Management and Entrepreneurshipin Indian Environment

A Perspective through Joining the Dots

Vachaspati MishraLieutenant Colonel (Retired)

Certified Management Consultant™

ISO 9001:2008 CERTIFIED

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First Edition : 2016

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Dedicated to Youth of India

He, who studies how things originated and came into being, will get theclearest view of them.

Aristotle (384 - 322 BC)

An artist should look beyond the tangible world, the beauty of form thatmeets the eye. He should lift the veil and look within. The phenomenal worldof separated beings and objects blind the reality beyond. How can you learnpainting without learning sculpting, sculpting without learning dancing anddancing without learning music?

Chitrasutra (Aphorisms on painting), Vishnupuranottara, ~ 6th Century AD

The information contained in this book has been collected by theauthor from various sources, primarily from the notes made during hisown studies in various courses of instructions he has attended and fromthose made for class room learning and teachings for motivating hisstudents. Some excerpts from media and the Internet have beenincluded in the book, for which the creators of original intellectualproperty have been referred to and their identity has been mentioned atappropriate places. The publishers believe that there is no violation ofany rules relating to copyrights or intellectual property rights in anymanner whatsoever. However, if any source has been attributed, thepublishers may be informed in writing for necessary action.

Collation and presentation of ideas of various thinkers, authors andleaders mentioned in the book has been done to facilitate readers ininvestigating more authentic facts and making up their own impressions.The author and publishers take no responsibility for their accuracy andreaders are warned to make their own validation of facts, carry out theirown detailed research, analysis, verification and validation of necessaryinputs while planning or proceeding with their business or new startups.

The Author and Publishers specially disclaim any risk, loss orliability to whomsoever in whatsoever form, as a consequence of usingthe contents of this book.

Acknowledgements

I am thankful to:All my teachers and students who liked, disliked, endured or punished me during the times

we shared together in academic pursuits and are still doing; all my seniors, team members andcolleagues in services and professionals – from India and overseas, whose wisdom and affection Ienjoyed and continue to enjoy.

All Authors, Colleagues and Friends, whether listed in the Select Bibliography or not, fortheir inspiration and encouragement towards learning and sharing their wisdom; Dr. PCShejwalkar, Professor Emeritus, Pune University MBA Centre, for writing a book onEntrepreneurship in 1986 and dedicating to ‘an Enterpriser, who doesn’t need to read it’; Dr.Dilip Sarwate, for giving me an insight to business and marketing besides guiding me on mydoctoral research project on business environment in India, China and Russia.

Dr. Sunil Karad, Executive Director and Trustee, MIT Group Pune, for being an inspiringemployer, besides being a dedicated polymer scientist, a determined entrepreneur and anenthusiast on Liberal Education.

Dr. Milind Pande, Project Director, MIT School of Telecom Management for suggesting thatI should write a book highlighting Indian Ethos in Management – Kautilya, in context of thatconversation should be my next focus of studies; Dr Nititn Pangarkar, Professor of Strategy,National University of Singapore for encouraging me to focus on the topic of this book,inspiration and guidance.

Mr Nagesh Bathe, my colleague for years, while handling New Projects at the MIT GroupPune, for encouraging and inspiring me to learn more and more.

Mr Anuj Pandey of Himalaya Publishing House and his staff for their kind cooperation,inspiration and support.

All ancestors and siblings, especially Avnish for the snap, Anamika and Gitanjali for theircare, Amitabh for reading through the manuscript and Damayanti for being our lifeline.

VachaspatiPune, May 2016

Prologue

The purpose of this book is to promote entrepreneurship in India.First focus for its readership is on undergraduate students of all disciplines, especially

technological, since they have already displayed their bias for technology and innovation bygetting into a technological institute and since India needs entrepreneurship mostly based ontechnological innovation today. Second focus is on senior citizens, consultants, teachers,ex-servicemen, retired professionals of any discipline and of course, college drop outs who havedisplayed an entrepreneurial attitude of creative destruction by deciding to drop out. They mayuse this book for focused ideation on possible ventures of their liking and build a team aroundthem. The third focus is on executives in businesses whether in India or abroad who care toexplore intra-preneurship within their own enterprises or an exceptional entrepreneurial ventureor a spinoff in India. Lastly, the dots and Exhibits in this book may be a good source or referencefor researchers to find their own research questions in social sciences.

Methodology followed to accomplish this purpose has been influenced by dictates of reveredChinese teacher Confucius (551 - 479 BC) who had said, “Tell me and I will forget. Show me andI will remember. Engage me and I will understand’.

Engagement of the reader is sought through a pastime game of ‘joining the dots’, whichresults into formation of an image, of course, imaginary in this case. After all, what we see aroundus is only an image of reality, may be like the tip of an iceberg. We come close to reality throughstudying and making several images of an entity from different viewpoints or perspectives. Alldots in the book are eminent entrepreneurs or outcomes of exemplary entrepreneurships. It isindeed, a regret that the dots included in this book are very few. Readers should add more dots fortheir own exercise and possibly become another dot themselves!

Subjects like Entrepreneurship and Business Environment have been rightly introduced atunder graduate levels in Indian Universities. It is an interesting trend today that even the seniorschool students are increasingly thinking of their own business instead of going for graduation.Some wish to acquire skill sets to develop innovative or entrepreneurial ideas and even obtaincertain work experience, before plunging into a business activity. Several others cannot affordthat luxury and wish to even drop out of the college due to their compelling economic challengesor for an alternative they may have in mind. Time has come in India, that undergraduate studentsbe exposed to these subjects in greater depth and wider perspective through active learning. Thisshould still remain essential at postgraduate levels, with different intensity, pedagogy andresearch orientation to suit their curriculum designs and objectives, preferably through projectreports which could be of use to graduates and to the country.

The basic idea behind any entrepreneurship is to promote economic activity. One has to walkan extra mile to achieve it. Assuming that the readers have a general idea of economics as a socialscience, their engagement is sought through the following five chapters in this book:

1. On Businesses2. On Management3. On Strategy4. On Entrepreneurship, and5. On Indian Environment.Each Chapter has its own outline of learning objectives, chapter contents divided in parts, a

summary and a few questions for readers to ask themselves.Chapter 1 ‘On Businesses’, comprises three parts. Part I is an introduction to business, for the

benefit of beginners, so that they may appreciate the significance of the business houses, activitiesor about the entrepreneurs who have been introduced subsequently as ‘dots’. Part II comprisesnames of certain businesses or events, selected with a purposive sampling technique, fromdifferent sectors of economy. A very brief introduction is given for each dot. These dots areidentifiable with a prominent ‘bullet mark’ throughout the book. Readers should collect moreinformation on ‘the dots’ of their interest and discuss with their colleagues and mentors formaking their own roadmaps for a possible business. The dots have been generally placed in achronological order, interspersed with several exhibits related to or connected with those dots, forease in linking and conceptualising. Part III of this chapter is intended to give some ideas on themodes of business in current digital economy, which is emerging fast, across the world. Cover ofthis book with a few currencies is inspired by this idea. After all, money and management are all-pervasive.

Chapter 2 ‘On Management’, comprises two parts. Part I has an introduction to management,and it has names and ideas of certain management thinkers as ‘the dots’ of this chapter. Part IIreproduces some widely accepted ideas on principles and practices of management. Exhibits havebeen included amongst the dots for ease of understanding of various thoughts.

