INDUSTRIALMANAGEMENT

UNIT 1INTRODUCTION

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Historical perspectiveo “Management" is as old as human society, certainly

"governance" or "rule" of people in ancient tribes, kingdoms, and empires engages the notion of "managing".

o The early Greeks disdained trade and commerce. Manual workers and merchants were excluded from citizenship and were often foreigners or slaves.

o This attitude towards commerce was adopted by the Romans who developed small factories to produce armaments and pottery, but as in Greece these trades were dominated by foreigners, Greeks and Oriental freedmen.

o The Romans did establish state joint stock companies ( state corporations ) to raise money for state projects by selling stocks, but expressed prohibited joint stock companies for private enterprise.

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The Middle Ages in Europe were marked by continuance of an anti-commerce attitude and a preoccupation with local markets.

Trade with Arabic cultures also influenced European economic thinking and introduced the earliest form of capitalism, mercantilism. Mercantilism is the distribution of goods in order to realize a profit -- simply, buy low from one place and sell high at another place.

European contact with Islam introduced the rewards of global trade, illustrated by the infusion of Arabic economic words, such as "tariff", and introducing "arabic" numbers, a counting system with the unique number "zero" which had been adopted by Arabs from India as a secret code for maintaining trade accounts.

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in 1600 the East India Company was formed to exploit commerce and colonial adventures in the Asia subcontinent. Unlike previous ventures, this undertaking was prolonged.

The Industrial Revolution made possible new products at low costs for wider markets accessed by the new technology of rail and steam ship transportation.

Later the modern management started by F.W Taylor changed the whole perspective as Modern management emphasized the collaboration of people and machines to create value.

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F.W. Taylor

Frederick Winslow Taylor is regarded as the Guru of Scientific Management.

He was the chief engineer in Midvale steel company

Published the book, ‘Scientific Management’ in 1911

Replaced rule of thumb with science.He increased the productivity by scientific

methods of production.Divided the authority and responsibilityCreated more harmony among workers Improved the pay for workersClosely associated with division of labor and mass

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Scientific management was a theory of management that analyzed and synthesized workflows.

Taylor's own early names for his approach included "shop management" and "process management". When Louis Brandeis popularized the term "scientific management" in 1910, Taylor recognized it as another good name for the concept, and he used it himself in his 1911 monograph

Its main objective was improving economic efficiency, especially labor productivity. It was one of the earliest attempts to apply science to the engineering of processes and to management.

Its development began with Frederick Winslow Taylor in the 1880s and 1890s within the manufacturing industries. Its peak of influence came in the 1910s; by the 1920s, it was still influential but had begun an era of competition and syncretism with opposing or complementary ideas.

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• Although scientific management as a distinct theory or school of thought was obsolete by the 1930s, most of its themes are still important parts of industrial engineering and management today.

• These include analysis; synthesis; logic; rationality; empiricism; work ethic; efficiency and elimination of waste; standardization of best practices; disdain for tradition preserved merely for its own sake or merely to protect the social status of particular workers with particular skill sets; the transformation of craft production into mass production; and knowledge transfer between workers and from workers into tools, processes, and documentation.

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Henry FayolFayol was born in 1841 in a suburb of Istanbul, TurkeyHe became director in 1888, when the mine company

employed over 1,000 people, and held that position over 30 years until 1918

In 1916 he published his experience in the book "Administration Industrielle et Générale“

• He has proposed that there are six primary functions of management and 14 principles of management.

• forecasting• planning• organizing• commanding• coordinating• controlling

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14 Principles of Management1. Division of work. This principle is the same as Adam Smith's 'division

of labour'. Specialisation increases output by making employees more efficient.

2. Authority. Managers must be able to give orders. Authority gives them this right. Note that responsibility arises wherever authority is exercised.

3. Discipline. Employees must obey and respect the rules that govern the organisation. Good discipline is the result of effective leadership, a clear understanding between management and workers regarding the organisation's rules, and the judicious use of penalties for infractions of the rules.

4. Unity of command. Every employee should receive orders from only one superior.

5. Unity of direction. Each group of organisational activities that have the same objective should be directed by one manager using one plan.

6. Subordination of individual interests to the general interest. The interests of any one employee or group of employees should not take precedence over the interests of the organisation as a whole.

7. Remuneration. Workers must be paid a fair wage for their services.11

8. Centralisation. Centralisation refers to the degree to which subordinates are involved in decision making. Whether decision making is centralised (to management) or decentralised (to subordinates) is a question of proper proportion. The task is to find the optimum degree of centralization for each situation.

