the functions when managing. This allows the organization to enhance the efficiencies of these functional groups. As an example, take a software company. Software engineers will only staff the entire software development department. This way, management of this functional group becomes easy and effective. Functional structures appear to be successful in large organization that produces high volumes of products at low costs. The low cost can be achieved by such companies due to the efficiencies within functional groups. In addition to such advantages, there can be disadvantage from an organizational perspective if the communication between the functional groups is not effective. In this case, organization may find it difficult to achieve some organizational objectives at the end.
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These types of organizations divide the functional areas of the organization to divisions. Each division is equipped with its own resources in order to function independently. There can be many bases to define divisions. Divisions can be defined based on the geographical basis, products/services basis, or any other measurement. As an example, take a company such as General Electrics. It can have microwave division, turbine division, etc., and these divisions have their own marketing teams, finance teams, etc. In that sense, each division can be considered as a micro-company with the main organization.
Matrix Structure
When it comes to matrix structure, the organization places the employees based on the function and the product. The matrix structure gives the best of the both worlds of functional and divisional structures.
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In this type of an organization, the company uses teams to complete tasks. The teams are formed based on the functions they belong to (ex: software engineers) and product they are involved in (ex: Project A). This way, there are many teams in this organization such as software engineers of project A, software engineers of project B, QA engineers of project A, etc.
Conclusion Every organization needs a structure in order to operate systematically. The organizational structures can be used by any organization if the structure fits into the nature and the maturity of the organization. In most cases, organizations evolve through structures when they progress through and enhance their processes and manpower. One company may start as a pre-bureaucratic company and may evolve up to a matrix organization.
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The set organizational structure may not coincide with facts, evolving in operational action. Such divergence decreases performance, when growing. E.g., a wrong organizational structure may hamper cooperation and thus hinder the completion of orders in due time and within limits of resources and budgets. Organizational structures should be adaptive to process requirements, aiming to optimize the ratio of effort and input to output.
Types Pre-bureaucratic structures: Pre-bureaucratic (entrepreneurial) structures lack standardization of tasks. This structure is most common in smaller organizations and is best used to solve simple tasks. The structure is totally centralized. The strategic leader makes all key decisions and most communication is done by one on one conversations. It is particularly useful for new (entrepreneurial) business as it enables the founder to control growth and development. They are usually based on traditional domination or charismatic domination in the sense of Max Weber's tripartite classification of authority. Functional structure
A functional organizational structure is a structure that consists of activities such as coordination, supervision and task allocation. The organizational structure determines how the organization performs or operates. The term organizational structure refers to how the people in an organization are grouped and to whom they report. One traditional way of organizing people is by function. 153
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Some common functions within an organization include production, marketing, human resources, and accounting. This organizing of specialization leads to operational efficiency where employees become specialists within their own realm of expertise. The most typical problem with a functional organizational structure is however that communication within the company can be rather rigid, making the organization slow and inflexible. Therefore, lateral communication between functions become very important, so that information is disseminated, not only vertically, but also horizontally within the organization. Communication in organizations with functional organizational structures can be rigid because of the standardized ways of operation and the high degree of formalization. As a whole, a functional organization is best suited as a producer of standardized goods and services at large volume and low cost. Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient and predictable. Moreover, efficiencies can further be realized as functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low cost. For instance, a small business could make components used in production of its products instead of buying them. Even though functional units often perform with a high level of efficiency, their level of cooperation with each other is sometimes compromised. Such groups may have difficulty working well with each other as they may be territorial and unwilling to cooperate. The occurrence of infighting among units may cause delays, reduced commitment due to competing interests, and wasted time, making projects fall behind schedule. This ultimately can bring down production levels overall, and the 154
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company-wide employee organizational goals.
commitment
toward
meeting
Divisional structure
The divisional structure or product structure consists of selfcontained divisions. A division is a collection of functions which produce a product. It also utilizes a plan to compete and operate as a separate business or profit center. According to Zainbooks.com, divisional structure in America is seen as the second most common structure for organization today. Employees who are responsible for certain market services or types of products are placed in divisional structure in order to increase their flexibility. Examples of divisions include regional (a U.S Division and an EU division), consumer type (a division for companies and one for households), and product type (a division for trucks, another for SUVS, and another for cars). The divisions may also have their own departments such as marketing, sales, and engineering. The advantage of divisional structure is that it uses delegated authority so the performance can be directly measured with each group. This results in managers performing better and high employee morale. Another advantage of using divisional structure is that it is more efficient in coordinating work between different divisions, and there is more flexibility to respond when there is a change in the market. Also, a company will have a simpler process if they need to change the size of the business by either adding or removing divisions. When divisional structure is utilized more specialization can occur within the groups. When divisional structure is organized by product, the customer has their own advantages especially when only a few services or products are offered which differ greatly. When using divisional structures that are organized by either markets or geographic 155
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areas they generally have similar function and are located in different regions or markets. This allows business decisions and activities coordinated locally. The disadvantages of the divisional structure is that it can support unhealthy rivalries among divisions. This type of structure may increase costs by requiring more qualified managers for each division. Also, there is usually an over-emphasis on divisional more than organizational goals which results in duplication of resources and efforts like staff services, facilities, and personnel. Matrix structure: The matrix structure group employees operate by both function and product. This structure can combine the best of both separate structures. A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized forms. An example would be a company that produces two products, "product a" and "product b". Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, "product b" accounting department.
Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee the crossfunctional aspects of the project. The functional managers maintain control over their resources and project areas. Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It brings the best aspects of functional and projectized organizations. 156
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However, this is the most difficult system to maintain as the sharing of power is a delicate proposition. Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.
Matrix structure is only one of the three major structures. The other two are Functional and Project structure. Matrix management is more dynamic than functional management in that it is a combination of all the other structures and allows team members to share information more readily across task boundaries. It also allows for specialization that can increase depth of knowledge in a specific sector or segment. There are both advantages and disadvantages of the matrix structure; some of the disadvantages are an increase in the complexity of the chain of command. This occurs because of the differentiation between functional managers and project managers, which can be confusing for employees to understand who is next in the chain of command. An additional disadvantage of the matrix structure is higher manager to worker ratio that results in conflicting loyalties of employees. However the matrix structure also has significant advantages that make it valuable for companies to use. The matrix structure improves upon the “silo” critique of functional management in that it diminishes the vertical structure of functional and creates a more horizontal structure which allows the spread of information across task boundaries to happen much quicker. Moreover, matrix structure allows for specialization that can increase depth of knowledge & allows individuals to be chosen according to project needs. This correlation between individuals and project needs is what produces the concept of maximizing strengths and minimizing weaknesses.
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Chapter Eleven Financial statements an Overview Objectives: -
Clarify accounting concepts and principles. Identify financial statements.
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Accounting Concepts and principles: Accounting concepts are the rules of accounting that should be followed in preparation of all accounts and financial statements. 1. Accounting Entity: The accounting entity is the business unit (regardless of the legal business form) for which the financial statements are being prepared. The accounting entity principle states that there is a “business entity” separates from its owners…a fictional “person” called a company. 2- Going Concern: Unless there is evidence to the contrary, accountants assume that the life of the business entity is infinitely long. Obviously this assumption cannot be verified and is hardly ever true. But this assumption does greatly simplify the presentation of the financial position of the firm and aids in the preparation of financial statements. 3-Periodicity: Accountants assume that the life of a corporation can be divided into periods of time for which profits and losses can be reported, usually a month, quarter or year. 4-Materiality: Materiality refers to the relative importance of different financial information. All transactions must be reported if they would materially affect the financial condition of the company. 5-Money Measurement: All business transaction should be expressed in money. Thus transaction, which cannot be expressed in money, will not be recorded in accounting records. That means only those transactions, which can be expressed in monetary terms, are recorded in accounting through their quantitative records. 6-Cost basis: asset value recorded in the account books should be the actual cost paid, and not the asset's current market value. 161
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7-Matching: Matching Principle requires that expenses incurred by an organization must be charged to the income statement in the accounting period in which the revenue, to which those expenses relate, is earned. 8- Full disclosure: financial statements and their notes should contain all relevant data. 9- Objectivity: This concept implies that all accounting transaction should be evidenced and supported by business documents i.e., invoices, vouchers etc. Financial Statements: General purpose of financial statements: The International Accounting Standards Board (IASB) stated that “The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions” (IASB 2010a). The Basic Accounting Statements: There are three basic accounting statements that summarize information about a firm: 1- Income statement. 2- Balance sheet. 3- Statement of cash flows. First: Income statement Income statement provides information on the revenues and expenses of the firm, and the resulting income made by the firm, during a period. The statement summarizes a company's revenues and business expenses to provide the big picture of the financial performance of a company over time. Income statement consists of the following items: 162
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Revenue from normal business operations (if you're in retail, then revenue would be from sales) as well as gains from other causes (like gains from selling off an equipment that you're not in the business of selling). The income statement lists not just the amounts of money that come in but also what reason the money was received for (that would be indicated by the account names). Expenses, like rent and wages etc. We usually net off the Income with the Expenses to get Profit before Tax, and then income tax expense comes next. Once that's subtracted, we get net income (or net profit after tax). Net income: results when revenues exceed expenses. Net loss: results when expenses exceed revenues. Income statement form (model)
Revenues : Gross sales Less: sales Returns/ Allowance Net Sales Cost of Goods Sold: Purchases Delivery charges Cost of Goods Sold Gross Sales Profit (loss) Expenses: Advertising Rent Salaries and Wages Insurance Others Total Expenses Net Operating Income Others income Net income (loss)
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Using the above multiple-step income statement as an example, we see that there are three steps needed to arrive at the bottom line Net Income: Step1: Cost of goods sold is subtracted from net sales to arrive at the gross profit. Step2: expenses are subtracted from gross profit to arrive at operating income. Step3: The net amount of nonoperational revenues, gains, nonoperational expenses and losses is combined with the operating income to arrive at the net income or net loss. Second: Balance sheet The Balance sheet, also called the statement of financial position summarizes the assets owned by a firm, the value of these assets and the mix of financing, debt and equity, used to finance these assets at a point in time. Unlike the income statement, the balance sheet does not report activities over a period of time. The balance sheet is essentially a picture a company's recourses, debts, and ownership on a given day. This is why the balance sheet is sometimes considered less reliable or less telling of a company's current financial performance than a profit and loss statement. The balance sheet provides information about the source of funds for a business and how those funds have been used. The three sources are share capital, loan capital and reserves and the three uses are fixed assets, working capital and investments.