Chapter 3 ‘On Strategy’, is divided in three parts. Part I is an introduction to businessstrategy. Part II gives the names of selected thinkers with their ideas on strategy. These are ‘thedots’ of Chapter 3. Part III contains some generally accepted concepts and practices on strategicmanagement of businesses.

Chapter 4 ‘On Entrepreneurship’, has two parts. Part I gives a brief introduction to thissubject and contains ‘the dots’ with a review of historic ideas leading to concepts ofentrepreneurship with a bias on economics and technology. Part II offers more ideas onentrepreneurial perceptions, practices and implementation.

Chapter 5 ‘On Indian Business Environment’ has four parts. Part I contains an introductionto India with deliberate attempt to peep into her past through several windows which appear assome ‘dots’. The author firmly believes that a country’s past is relevant to its present and future.A wise entrepreneur can ill afford to ignore the sentiments of the people of a country, even if theyare tolerant and accommodative. This aspect must be appreciated by entrepreneurs, for better

acceptance and growth of their new startups in the Indian society. Part II comprises fivesignificant major ‘dots’ namely, the Political, Economical, Social, Technological, Legal andEnvironmental (PESTLE) Factors normally considered by any business house before expandingtheir business to a country. All such ‘dots’ keep changing their significance and intensity withtime, in ever changing environment. With every dot, a very generic and detailed idea has beenincluded for the readers to build on them and keep themselves updated. Part III consists of namesof certain business houses and families as the new startups will either be collaborating with orcompeting against them. Part IV lists out certain opportunities, support and benefits extended bythe governments and others for new startups.

Certain learning objectives before each chapter and a summary towards its end have beenincluded. Each chapter ends with a long list of questions, whose answers should be sought by thereaders themselves, as a practice for research or for pursuit of their own entrepreneurial objectives.This is their real self engagement, first step towards entrepreneurship. This book may be used bymentors and teachers as a workbook for channelizing the thought process of their clients andpotential entrepreneurs.

This book is styled for general reading and therefore, avoids the format of a researchdocument, even though it is based on years of studies, research and experience. There are noreferences or endnotes, to keep the volume of the book at its minimum. It is quite easy to identifythe sources of the material or inspirations used in this book from the Select Bibliography andnumerous blogs on various topics. The text has been kept free from details, especially statisticalas the statistics keep changing and it is quite easy to find the latest updates from the Net.

India has emerged as a reckonable global market with her geostrategic location in the world,multifaceted and kaleidoscopic socio-cultural outlook, sound and liberal democratic populace;ranging from numerous ash-smeared self styled sadhus or beggars living by riversides or onsidewalks of metros to numerous high-end business communities living in mansions. With itsvibrant economy, India also appears to present a unique opportunity to the world for expandingtheir markets and production bases. A unique place to do business, and a most appropriate timefor that is now.

Essentially, any book is to facilitate learning. These lines from Late Dr APJ Abdul Kalamshould be remembered:

When learning is purposeful, creativity blossoms,When creativity blossoms, thinking emanates,When thinking emanates knowledge is fully lit,

When knowledge is fully lit, economy flourishes.The author hopes this book is taken up with a spirit with which it has been written and

wishes good luck to all its readers. Their feedback will be most welcome and appreciated.

Contents

Chapter 1: – On Businesses 1 – 85Learning Objectives and Chapter Contents

Part I : Introduction to BusinessPart II : A Historic Overview of Establishment of Business – The DotsPart III : Modes of Business in Emerging Digital Economy

Summary and Ask Yourself the questions you are interested inChapter 2 : – On Management 86 – 156

Learning Objectives and Chapter ContentsPart I : Perceptions on Management and Views of Certain Theorists – The DotsPart II : Some Widely Accepted Concepts on Management

Summary and Ask YourselfChapter 3 : – On Strategy 157 – 207

Learning Objectives and Chapter ContentsPart I : Introduction to Business StrategyPart II : A Review of Thoughts on Strategy – The DotsPart III : Generally Accepted Concepts in Strategic Management

Summary and Ask YourselfChapter 4 : – On Entrepreneurship 208 – 256

Learning Objectives and Chapter ContentsPart I : Introduction and Review of Idea leading to Entrepreneurship – The DotsPart II : More on Entrepreneurial Perceptions

Summary and Ask YourselfChapter 5 : – On Indian Environment 257 – 302

Learning Objectives and Chapter ContentsPart I : India, An Introduction – The DotsPart II : Business Environment in India – The DotsPart III : Some Indian Entrepreneurs currently in Business – The DotsPart IV : Avenues and Opportunities – The Dots

Summary and Ask Yourself

Epilogue 303 – 304

Glossary and Abbreviations 305 – 316

Select Bibliography 317 – 319

Index 320 – 328

List of Figures

1.1 Circular Flow Model of Inputs and Outputs showing Interaction of BusinessFirms, Households and Product/Factor Markets

8

1.2 Outdated ‘Firm and Product Centric’ Business Model 91.3 Contemporary Customer Focused Business Model 101.4 Sectors of Economy 101.5 Abell’s Three Dimensional Space for Business Growth 111.6 McKinsey’s 7-S Framework for Organisations 121.7 Product and Technology Life Cycle with Profitability 151.8 Break Even Analysis 171.9 DART Model of Value Co-Creation 781.10 An E-Business Model 791.11 Template to understand Global e-Business Environment 801.12 Business Functions Co-opted in Enterprise Resource Planning Software 801.13 Road Map for Growth of Start-ups 832.1 Force Field Analysis 972.2 An Illustration of Force Field Analysis 982.3 Deming Cycle or PDCA Cycle (also known as PDSA Cycle) 1032.4 Likert’s Linking Pin Model depicting Participative Management 1052.5 Illustration of a Questionnaire with Likert Scale 1062.6 Cost Iceberg of Poor Quality illustrated by Dr Joseph Juran 1072.7 Maslow’s Hierarchy of Needs with Alderfer’s ERG Theory 1092.8 A Model of Management by Objectives suggested by Peter Drucker 1102.9 Cost Saving with Experience and Learning 1122.10 A Model of Herzberg’s Two Factor Theory 1142.11 Single and Double Loop Learning Models 1152.12 Thinking Process and Ladder of Inference 1172.13 Six Sigma Standards of Production Compared with Three Sigma 1192.14 Henry Mintzberg ‘s Model of Managerial Roles 1202.15 Business Process Reengineering 1232.16 Gantt Chart and Activity Network Diagram for Project Management 1252.17 Various Approaches to Management 1302.18 Role of Management in Transformation Process for Business 1322.19 Managerial Process 1322.20 Levels of Management 1372.21 Application of Managerial Skills at Different Levels 1402.22 An Organisation Structure of a Manufacturing Company 1402.23 A Suggested Matrix Organization Format 1412.24 Virtual Organisation, Connected through Communication Links 141