9. Scalar chain. The line of authority from top management to the lowest ranks represents the scalar chain. Communications should follow this chain. However, if following the chain creates delays, cross-communications can be allowed if agreed to by all parties and superiors are kept informed.

10. Order. People and materials should be in the right place at the right time.

11. Equity. Managers should be kind and fair to their subordinates.12. Stability of tenure of personnel. High employee turnover is

inefficient. Management should provide orderly personnel planning and ensure that replacements are available to fill vacancies.

13. Initiative. Employees who are allowed to originate and carry out plans will exert high levels of effort.

14. Esprit de corps. Promoting team spirit will build harmony and unity within the organisation.

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Frank and Lilian Gilbreth

Frank Bunker Gilbreth was born on July 7, 1868 in Fairfield, Maine. Lillian Evelyn Moller was born on May 24,

1878 in Oakland, California.Frank and Lillian were married in 1904Frank Gilbreth's well-known work in

improving brick-laying in the construction trade is a good example of his approach

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Frank and Lillian Gilbreth continued their motion study and analysis in other fields and pioneered in the use of motion pictures for studying work and workers.

They originated micro-motion study, a breakdown of work into fundamental elements now called ‘Therbligs’ (derived from Gilbreth spelled backwards).

These elements were studied by means of a motion-picture camera and a timing device which indicated the time intervals on the film as it was exposed.

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Charles Babbage

Charles Babbage, FRS (26 December 1791 – 18 October 1871)was an English mathematician, philosopher, inventor, and mechanical engineer who originated the concept of a programmable computer.

His parents ordered that his "brain was not to be taxed too much" and Babbage felt that "this great idleness may have led to some of my childish reasonings."

Half of Babbage's brain is preserved at the Hunterian Museum in the Royal College of Surgeons in London. The other half of Babbage's brain is on display in the Science Museum, London.

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Babbage sought a method by which mathematical tables could be calculated mechanically, removing the high rate of human error.

Babbage's machines were among the first mechanical computers, although they were not actually completed, largely because of funding problems and personal issues.

In Babbage’s time, numerical tables were calculated by humans who were called ‘computers’, meaning "one who computes“.

At Cambridge, he saw the high error-rate of this human-driven process and started his life’s work of trying to calculate the tables mechanically. He began in 1822 with what he called the difference engine, made to compute values of polynomial functions.

Unlike similar efforts of the time, Babbage's difference engine was created to calculate a series of values automatically. By using the method of finite differences, it was possible to avoid the need for multiplication and division.

In 1824, Babbage won the Gold Medal of the Royal Astronomical Society "for his invention of an engine for calculating mathematical and astronomical tables."

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In ‘On the Economy of Machine and Manufacture’, Babbage described what is now called the Babbage principle, which describes certain advantages with division of labour.

Babbage noted that highly skilled – and thus generally highly paid – workers spend parts of their job performing tasks that are 'below' their skill level.

If the labour process can be divided among several workers, it is possible to assign only high-skill tasks to high-skill and -cost workers and leave other working tasks to less-skilled and paid workers, thereby cutting labour costs.

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Henry Gantt

Henry Laurence Gantt, A.B., M.E. (1861 – 23rd

November 1919) was an American mechanical engineer and management consultant who is most famous for developing the Gantt chart in the 1910s.

In 1887, he joined Frederick W. Taylor in applying scientific management principles to their work at Midvale Steel and Bethlehem Steel—working there with Taylor until 1893

In his later career as a management consultant—following the invention of the Gantt chart—he also designed the 'task and bonus' system of wage payment and additional measurement methods worker efficiency and productivity.

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• Henry Gantt's legacy to production management is the following:

• The Gantt chart: Still accepted as an important management tool today, it provides a graphic schedule for the planning and controlling of work, and recording progress towards stages of a project. The chart has a modern variation, Program Evaluation and Review Technique (PERT).

• Industrial Efficiency: Industrial efficiency can only be produced by the application of scientific analysis to all aspects of the work in progress. The industrial management role is to improve the system by eliminating chance and accidents.

• The Task And Bonus System: He linked the bonus paid to managers to how well they taught their employees to improve performance.

• The social responsibility of business: He believed that businesses have obligations to the welfare of the society in which they operate.