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Explanation of Balance Sheet Terms: The fixed assets: These are items held on a continuing basis in order to generate wealth for the company in the future e.g. buildings, vehicles, plant and equipment. The current assets: These are assets that are already cash or are expected to be turned into cash within the following 12 months. Current assets include e.g. inventory, cash and accounts receivables, and prepaid expenses. Intangible Assets: Intangible assets include a wide array of assets ranging from patents and trademarks to goodwill. The accounting standards vary across intangible assets Working capital: Working capital is often defined as the current assets less the current liabilities (or creditors due within one year). The working capital section of the balance sheet is a photograph of the trading cycle of the company at the balance sheet date. Current Liabilities: These include the obligations to be paid within one year, including accounts payable, short-term loans, income taxes payable, wages, unearned revenue (e.g. service contracts), and the current portion of long-term debt (e.g. mortgage payments payable within 12 months). Long-Term Liabilities: These include long-term debt (e.g. notes, mortgages), capital lease obligations (e.g. leases structured as loans), and deferred income tax (e.g. the tax due on the increase in value of an investment security that isn't paid until the security is sold).
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Owner's Equity (or Stockholders' Equity for corporations): This is basically the amount left over when you subtract Total Liabilities from Total Assets. Balance sheet (model) Assets: Current Assets: cash Inventory Prepaid expenses Total current Assets Fixed Assets: Land Building Equipment Total Fixed Assets Total Assets Liabilities and Stockholder’s Equity Current liabilities: Account payable Income tax payable Long-term liabilities: Loan Total Liabilities Stockholder’s equity: Common stock Retained earnings Total stockholder’s equity Total Liabilities and Stockholder’s Equity
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Third: Statement of cash flows: Statement of cash flows provides information on the cash receipts and payments for specific period of time. The statement of cash flows shows the results of the previous three activities:
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A- Operation activities: which involve income statement that creates either revenues or expenses. B- Investing activities: that includes purchasing and disposing investments, properties and other equipments in addition to lending and collection money to and from others. C- Financing activities: that includes obtaining cash from issuing debt and paying it, and cash from stockholders and paying the dividends. Statement of cash flows – indirect method (Model) Cash flows from operating activities: Net income Cash provided by operating activities Net cash provided by operating activities Cash flows from investing activities: Purchase of building Sale of equipment Net cash used by investing activities Cash flows from financing activities Issuance of common stock Payment of cash dividends Net cash used by financing activities Net increase in cash Cash at the beginning of period Cash at the end of period
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Contents Introduction................................................................................. 5 Objective ..................................................................................... 6 Chapter One: Management an Overview: ....................................7 Chapter Two: The Management Process ................................... 17 Chapter Three: Levels of Management...................................... 25 Chapter Four: Management Functions (Planning, organizing)... 31 Chapter Five: Management Functions (Leading, and controlling) .................................................................................................. 69 Chapter Six: (Decision making, Leadership, Communication) an overview ................................................................................... 87 Chapter seven: Consumer Buyer Behavior .............................. 101 Chapter Eight: Marketing ........................................................ 119 Chapter Nine: (E- business, E- commerce) an overview .......... 137 Chapter Ten: The Nature of Organizational structure .............. 145 Chapter Eleven: Financial statements an Overview ................. 159 References............................................................................... 168 Contents .................................................................................. 173
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