2.25 Organisational Learning Model 1472.26 Methodology for Technology Change Management 1482.27 Evolution of Data, Information, Knowledge and Wisdom 1482.28 Types of Power Utilized by Leaders and Managers 1522.29 Path-Goal Approach to Leadership Effectiveness 1533.1 Igor Ansoff’s Product-Market Matrix 1673.2 Apple Computer’s Product/Market Expansion 1683.3 SWOT Analysis Matrix 1693.4 Modification of Igor Ansoff’s Matrix 1703.5 BCG’s Growth-Share Portfolio-Planning Matrix 1703.6 Shell Directional Policy Matrix 1713.7 GE’s 9 Cell Product Portfolio Matrix by Mckinsey Company 1713.8 Dan Schendel and Charles Hofer’s Model - The Life Cycle Portfolio Matrix 1733.9 Porter’s Prescription of Three Generic Strategies 1733.10 Porter’s Concept of Activities Forming the Value Chains 1743.11 Porter’s Five Factor Model to Assess Industry Attractiveness 1753.12 Porter’s Diamond Model for Competitive Advantage of Nations 1753.13 Corporate Profile Parenting - Fit Matrix 1773.14 The Economic Pyramid by CK Prahalad and Stuart Hart from the Fortune at the

Bottom of the Pyramid (2002)180

3.15 Market Share of Global Conglomerates HUL, P&G with local Firms 1813.16 CK Prahalad’s Bottom of the Pyramid Framework 1823.17 A Schematic Model of Balanced Score Card for Strategic Management 1843.18 Sustaining and Disruptive Technologies by Clayton Christensen 1873.19 Disruption in Conventional Car Market by Tata Nano, exemplified by Clayton

Christensen189

3.20 Linux RedHat’s attempt to disrupt Sun Micro-systems High Propriety Operating 1903.21 Microsoft’s Dilemma 1913.22 Common Characteristics of Successful Companies 1943.23 Levels of Strategy Formulation 1953.24 Strategic Management Framework and Process 1983.25 Strategic Decision Making Process Flow Chart The Figure needs modification 1983.26 Types of Mergers 2013.27 Illustration of International Corporate Level Strategies 2034.1 Diffusion of Innovation - Technology Adoption Cycle 2214.2 Crossing the Chasm – The Bowling Alley 2224.3 Crossing the Chasm – Critical Success Factors 2234.4 Cyclic Innovative Model by Dr Guus Berkhout 2254.5 Comparative study of Closed and Open Innovation Utilization Models 2284.6 Concept of Hype Cycle for Technology Applications by Gideon Gartner 231

4.7 A General Hype Cycle for Technology Adoption 2324.8 Hype Cycle showing Some Emerging Technologies in 2015 2324.9 Diffusion of Social Networks 2354.10 Aspects of Entrepreneurial Learning 2374.11 Decision Tree as an Illustration of Introducing a Product 2434.12 Suggested Business Planning Framework 2444.13 Frame work for Activity Level Breakdown Analysis 2455.1 India’s Top Imports in 2013-14 2835.2 India’s Top Exports in 2013-14 283

List of Tables

1.1 A Comparison between Goods or Products and Services 4 -51.2 Matrix of E-Commerce with Examples 76-771.3 Comparative Study of Concepts of Business‘Exchangeof Goods/Services with

Money’Vs‘Value Co-creati on’77

1.4 Shift in Organisational Structure of Current E-Enterprises from ConventionalOrganisations

80-81

2.1 Comparison between Western and Japanese Management Systems 1242.2 Brief Comparative Study of Science, Art and Craft 1312.3 Comparative Study of Administration, Management and Leadership 1502.4 Leadership Styles in varying situations of Subordinates & Environment 1532.5 Profiles of Three Entrepreneurial Visionaries of Personal Computers and Social

Networking, which changed the World and Societies154

3.1 Illustrations of Statements of Philosophy, Vision, Mission, Policy or Slogans 1623.2 Distinctive Competencies of Firms with Impacts on their Business 1693.3 Merits of Porter’s Generic Strategies to Couter Industry Forces 1753.4 Areas Suggested for New Strategies at the Bottom of the Pyramid 1803.5 A comparison of Red Ocean, Purple Fish and Blue Ocean Strategies 1863.6 Examples of Traditional Incumbent Businesses and Disruptors 1923.7 Examples of Growth by Diversification 1973.8 Four Types of Marketing Warfare – The Strategic Square 2044.1 Format for Evolving an Entrepreneurial Plan 245-2464.2 Difference between Managerial & Entrepreneurial Styles 247-2485.1 Some Eminent Indian Industrialists and Entrepreneurs 2935.2 Comparison between Winners and Losers 2955.3 Classification of MSMEs in Manufacturing and Services Sectors 2985.4 Certain Government and Non Government Agencies Regulating and

Supporting Business298-300

List of Exhibits

1.1 Travels and Travails of the East India Company (EIC) 20-231.2 Expeditions of French East India Company (FEIC) 23-241.3 The Industrial Revolution (1760–1840) 261.4 Tata Sons Limited – Outcome of a Great Vision 31-331.5 American Telephone and Telegraph (AT&T) Inc. – Cashing on its Core

Competence35-36

1.6 Lever Brothers to Hindustan Unilever Limited 36-371.7 General Motors (GM) Smooth Drive over Countries of Friends and Foes 40-431.8 Analytical Engine to International Business Machine (IBM) 44-461.9 Triggering off an Aviation Industry - American Airlines 49-521.10 McDonald’s Fast Food Around the World. 56-581.11 Hardwork on Software – The Microsoft Company 60-621.12 Evolution of the Internet 64-671.13 Google Inc 68-712.1 Henri Fayol’s 14 Principles of Management 92-932.2 Force Field Analysis Model by Kurt Lewin 97-982.3 Taylorism, Fordism and Emergence of Knowledge Management 101-1022.4 Deming’s Cycle for Quality Improvement and 14 Points for Total Quality

Management103-104

2.5 Likert’s Linking Pin Model and Likert Scale 105-1062.6 Reduction of Manufacturing Cost with Experience and Learning 111-1122.7 Theories of Learning by Chris Argyris and Colleagues 115-1172.8 Six Sigma and Total Quality Management Movement 118-1192.9 Managerial Roles Observed by Henry Mintzberg 1202.10 Hawthorne Experiments and Interpretations 1212.11 Concept of Business Process Re-engineering (BPR) 122-1232.12 Gantt Chart and Critical Path Method for Project Management 125-1262.13 Examples of Quality Policy Statements 1422.14 Illustrations on Violation of Intellectual Property Rights (IPR) 143-1442.15 A problem Case - the Busy Bank in Fort Mumbai 1463.1 Some Common Military Terms used in Business World 1603.2 An Illustration of Strategic Intent, Vision, Mission and Objectives (laid down by

Bharti Enterprises)163

3.3 Vision Statement of General Electric Company 1643.4 Statement of Volkswagen Group Strategy 2018 1643.5 Apple’s Strategy of Market Expansion akin to a Military Operation 1683.6 How Indian firms Compete with Global Conglomerates Like HUL & P&G 181

3.7 More Examples of Business at the Bottom of the Pyramid 182-1833.8 Instances on Blue Ocean Strategy 1863.9 Disruption in the Conventional Car Market by Tata Nano 1893.10 Linux RedHat Attempt to Disrupt Unix based High Propriety Sun Micro-systems