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Gantt Chart

• Gantt (1903) describes two types of balances:• The "man’s record", which shows what each

worker should do and did do, and• The "daily balance of work", which shows the

amount of work to be done and the amount that is done.

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Gantt charts only represent part of the triple constraints (cost, time and scope) of projects, because they focus primarily on schedule management. Moreover, Gantt charts do not represent the

size of a project or the relative size of work elements, therefore the magnitude of a behind-schedule condition is easily miscommunicated. If two projects are the same number of days

behind schedule, the larger project has a larger impact on resource utilization, yet the Gantt does not represent this difference.

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Example

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Ownership of industries

Sole proprietorshipPartnershipJoint stock companiesPublic sector undertakingsPrivate enterprisesCooperative organizations

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Sole proprietorship The Sole Proprietorship is really a lot ideal for a new

upcoming tiny company. The simplest business structure is what's known as a

"sole proprietorship," and it is the default business structure for an individual who runs a business with only one owner.

With a sole proprietorship a single individual personally owns the business, and he or she is fully responsible for the debts and liabilities of the business.

This means that, should the business owner be unable to pay his or her business debts, creditors can go after the assets of the individual proprietor for payment.

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• In this type of business, there are no specific business taxes paid by the company.

• The owner pays taxes on income from the business as part of his or her personal income tax payments.

• Sole proprietors need to comply with licensing requirements

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Advantages of a Sole Proprietorship

• A sole proprietor has complete control and decision-making power over the business.

• Sale or transfer can take place at the discretion of the sole proprietor.

• No corporate tax payments. • Minimal legal costs to forming a sole

proprietorship. • Few formal business requirements.

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Disadvantages of a SoleProprietorship

• The sole proprietor of the business can be held personally liable for the debts and obligations of the business.

• Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company.

• All responsibilities and business decisions fall on the shoulders of the sole proprietor.

• Investors won’t usually invest in sole proprietorships.

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Partnerships

If the business is owned by more than one individual, the default structure is a partnership.

Like a sole proprietorship, the partners in a partnership are individually liable for business debts and liabilities, and report their share of the partnership assets and debts on their personal tax return.

A partnership is an arrangement where entities and/or individuals agree to cooperate to advance their interests.

It can occur between individuals, governments, organizations or even combinations

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Partnerships have widely varying results and can present partners with special challenges.

Levels of give-and-take, areas of responsibility, lines of authority, and overarching goals of the partnership must all be negotiated.

Partnership in Indian context: According to section 4 of the Partnership Act of 1932, which

applies in both India and Pakistan, "Partnership is defined as the relation between two or more persons who have agreed to share the profits and losses according to their ratio of business run by all or any one of them acting for all". This definition superseded the previous definition given in section 239 of Indian Contract Act 1872 as – “Partnership is the relation which subsists between persons who have agreed to combine their property, labour, skill in some business, and to share the profits thereof between them”. The 1932 definition added the concept of mutual agency.

A partnership firm is not a legal entity apart from the partners constituting it. It has limited identity for the purpose of tax law as per section 4 of the Partnership Act of 1932. 32

Advantages of Partnership

1) It is also easy to organize like single proprietorship. Legal red tape in connection with its registration is not much.

2)Better management because of the presence or more participants in the operations of the business.

3)Possibility of bigger resources than in the single proprietorship exists. Financial institutions may extend bigger loans to such business organization considering the combined resources of the partners.

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Disadvantages of Partnership

1) Conflicts or quarrels between or among the partners regarding the management or policies of the business are likely to crop up.

2)It lacks stability. The death or withdrawal of one partner dissolves the partnership. To continue its operation, a complete reorganization is needed.

3)Like the single proprietor, the partners are also subject to unlimited liability, except the limited partners. Such partners, liabilities are only confined to their share of capital contributions in the form of cash or property.

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Joint-stock company• A joint-stock company (JSC) is a type of corporation or

partnership involving two or more individuals that own shares of stock in the company.

• Certificates of ownership ("shares") are issued by the company in return for each financial contribution, and the shareholders are free to transfer their ownership interest at any time by selling their stockholding to others.

• In most countries, but not the United States,[1] a joint-stock company offers the protection of limited liability; a shareholder is not liable for any of the company's debt beyond the face value of their shareholding.

• There are two kinds of joint-stock company: private and public companies. The shares of the former are usually only held by the directors and the company secretary. The shares of the latter are bought and sold on the open market.