Operating System Solaris190

3.11 Microsoft’s Dilemma 190-1913.12 Nestle’s Maggi Vs Patanjali Atta Noodles 1913.13 The Credo of Johnson and Johnson 1933.14 Major Conventional Strategic Options 1963.15 Ruthless Implementation of Strategy by Sun Tzu (544-496 BC) and Jack Welch

in General Electric Company in 1980s205

4.1 Creative Destruction or Schumpeter’s Gale, an idea on Entrepreneurship 213-2144.2 Kakinada Experiments 217-2194.3 Everett Roger’s Theory of Diffusion of Innovations 220-2214.4 Crossing the Chasm of Technology Diffusion 222-2234.5 Closed and Open Innovation 226-2294.6 Concept of Hype Cycle for Technology Innovation 231-2334.7 Diffusion of Social Networks 233-2354.8 Illustration of a Decision Tree 241-2444.9 A Sample Format for a Business Plan 253-2555.1 The Hymn of non-Eternity, Origin of Universe (Nasadiya Sukta) 2605.2 Five Great Vows of Jains 2625.3 The Nine Virtues of the Buddha Appearing Throughout the Tipitaka 262-2635.4 The Purpose of creating Mahabharat, an Epic Originally Called JAYA 2635.5 An Extract of Kautilya’s Teachings about Management of Economy 264-2655.6 Ashtang Yoga - Eight Steps to Yoga by Ptanjali 2655.7 Summing up Jesus’ Teachings, from his Sermon on the Mount 2665.8 Core Islamic Beliefs - Six Articles of Faith 2675.9 The Song of Self by Adi Shankaracharya 2685.10 Teachings of Guru Nanak 2705.11 The States and Union Territories of India 2765.12 Report by World Bank on India Country Review, 2013 2865.13 Promotion of Cooperatives – AMUL as Example 2935.14 The Mood for Entrepreneurial Development in India 294

List of Maps

5.1 Locations of Kingdoms Mentioned in Indian Epics (~3000 BC) 2745.2 29 States and 7 Union Territories of Current India 275

‘Information is a source of learning. But unless it is organized, processed,and available to the right people in a format for decision making, it is a

burden, not a benefit.’

– William G. Pollard (1911–1989), American Physicist

Learning Objectives

This chapter is divided in three parts and contains exhibits numbered from 1.1 through 1.13, insertedat places related to the ‘dots’ around it.

In Part I, the readers, especially from non-business backgrounds, will get a preliminary introductionto a subject called Business Administration.

In Part II, after perusal of various businesses mentioned as ‘dots’, the readers will build their ownperspective of famous businesses. These perspectives will include facets like the conditions in whichthose businesses were created, how they flourished and why some of them ceased to exist or how theothers have managed to keep shining or are struggling to do so in today’s competitive world. Fromthose perspectives, the readers and aspiring entrepreneurs will draw their own direction andinspiration about the sector of business in which they, themselves may like to plunge in and set theobjectives for themselves. The readers will also have a feeling of how the objective of big businesseshas shifted from geo-politics to bringing goods and services to people across the globe.

Part III, covers an introduction to today’s digital economy, the way businesses are conducted todayand the course they may take in future.

Study of the exhibits will give the readers the capability to understand the effort needed to start abusiness and the course a business may take. As these exhibits encompass numerous sectors, thereader may also get a gut feeling about the businesses they may like to get in and the spirit withwhich they should move forward.

After study of the chapter and attempting the questions at its end, the readers will be prompted tostudy and obtain more information from media or through personal contacts, about their pursuits anddirections.

Chapter 1 – On Businesses

Management and Entrepreneurship in Indian Environment2

Contents of Chapter 1

Part I – Introduction to Business 4 - 17

Definition, Goods and Services. 4

Commerce, Trade, Markets, Types of ownership of Business, Interaction of Business Houseswith Other Entities in a Society, Business Firms, Households, Products and resourceMarkets.

6-9

Concepts of doing business: Firm/Product centric approach, Customer centric approach andValue co-creation.

9-10

Sectors of Economy: Private and Public Sectors, Primary, Secondary and Tertiary,Organized and Unorganized.

10

Space for Inception and Growth of Businesses: Abel’s Three Dimensional Model andBusiness segments.

10-11

Organizing for Business: McKinsey’s 7S Framework, Organisational Structure, VariousFunctions and Departments in a Business Organisation Customer, Client, Buyer andPurchaser, Marketing Department, Research & Technology Development Department,Production Department, Logistic Department, Finance Department, Human ResourceDepartment, Management Information and Enterprise Resource Planning (ERP) Systems.

11-14

Introduction to Product, Production Process design and Profitability. 14-15

A Brief on Budgeting, Financing, Accounting and Profits. Budget, Financing, Accounting,Ledger, Profit & Loss Account, Assets, Liability, Balance Sheet, Equity, Value, Revenue,Break Even Analysis.

15-17

Part II–A Historic Overview of Establishments of Businesses – The Dots 18 – 75

Bronze Age, Iron Age, Empires and Colonies, Marco Polo, Movable Printer, StockingFrame, Dutch and English/British East India Companies.

18-20

Travels and Travails of English/British East Indian Company (Exhibit1.1) 20-23French East India Company (FEIC) and their Impact (Exhibit 1.2) 23-24Cast Steel Production, Lloyd’s of London, Flying Shuttle, John Law and MississippiCompany, Power Looms, Spinning Jenny, Spinning Mule, Static Steam Engine, RailwayEngine, Industrial Revolution (Exhibit 1.3)

24-26

French Revolution, Du Pont, First Indian News Paper, Dynamo, Analytical Engine,Firstalgorithm, Proctor & Gamble, Bombay Times and Journal of Commerce to Times of India,Alexander Graham Bell, The First Cotton Mill in India and emergence of Labour welfare,First Indian Jute Mill, First War of Independence, Foundation of Standard and Poor,Foundations of Birla House, American Civil War, JN Tata and Foundation of Tata SonsLimited (Exhibit 1.4)

26-33

Jagadish Chandra Bose, Bombay Stock Exchange, Eastman Kodak Company, Marconi,Nortel Networks, JP Morgan and Company, Bell Telephone to American Telephone andTelegraph (Exhibit 1.5)

33-36

Lever Brothers to Hindustan Unilever Limited (Exhibit 1.6) 36-37

– On Businesses 3

Coca Cola, PepsiCo, Bank of America, Ford Motor Company, Nestle & Maggi, ChryslerFiat Automobiles, General Motor’s Smooth Drive over Countries of Friends and Foes(Exhibit 1.7)

37-43

Goodyear Tire & Rubber Company, Tomas John Watson (Sr & Jr), Analytical engine toIBM (Exhibit 1.8)

43-46

Foundations of Kirloskar Group, Foundation of Godrej Group, British Petroleum London,Foundation of Imperial Tobacco Company Calcutta, Foundation of TVS Group Madras.

46-48

Foundation of American Airlines and triggering off Aviation Industry (Exhibit 1.9) 49-52Foundation of Bajaj Group, Bombay, Marriott International Resorts Washington, ImperialChemical Industries London, Goenka’s Indian Express Limited, Reserve Bank of India,Toyota Motors Tokyo, Hindustan Motors Limited, IKEA Group, Western India PalmRefined Oil Limited Mumbai, Mohammad and Mahindra to Mahindra and MahindraLudhiana, BurgerKing Miami, McDonald’s California.

52-56

McDonald’s Fast Food around the world (Exhibit 1.10) 56-58Reliance Group Bombay, Wal-Mart Stores Arkansas, Jindal Group New Delhi, Essar Group,Avasthi and Associates Inc., Microsoft Washington.

58-60

Hard work on Software –the Microsoft Company (Exhibit 1.11) 60-62Apple Computers California, Bharti Enterprises New Delhi, On Line Banking, BusinessOutsourcing, Maruti Udyog New Delhi, Infosys Pune, Cisco Systems California.

63-64

Evolution of the Internet (Exhibit 1.12) 64-67ICICI Internet Mumbai, Amazon Seattle, Yandex Moscow. 67-68Google Inc. California,(Exhibit 1.13) 68-71eBay Inc California, PayPal Holding California, Alibaba Group Hanzhou, DotCom Bubble,Wikipedia, Facebook California, TutorVista Bangalore, Patanjali Ayurved Haridwar,Flipkart Bangaluru, Snapdeal New Delhi, Internet of Things, Wave of Startups since 2000.

71-75

Part III – Modes of Business in Emerging Digital Economy 75 - 85

Introduction, Use of Computers, Information, Communications and Entertainment (ICE)Age, Net Neutrality,

75-76

Modes of Business: B2C, B2B, C2B, C2C 76-77Value Co-creation, Changes in process of Selling and Marketing Goods and Services, GlobalE-Business Environment, Radical Changes in Organisational Structures of Business Housesin E-environment,

77-81

E-Commerce and Business Start-ups, Innovation, Start-ups and Business Disruption,Roadmap for growth of start-ups

81-83

Summary 83Ask Yourself the questions you are interested in 84-85

Management and Entrepreneurship in Indian Environment4

Part I - Introduction to Business

Definition

A business is one’s occupation, employment, duty, affairs, area of work or a domain of active interest.It may include a firm, a group of people or individuals engaged in commercial activities like trading ofgoods and services. People enter into a business to produce some goods or provide some services toother members of the society, in which they live and work. Such production of goods or performingactivities associated with the production and distribution to people must be desirable by other peoplein the society. On the contrary, no activity undertaken during conduct of a business should beobjectionable or undesirable by the society. Members of the society should have a choice to avail ofsuch products or services at prices they can afford to pay. The entire business must be profitable forthe people in business, otherwise the business will cease to exist.

Goods and Services

Food, clothing and shelter are the basic requirements for humans to survive. However, these are notenough. Being social, intellectual and ambitious, people create their own wish list. This wish list, attimes, may just remain a dream, since there are no means to fulfill them. Yet, majority of these wishesdo get converted into needs when people acquire the capability to fulfill those.The material needs of people may be identified as goods and services of a quality depending on thestandard of living and purchasing power of those people. Obviously, there comes a need to producethose goods and services of varying qualities to meet the requirement of people with varied standards.Some of these needs may not be fulfilled due to limited purchasing capability at a particular time.Later when adequate money is available or may be made available the ‘needs’ get converted into‘wants’. People then, want to buy the goods because they need and can pay for them. Once they haveidentified their needs and managed the resources for payment, they have a choice out of the widerange of products of various specifications or qualities, each coming at its own price. That is aboutgoods. Similarly there is a variety of services which come within the needs, like the medical,transportation, education, entertainment and a host of others. Then there is a variety of servicesavailable with varying quality and cost.All these goods and services are made available in a place called market, where buyers and seller meetor engage in a communication to fulfill their wishes or wants. Buyers need is to buy a product orservice at a cost. Sellers offer the products or service at a price the buyer is prepared to buy.Thisprice has to be such that the cost of producing it is recovered from the sale and some profit is made.That is precisely what a business is all about.Before proceeding further, we should understand the difference between products or goods andservices, for their correct usage in our learning and practice. The difference between goods or productsand services is illustrated in Table 1.1.

Table 1.1: A Comparison between Goods or Products and Services

No. Goods or Products Services

1 Goods are manufactured or fabricated, e.g.production of cars, clothes, sewing machines,food-products, electrical gadgets or books.

Services are performed, provided or rendered, e.g. salesor servicing of cars, designing & tailoring clothes,providing restaurant services, supply of electricity orprovision of education services.

– On Businesses 5

No. Goods or Products Services

2 Goods are tangible, visible and perceptible, likemobile phones.

Services are rather intangible, mostly invisible, e.g.communication services.

3 Consumers are not directly involved inproduction process; they just buy the finishedgoods, like a car, a bicycle, ready-made clothesor food items.

There is direct involvement of consumer during provisionor performance of service, like medical treatment given topatients, or train service given to a passenger.

4 Goods can be checked or sampled beforepurchase for their quality, like window-shopping, before purchasing.

Services actually received cannot be sampled orinspected, e.g. the experience of a rail travel or an airtravel paid for, has to be availed, the way it is offered.

5 Goods purchased, can be temporarily stored anddelivered later at convenience of buyer orseller.

Services have to be consumed or availed of at the point oftime indicated in their sale document or ticket, or at thedining table booked at a restaurant.

6 Goods can be sent to a place where customerwants them to be delivered, like a fridge to bedelivered at buyer’s house.

Consumers have to come where services are provided,like check-in at the airport from where a flight is to takeoff, to utilize the air transport service.

7 Purchaser has right to use the goods at place ortime of his or her choice, like taking a car orhousehold goods anywhere.

Purchaser has to avail of the service at specific time andplace where it is available or provided, e.g. services ofhotel suite sold for a day or night.

8 Ownership of goods can be transferred, likecars can be resold to another person, the newowner.

Services are not transferable, like an air ticket sold tosomeone cannot be resold or availed by at any otherplace/route.

9 Competition in business of goods is limitedonly to big players, as elaborate infrastructure isneeded to produce them, e.g. television sets,LCDs or LEDs.

There is close competition amongst service providers, asthere is less investment required and there are fewerbarriers to entry, e.g. Introduction of variety of food andbeverages.

10 Material is major component in productsbusiness, e.g. soaps, shampoos or gasoline soldat fuel filling stations are mostly material.

Most services are provided with less of material and withmore of human or machine effort. E.g. at hair dressingsaloons or beauty clinics.

11 There is limited change in variety of goods withgrowth of civilization, like cars have retainedthe same components – the engine, the steering,wheels and seats, with marginal increment isservices like air-conditioning, sound systemetc., keeping the core product essentially thesame.

There is a significant increase in variety and quality ofservices with growing socio-technical needs, like radicalchanges in the transportation services from horse-drawnbuggies, to privately owned motor cars, to taxi services,to mass transportation like buses, trains and air travel inbusiness classes suitable for different customers.

12 Production of farm and industrial productsretains a predominant share in growingeconomies over the services sector, as the high-end services are less affordable - hence less indemand in comparison to essential goods likefood and shelter.

Services occupy larger and larger share in a country’sGDP as its economy grows. Food and shelter having beentaken care of by the older generations, the new one looksfor a larger variety and quality in services – like moreelectric consumption, more travel and more data usage onmobile phones.

Notes:(a) There is a gradual shift of increasing more and more services along with product for establishing a long term

customer relation, to ensure longer business prospects and giving more value to customers, e.g. A footwearcompany keeping scanned date of customers feet and delivering from time to time a custom made pair of shoes onorders for a long duration.

(b) Proportion of shares in Goods and services sectors are a measure of a country’s classification as a Less Developedor Highly Developed Economy.