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• Ownership of stock confers a large number of privileges. The company is managed on behalf of the shareholders by a Board of Directors, elected at an Annual General Meeting. The shareholders also vote to accept or reject an Annual Report and audited set of accounts. Individual shareholders can sometimes stand for directorships within the company, should a vacancy occur, but this is uncommon.

• The shareholders are usually liable for any company debts that exceed the company's ability to pay. However, the limit of their liability only extends to the face value of their shareholding. This concept of limited liability largely accounts for the success of this form of business organization.

• Ordinary shares entitle the owner to a share in the company's net profit. This is calculated in the following way: the net profit is divided by the total number of owned shares, producing a notional value per share, known as a dividend. The individual's share of the profit is thus the dividend multiplied by the number of shares that they own.[2]

• Debentures are issued by joint-stock companies as a way of increasing the capital. They are termed stock and entitle the purchaser to a fixed rate of interest paid quarterly or annually.

• Unlike dividends, this never varies, but the company must pay the interest from the net profit before the dividend is calculated. Indeed, interest on debentures must be paid even if there is no profit. The owners of debentures have no rights in the governance of the company. Debentures can be openly traded, the same way that shares are, and have been traditionally used as a means of long term investment.

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Public Sector Undertaking (PSU)

In India, public sector undertaking (PSU) is a term used for a government-owned corporation (company in the public sector).

The term is used to refer to companies in which the government (either the Union Government or state or territorial governments, or both) owned a majority (51 percent or more) of the company equity.

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Private undertakings A privately owned enterprise refers to a commercial enterprise

that is owned by private investors, shareholders or owners (usually collectively, but they can be owned by a single individual), and is in contrast to state institutions, such as publicly owned enterprises and government agencies.

Private enterprises comprise the private sector of an economy. An economic system that contains a large private sector where privately run businesses are the backbone of the economy is referred to as capitalism.

This contrasts with socialism, where industry is owned by the state or by all of the community in common.

The act of taking assets into the private sector is referred to as privatization.

The goal of private enterprise differs from other institutions, the major difference being private businesses exist solely to generate profit for the owners or shareholders.

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Types of private undertakingsSole proprietorship:Partnership: There are three typical classifications

of partnerships: general partnerships, limited partnerships, and limited liability partnerships.

CorporationIn India, the term private limited (abbreviated: Pvt.

Ltd.) is used after a name of a company which is privately held unlike public companies which use the word limited only.

A private company limited by shares, usually called a private limited company (Ltd)

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Advantages

1. A huge sum of money can be raised2. It has limited liability for the investors3. Shares are transferable4. Life of the company is not affected by the

death of the shareholders5. Risk is divided

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Disadvantages

1. Legal formalities are more2. Small shareholders have limited role to play3. Since it gets concentrated with select few

large share holders they can commit fraud with the company

4. It is difficult to maintain the secrecy5. Divided responsibility.

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Cooperative organizationsA cooperative (also co-operative; often referred to as a co-op) is a business

organization owned and operated by a group of individuals for their mutual benefit.

Cooperatives are defined by the International Co-operative Alliance's Statement on the Co-operative Identity as autonomous associations of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through jointly owned and democratically controlled enterprises.

A cooperative may also be defined as a business owned and controlled equally by the people who use its services or by the people who work there.

A cooperative is also defined as a duly registered association of persons, with a common bond of interest and have voluntarily joined together to achieve a lawful common social or economic end, and making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.

Robert Owen (1771 - 1858) was a social reformer and a pioneer of the cooperative movement.

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• Cooperatives are based on the cooperative values of "self-help, self-responsibility, democracy and equality, equity and solidarity" and the seven cooperative principles.

1. Voluntary and Open Membership2. Democratic Member Control3. Member Economic Participation4. Autonomy and Independence5. Education, Training and Information6. Cooperation among Cooperatives7. Concern for Community

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A retailers' cooperative (known as a secondary or marketing co-operative in some countries) is an organization which employs economies of scale on behalf of its members to get discounts from manufacturers and to pool marketing.

It is common for locally owned grocery stores, hardware stores and pharmacies.

A worker cooperative or producer cooperative is a cooperative, that is owned and democratically controlled by its "worker-owners".

There are no outside owners in a "pure" workers' cooperative, only the workers own shares of the business, though hybrid forms in which consumers, community members or capitalist investors also own some shares are not uncommon.

A consumers' cooperative is a business owned by its customers. Employees can also generally become members. Members vote on major decisions, and elect the board of directors from amongst their own number.