Management and Entrepreneurship in Indian Environment6

Commerce. Commerce is exchange of goods involving buying and selling. It is a component ofbusiness which includes all activities, functions and institutions involved in transferring goods fromproducers to consumers in the legal, economic, political, social, cultural, and technologicalenvironment of the country where such business is carried out. Thus, commerce is a system thataffects the business prospects of an economy or a nation-state. Today commerce includes a complexsystem of companies that try to maximize their profits by offering products and services to the market,which consists both of individuals and other companies) at the lowest production cost.The system ofinternational trade has helped the developing economies. However, at times the combination ofbilateral or multilateral agreements with a pressure to lower tariffs or to achieve free trade, hassometimes harmed the less developed countries in making due profits out of their local products.Trade. Trade involves the transfer of the ownership of goods or services from one person or entity toanother. It includes exchange of goods or services with other goods or services or for money. Tradinghappens when there is specialization and division of labor, in which most people focus on a smallernumber of items produced. Necessity of Trade is felt when different items are produced in differentregions, each at their own competitive rates. Trading may be carried out as wholesale, that is, goodssold as merchandise to industrial, commercial or institutional bodies. It may be between otherprofessional business users, or with other wholesalers and related retailers. Retail trade is the sale ofgoods or merchandise from a very fixed location, such as departmental stores, boutiques or kiosks, online or by mail, in small or individual lots, for direct consumption or for use by the purchaser. In placeof “trade” other terms like “commerce’ and “financial transaction’ are frequently used.Market. Market is a system and network that allows and facilitates trade. Markets exist in form of avariety of systems, institutions and organizations with procedures, social relations and infrastructurewhere parties engage in exchange of goods or services. Such exchange may be with money as themedium for assessment of costs, prices and profits. It is a place or space, including virtual space,where prices of goods and services are established. Markets facilitate trading and enable thedistribution and allocation of resources in a society. A market emerges spontaneously when the needsfor products or services arise in a society. Simultaneously there emerge providers for the same.Markets may be divided or segmented by their geographic locations. For instance, the food market in asingle building, the real estate market in a local city, the consumer market in an entire country, or theeconomy of an international trade bloc, where the same rules apply throughout. Markets may beworldwide, for example the global gold trade or may be divided according to various criteria, likemarkets in developed economies or in developing economy.Several theories and models concerning the basic market forces of supply and demand have beenevolved. A major factor for consideration before getting onto a business is how much a given marketcan be considered to be a ‘free market’, which means - it is free from government intervention.Barter. Barter system is an old model of exchange of goods for other goods by direct, bilateral ormultilateral arrangements. Money or monetary scales may or may not be used as a system forevaluation. It becomes essential in times of monetary crisis, when money is not conveniently availablefor conducting commerce. In a monetary economy, money plays the role of a measure of value of allgoods, so their values can be measured against each other.This role of money may be absent in abarter economy, and that is a demerit of the system. The system was found convenient by the laboremployed in industries as remuneration to physical work done or services provided by them. Over thetime, money has become more convenient and barter is diminishing.Types of Ownership of Business. Ownership of a business may take a variety of forms, as follows: Sole Proprietorship or a Sole Trader. One person, who may operate it alone or with other

people, owns such a business. A sole proprietor has unlimited liability for all obligations incurred

– On Businesses 7

by the business, whether from operating costs or from a judgment issued against the business. Allassets of the business belong to a sole proprietor, including, for example, computer infrastructure,any inventory of goods, manufacturing equipment and any retail fixtures, as well as any realproperty owned by the business.

Partnership Firm. Two or more people own a Partnership Business In most forms ofpartnerships, each partner has unlimited liability for the debts incurred by the business. There arethree most prevalent types of for-profit partnerships, i.e. general partnerships, limitedpartnerships, and limited liability partnerships.

Corporation. A corporation has a separate legal personality from its owners who have a limitedliability in the business. It can be either government (central or state) or privately owned and maybe organized for profit or as non-profit organizations. A privately owned, ‘for-profit corporation’is owned by its shareholders, who elect a board of directors to direct the corporation and hire itsmanagerial staff. A privately owned, for-profit corporation can be either held privately or by asmall group of individuals. It may also be publically held, with its shares listed in and tradedthrough stock exchanges.

Cooperative. A co-operative is a limited liability business organization working for-profit or not-for-profit. A cooperative differs from a corporation in that it has members, not shareholders, andthey share decision-making authority. Cooperatives are typically classified as either consumercooperatives or worker cooperatives. Cooperatives are fundamental units to the ideology of aneconomic democracy.

Franchising. Franchising, originated from French word franc for free, is a practice of doing businesswith use of another firm’s successful business model, essentially operating in a large geographical areaas a chain of distributors. The basic business owner becomes the franchisor who approves franchiseesto extend their business using their logo with products locally produced after payment of a royalty.Franchisees have greater incentives to promote the original business than direct employees, as theyhave direct stakes in the business. Various countries have their own regulations to monitor the impactof such a business extension.Affiliate Marketing. It is performance-based marketing in which the main business rewards one ormore affiliates for each visitor or customer brought by the affiliate’s own marketing efforts.Holding Shares. Shares of a company represent a fraction of ownership in a business. A business maydeclare different types of shares, each having distinctive ownership rules, privileges, or share values.Ownership of shares may be documented by issuance of a stock certificate. A stock certificate is alegal document that specifies the amount of shares owned by the shareholder, and other specifics ofthe shares, the details of which must be clearly understood before acquiring such ownership.

Interaction of Business Houses with Households and Other Entities in a Society

Business Firms and Markets. Businesses or business firms are companies registered with theRegistrar of Companies. They produce goods or services. They function in an environment comprisinghouseholds and markets where the goods and services produced by the firms are sold. There is alsoanother market where the raw material, money, labour and other inputs are purchased by the firms.There is a regulating or facilitating environment.Households and Markets. Households are social units comprising people living together in the samedwelling. They interact with business firms for two distinct purposes, to buy products or services soldby them or to provide them with labor, money or inputs to run their businesses, a mutuallycomplementary arrangement. Labour is a resource that every household adult can supply in the

Management and Entrepreneurship in Indian Environment8

markets for wages (for working blue collar jobs) or for salaries (for white collar managerial class) asremuneration at rates fixed through mutual considerations.Product and Resource Markets. In product markets, business firms supply and sell goods andservices while households demand and buy them. In resource markets, the relationship is reversed.Households supply and sell factors of production, such as labor, while business firms demand and buythem. These entities are shown in Figure 1.1.

Householdsearn

incomesfrom Factor

Market(= GDP in `)

Factor Markets

Firms procureResources

(inputs) fromFactor

Markets

Householdsprovide Land,

Labour, Capitaland

Entrepreneurship

Householdsspend amounts

to purchaseProducts &

Services(= GDP in `)

Product and Services Markets

Householdsreceive

Goods &Services atPrice they

pay for them

Firms receiveRevenuesthroughProductMarkets

(= GDP in `)

Firms sellGoods &ServicesthroughProductMarkets

Households Business Firms

Firms PayWages, Rent,

and Interest andEarn Profits byselling Products

(= GDP in `)

Flow of Goods and Services

Flow of Money (Rs or Foreign Exchange)

Figure 1.1: Circular Flow Model of Inputs and Outputs showing Interaction of Business Firms,Households and Product/Factor Markets

The market forces based on supplies and demands fix the prices of goods and services. If the demandof a product or service is more than what is produced, the prices will go up. On the other hand ifproduction is more and demand less, the prices will come down and possibly one can buy largeramount of goods for less amount of money, if at all needed. It is a trend called deflation. Similarly, ifthere is more money in the market, prices may be increased by the firms to trap that money in order toraise their revenue income. This is an inflationary trend. These trends are the phenomena of freemarket economy, on belief that there is ‘an invisible hand’ regulating the market prices. In exceptionalcircumstances these trends need to be curbed by regulators either by fiscal measures, like statutes orregulations on taxes or monetary measure like regulating money supply in the markets. That is the freemarket economy with exceptional controls. When everything is controlled it is a controlled economy

– On Businesses 9

like in communism. Contrary to that, there was a controlled economy, where the government fixed allprices. That era is now a history. It is the age of free markets and a cutthroat competition wherevarious firms compete to offer goods and services of ‘higher quality’ at lower prices. They must do itfor their survival.

Concepts of doing Business

‘Firm or Product’ Centric Business Model. When it became possible to produce a large number ofitems of a particular product, like two-wheelers or four wheelers, it became a fashion for the businessfirms to produce more and more and push the same to the market, because buyers needed those goodsand had no alternative. All necessary engineering effort, machinery, personnel and finances wereprovided for production. The output is distributed or sold to customers, through a push force used bythe marketing department. There is very little concern for the customer’s choice or liking. For instance,for the early Ford car Model T, the choice was ‘any colour, provided it was black’! This attitude wasadopted because there were people available to buy the car - Model T. They did not mind accepting itsblack colour, even against their choice, because a car (the core product) was their necessity. That wasthe reason for mass production without any product distinction and evolution of the famous assemblyline credited to Henry Ford. This trend continued even by another company - General Motors, till theyconsidered offering a variety of different models in the USA. In India this trend continued till globalplayers came in to compete.A perspective of business functions, like the technical activities resulting into production andoperations, for a long time was central to all business functions as shown in Figure 1.2. Resources likeEngineering, design and personnel are peripheral to their central activity. Finance is a separate distinctfunction connected to production through accounting. Accounting interfaces with marketing, which inturn interfaces with the central function of production through distribution system. There is no placefor customer, which is dealt by marketing department to secure orders and distribute goods.

Finance,Accounting,Purchasing

EngineeringProduction,OperationsDistribution

Marketingand Sales

Customer

HumanResources

Figure 1.2: Outdated ‘Firm and Product Centric’ Business Model

‘Customer Centric’ Business Model. Needless to say that, with rising awareness about differentproducts available in markets across world and with increased amount of disposable incomes, thehouseholds aspirations have increased. They need, according to their status, enhanced quality goodswith different features and want to buy them because they can afford to do it. They will go and fulfilltheir needs by purchasing products wherever available. Therefore, now there is limited monopoly. Andto convince the customers for buying their goods, the business firms have to adopt a customer centricmodel. In today’s world, product ranges like Apple computers have emerged with highly focusedstudy and understanding of the customers. A contemporary perspective of business functions withcustomer at the center, marketing department attempting to pull the customers to their products andother business functions surrounding the customer with a close marketing cover is show in Figure 1.3.

Management and Entrepreneurship in Indian Environment10

Marketing Customer

Production & Operations Sales & Distribution

Personnel & Security Finance and Accounting

Figure 1.3: Contemporary Customer Focused Business Model.

Emerging Trend of Value Co-Creation. With fast growing communication and productiontechnologies, it is now possible to interact with the customers and design custom-made products,manufacture and deliver them to wherever they want on global basis. A simple example is a shoesupply company, which has the database of scanned shape and size of feet of all their customers. Anytime a customer wants a new pair of shoes, the data along with the style of the shoe desired is suppliedto designers of the customers’ choice anywhere in the world. That design is sent to best and mostcompetitive manufacturers. After fabrication, the pair of shoes is delivered to the customers bydedicated courier services.

Sectors of Economy

The economic sectors are an important consideration before one may think of the type of Business oneshould enter into. These sectors are broadly divided into primary (extraction of raw material, forestryand farming), secondary (manufacturing and industrial) and tertiary (the services) sectors. The mainfocus of an economy’s activity shifts from the primary, through the secondary and finally to thetertiary sector. Countries with a low per capita income are in an early stage of development; the mainmain part of their national income is achieved through production in the primary sector. Countries inan advancing state of development, with a medium national income, generate their income mostly inthe secondary sector. In developed countries with a high income, the tertiary sector dominates the totaloutput of the economy. A new sector called quaternary related to Information Technology is nowemerging. These sectors have been classified according to different criteria, shown in Figure 1.4.

Sectors of Economy

On the Basis ofOwnership

Public(Government)Sector,PSUs

PrivateSector

On the Basisof Activity

PrimarySector

(Farming,Forestry,

Mining etc)

SecondarySector

(Manufacturing &

Industries)

Tertiarysector

(SupportingIndustries)

On the Basis ofNature of Activity

OrganisedSector

(Railways,PSUs.

RegisteredFirms

Unorganised Sectors(Building

Contrators,Dhabas

etc)

Figure 1.4: Sectors of Economy

Space for Inception and Growth of Business

Abell’s Three Dimensional Model. Dr Derek F. Abell (b 1938), the founding president andProfessor emeritus of European School of Management and Technology (EMST), Berlin, created theThree Dimensional Business Definition Model of a business firm indicating the Customer Groups of

– On Businesses 11

Market segments shown on Axis X, the demands, requirements or functions the customer needs shownon Axis Y and the Technologies which can satisfy the specific needs of specified customers on Axis Z.All business activities may be plotted in this three dimensional space.A firm enters a business, with a view to earning profits. Financially efficient trading of goods andservices is likely to make profits. Profits are defined as revenues received through sales less the costsof procurement of raw material, manufacturing, administrative charges and delivery. That is thecalculation for one product or service according to needs of customers. When the firm reaches asaturation point where no more products or services can be consumed in the market, or no moreraising of the prices or lowering of costs is feasible, the firm has to look for alternatives. Thesealternatives can be found in a space of different customer segments, or satisfying their different needsor doing it with a different technology.Business Segments. A business segment is a separate product, service or activity going to a group ofcustomers as opposed to another group, anything where the main competitor we face is different,anything that may have a different profitability and any product with distinctive features going toseparate segments of customers. When we grow in business, we increase the number of our businesssegments. When our business recedes, we drop some of the business segments we have been, Stabilityis in maintaining our business segments. A Three Dimensional Model on prospects for growth ofbusiness is shown in Figure 1.5.

Y-Axis : Customer Functions(Their Needs of Food, Clothing, Shelters,

Entertainment Social Needs etc)

X-Axis : Customer Groups(Segmented according to Age,

Profession, Status etc)Z-Axis : Alternate Technologies(to satisfy the needs of customers

specific Requirement

Figure 1.5: Abell’s Three Dimensional Space for Business Growth

Organizing for Business

Whichever sector of the economy or form of business the firm chooses to enter into, an organizationhas to be created to discharge various functions according to needs of various operations. Robert HWaterman, Jr and Tom Peters in 1980s evolved a model known as The McKinsey 7S Framework,which is quite beneficial in understanding what components any business organization should haveand how these elements need to be considered for the reviews. The 7 S’s are shown in Figure 1.7 andintroduced as follows. Strategy is the plan prepared by a company’s management to achieve its objectives after due

consideration of all factors. Structure is the way the organization is structured and who reports to whom. Systems are the processes and procedures laid down for conduct of activities and a direction for

all staff members to follow in order to achieve the targets. Staff is the human resources or the human capital along their state of motivation and

commitment to the organization.