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Types of cooperativesHousing cooperative A housing cooperative is a legal mechanism for ownership of housing where residents either own shares

(share capital co-op) reflecting their equity in the cooperative's real estate, or have membership and occupancy rights in a not-for-profit cooperative (non-share capital co-op), and they underwrite their housing through paying subscriptions or rent.

Building cooperativeMembers of a building cooperative (in Britain known as a self-build housing co-operative) pool resources

to build housing, normally using a high proportion of their own labour. When the building is finished, each member is the sole owner of a homestead, and the cooperative may be dissolved.

Utility cooperativeA utility cooperative is a type of consumers' cooperative that is tasked with the delivery of a public utility

such as electricity, water or telecommunications services to its members. Profits are either reinvested into infrastructure or distributed to members in the form of "patronage" or "capital credits", which are essentially dividends paid on a member's investment into the cooperative.

Agricultural cooperatives or farmers' cooperatives are cooperatives where farmers pool their resources for mutual economic benefit. Agricultural cooperatives are broadly divided into agricultural service cooperatives, which provide various services to their individual farming members, and agricultural production cooperatives, where production resources such as land or machinery are pooled and members farm jointly

Credit unions are cooperative financial institutions that are owned and controlled by their members. Credit unions provide the same financial services as banks but are considered not-for-profit organizations and adhere to cooperative principles. 45

Steps suggested in setting up acooperative.

There are six steps suggested in setting up a cooperative.FIRST. Get organized. You must have at least 15 members to do that. From this core

group, working communities may be formed to set things moving. These committees may include membership, finance, executive, secretariat to name a few.

SECOND. Prepare a general statement called an economic survey. This statement will help you measure your cooperative’s chances of success.

THIRD. Draft the cooperative’s by-laws. The by-laws contain the rules and regulations governing the operation of the cooperative.

FOURTH. Draft the articles of cooperation. Mandatory contents of the articles of cooperation are the following: (a) the name of the cooperative, which must include the word “cooperative”; (b) the purpose or purposes and scope of business of the cooperative; (c) the term of existence of cooperative;(d) the area of operation and the postal addresses of the registrant-cooperators; (e) the common bond of membership; (f) the names of the directors who shall manage the cooperative; (g) the amount of share capital; (h) the names and residences of its contributors, and (i)the type of cooperative, whether it is primary, secondary or tertiary.

FIFTH. Secure bond for accountable officer(s). The officers normally accountable are the Treasurer and the Manager.

SIXTH. Register your cooperative with the Cooperative Development Authority (CDA).46

Advantages of a CooperativeThe advantageous factors of the cooperative type of organization are given below: -1. Elimination of middlemen. The management of the consumer cooperative society

directly purchases the finished goods from the manufacturer and producer. Producer cooperative society procures the raw material from the producer. Thus they try to free themselves from the grip of the middlemen and make the goods available to consumers at lower prices.

2. Saving in management expenses. Cooperative society enjoys some economies in the field of management due to voluntary services performed by the members themselves. Thus, it is possible to minimize the expenses of management and supervision.

3. Minimum stock. Society purchases the same goods which are actually demanded by its members. Thus there is need to have minimum stock at hand due to constant and regular demands.

4. Economy in distribution and production expenditure. Society is saved from any distribution and production expenses. It has got its regular customers; therefore society has not to face any trouble for marketing its goods. Thus is has not to incur any expenditure for publicity and advertisement, which is a big item in the budget of the capitalist producer.

5. Integration. Under this type of organization, complete integration between producers, wholesalers and retailers is always possible. This is thus a clear advantage over capitalist economy.

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Disadvantages of a CooperativeLack of capital. a) Its members are generally related to the poor group of the society and they

are not in a position to invest a large amount.b) External financial resources of the society are limited.c) It cannot borrow money from non-members.d) It cannot issue any kind of debentures.e) It share cannot be transferred to nonmembers.It thus suffers shortage of capital for the operation of business.• Limited scale. Due to the various hindrances behind the growth of capital, it is

not possible for the cooperative society to start its business at a large scale; it therefore, keeps its business limited in the narrow field of cooperation.

• Inefficient management. Expert and efficient management is important factor for running the business successfully. But a society cannot afford to hire the services of superior abilities due to its limited resources. Therefore its business cannot be carried on smoothly.

• Lack of prompt decision. As all the matters are decided by the management committee and complied by another authority, it cannot act with promptness, if a chance comes to make a timely purchase or sale, they have to wait to get others consent.

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