Management and Entrepreneurship in Indian Environment12

Skills are the capabilities and competencies developed in the workforce through training forproducing various jobs required for the company’s operations.

Shared Values or Super-ordinate Goals are the core values of the company that commonlyguide all members of the staff. These are also referred to as the corporate culture and generalwork ethics.

Style refers to the style of leadership followed by the leaders at various levels, which affects themorale of working people.

Structure Systems

Skills

StyleSharedGoals

Staff

Strategy

FourSoft S’s

ThreeHard S’s

Figure 1.6: McKinsey’s 7-S Framework for Organisations

Soft elements need more care as they are more influenced by culture and are likely to change forvariety of temporary reasons. These are as important to be monitored on continuous basis to avoid anychances of these resources straying away from the company’s objectives. Hard elements are purely inthe structured form and are less likely to be derailed after a firm strategy has been spelled out,structure created to implement and systems have been laid down. The model is most often used as anorganizational analysis tool to assess and monitor changes in the internal situation of an organization.Organizational Structure. After the purpose, type of business and goals are decided, variouselements of tasks involved to achieve those are worked out. From there an organizational structure iscreated. Various types of structure are prevalent and they keep on changing according to needs of hour.This aspect is covered under managerial functions and we will dwell more on it in Chapter 2 – OnManagement.Various Functions and Departments in a Business Organization. As we have already appreciated,customer is the most important part of any business. The organization must be built around thefulfillment of customers’ needs. We shall study these departments and functions beginning with thecustomer, who is the very first reason for a business to exist.Customer, Client, Buyer or Purchaser. These are the people who receive the goods or avail of theservices needed by them. They receive it on payment for it to the seller, vendor or supplier at amutually agreed price. Customers may be of the following types. Intermediate or Trading Customer. These may comprise of dealers buying the goods and

services from their original producers and reselling to other customers. Ultimate Customer. Ultimate customer is one who does not re-sell the goods or services but

passes them to the consumer (say a family member) or actually consumes themhimself or herself. Consumers. Customers are the people who actually consume the goods or avail of the services.

An ultimate customer may be a consumer as well, or may have purchased items for someone elseto consume. An intermediate customer is not the consumer at all, but just a trader. Buyers of thegoods, which are consumed in an industry or government bodies, either for themselves or for

– On Businesses 13

their utilization into production of other finished products, are also consumers. However, they arecalled industrial or business-to-business (B2B) customers. Similarly, customers who buy servicesrather than goods are rarely called consumers.

Marketing Department. The marketing department of a business organization actually interfaceswith the customers or consumers. It is the most challenging department, which identifies the customers,their needs, expectations and levels of satisfaction. They bring these needs to the Business House andidentify the products, which can be sold to the customers at a price and on conditions agreed upon, forwhich they also do the negotiations on behalf of the firm. It is the department, which brings businessto the doorsteps of a firm and works out plans for its growth. They have the following essentialdepartments. Research & Development Department is responsible for market research and testing new

products to ensure that they are suitable for customers. Promotion Department decides on the type of promotion method for the products, arranges

advertisements and suitable advertising media like print (newspapers, magazines), hoardings,banners, flags, logos or electronic media like TV, radio or the .Internet.

Sales Department carries out the procedures and finalizes conditions for transfer of goods to besold specifying the manner in which its prices would be recovered and delivery of goods made tothe customer. They pass on the sales document to the Distribution Department for actual deliveryof the goods.

Distribution Department takes care of transportation and delivery of the purchased goods to thecustomer on production of the sales document.

Research and Development (R&D) or Research & Technological Development (RTD)Department. This department handles activities in connection with innovation of products incorporate or government bodies. They may be staffed with scientists, engineers and technologists, whomay directly develop a new product. R & D is a costly activity and consumes lot of time, especiallyduring trials and errors practices. Careful decision has to be taken over its establishment keeping inmind the expected Return on Investment (ROI) over them.Production Department. This department is responsible for making sure that raw materials areprovided and made into finished goods effectively to ensure minimum cost and acceptable quality.There are five production sub-functions as follows. Production Planning and Control (PPC) Department. This department sets the standards and

targets at each stage of the production process. The quantity and quality of products coming off aproduction line will be closely monitored.

Purchasing Department. This is most important department, which procures and provides thematerials, components and equipment required for production. An essential part of theirresponsibility is to ensure that stocks arrive on time; they are of acceptable quality and have beenprocured at most competitive or economic rates.

Stores Department. The stores department is responsible for stocking all the necessary tools,raw materials and equipment needed to service the manufacturing process. They hold all theinventories of raw material, sub assemblies procured and the finished goods till their finaldisposal.

Design and Technical Support Department. This department is responsible for the design andtesting of new product processes and product types, together with the development of prototypesthrough to the final product.

Management and Entrepreneurship in Indian Environment14

The Works Department is concerned with the manufacture of products, including themaintenance of the production line and other necessary repairs. The works department also hasthe responsibility for quality control and inspection.

Logistics Department. This department is part of the supply chain that plans, implements, andcontrols an efficient and effective forward or reverse flow and storage of goods, services, and relatedinformation between the point of origin and the point of consumption in order to meet customerrequirements and other needs arising out of them.Finance Department. The finance department goes into the technical details of how their businessshould raise finance e.g. through loans and the conditions of repayment of interest on the money thathas been borrowed or is likely to be borrowed. They also work out and supervise the payment ofdividends to shareholders. They may have the following functions. Book Keeping. Book keeping and maintaining the records of the purchases and sales made by a

business as well as capital spending is an essential function of finance department. Preparing Final Accounts. Final accounts result into Profit and Loss Statements and Balance

Sheets for perusal of decision makers. Providing Management Information. Managers at various levels require ongoing financial

information to enable them to make decisions for future or for avoiding any dangerous situation. Management of Wages. The wages section of the Finance Department calculates the wages and

salaries of employees, carries out deduction of Income Tax at source and manages contributionsto Employees’ Provident Funds, Insurance and so on.

Budgeting and Raising Finance. The finance department continuously maintains the state offunds, oversees accounts and plans the provision of operating funds, with proper budgeting.

Human Resources Department. The Human resource department is in charge of manpower planningfor required skills, recruiting, appointment, induction, training, remunerations and the separation ofemployees when no longer needed or affordable.Management Information System (MIS). This is a formal computerized business processing systemof gathering, processing and dispersing information - both internal and external to the enterprise - in atimely, effective and efficient manner to meet the information needs, support managers in theirdecision making jobs and to achieve corporate objectives. In larger organizations it has been replaceby Enterprise Resources Planning (ERP) Systems. A variety of software is available for this purpose.Additional departments may be created according to the actual needs.

Introduction to Product, Production Process Design and Profitability

Any product, effectively developed and brought to customers to their satisfaction, gains popularity andits sales increase. Then the product reaches maturity and finally declines giving rise to newer products.The expenses on technology are the heaviest in the beginning and gradually come down as the plantpicks up its capacity production. The Life Cycles of Product, for Technology and its cost, the Productdesign and Development Costs are shown as various curves under different stages of PLC inFigure 1.7.