MG 6851 PRINCIPLES OF MANAGEMENT Definition of Management · MG 6851 – PRINCIPLES OF MANAGEMENT...

MG6851 Principles of Management Prepared by Mr.N.S.Srivatchan ASP/EEE & Ms.R.Vanitha AP/EEE

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MG 6851 – PRINCIPLES OF MANAGEMENT

Definition of Management :-

According to Harold Koontz, ―Management is an art of getting things done through and with the people in formally organized groups. It is an art of creating an environment in which people

can perform and individuals and can co-operate towards attainment of group goals‖. According to F.W. Taylor, ―Management is an art of knowing what to do, when to do and see

that it is done in the best and cheapest way‖.

Science or Art : -

Management as a science

Science is a systematic body of knowledge pertaining to a specific field of study that contains

general facts which explains a phenomenon. It establishes cause and effect relationship between

two or more variables and underlines the principles governing their relationship. These principles

are developed through scientific method of observation and verification through testing. Science is characterized by following main features:

Universally acceptance principles – Scientific principles represents basic truth about a

particular field of enquiry. These principles may be applied in all situations, at all time & at

all places. E.g. – law of gravitation which can be applied in all countries irrespective of the

time. Management also contains some fundamental principles which can be applied

universally like the Principle of Unity of Command i.e. one man, one boss. This principle is

applicable to all type of organization – business or non business. Experimentation & Observation – Scientific principles are derived through scientific

investigation & researching i.e. they are based on logic. E.g. the principle that earth goes

round the sun has been scientifically proved. Management principles are also based on

scientific enquiry & observation and not only on the opinion of Henry Fayol. They have been

developed through experiments & practical experiences of large no. of managers. E.g. it is

observed that fair remuneration to personal helps in creating a satisfied work force. Cause & Effect Relationship – Principles of science lay down cause and effect relationship

between various variables. E.g. when metals are heated, they are expanded. The cause is

heating & result is expansion. The same is true for management, therefore it also establishes

cause and effect relationship. E.g. lack of parity (balance) between authority & responsibility



will lead to ineffectiveness. If you know the cause i.e. lack of balance, the effect can be

ascertained easily i.e. in effectiveness. Similarly if workers are given bonuses, fair wages

they will work hard but when not treated in fair and just manner, reduces productivity of

organization. Test of Validity & Predictability – Validity of scientific principles can be tested at any time

or any number of times i.e. they stand the test of time. Each time these tests will give same

result. Moreover future events can be predicted with reasonable accuracy by using scientific

principles..

Management as an art

Art implies application of knowledge & skill to trying about desired results. An art may be

defined as personalized application of general theoretical principles for achieving best possible

results. Art has the following characters –

Practical Knowledge: Every art requires practical knowledge therefore learning of

theory is not sufficient. It is very important to know practical application of theoretical

principles. E.g. to become a good painter, the person may not only be knowing different

colour and brushes but different designs, dimensions, situations etc to use them

appropriately. A manager can never be successful just by obtaining degree or diploma in

management; he must have also know how to apply various principles in real situations

by functioning in capacity of manager.

Personal Skill: Although theoretical base may be same for every artist, but each one has

his own style and approach towards his job. That is why the level of success and quality

of performance differs from one person to another. E.g. there are several qualified

painters but M.F. Hussain is recognized for his style. Similarly management as an art is

also personalized. Every manager has his own way of managing things based on his

knowledge, experience and personality, that is why some managers are known as good

managers (like Aditya Birla, Rahul Bajaj) whereas others as bad.

Creativity: Every artist has an element of creativity in line. That is why he aims at

producing something that has never existed before which requires combination of

intelligence & imagination. Management is also creative in nature like any other art. It

combines human and non-human resources in useful way so as to achieve desired results.

It tries to produce sweet music by combining chords in an efficient manner.



Perfection through practice: Practice makes a man perfect. Every artist becomes more

and more proficient through constant practice. Similarly managers learn through an art of

trial and error initially but application of management principles over the years makes

them perfect in the job of managing.

Goal-Oriented: Every art is result oriented as it seeks to achieve concrete results. In

the same manner, management is also directed towards accomplishment of pre-

determined

goals. Managers use various resources like men, money, material, machinery & methods

to promote growth of an organization.

Management as both science and art Management is both an art and a science. The above mentioned points clearly reveals that

management combines features of both science as well as art. It is considered as a science

because it has an organized body of knowledge which contains certain universal truth. It is called

an art because managing requires certain skills which are personal possessions of managers.

Science provides the knowledge & art deals with the application of knowledge and skills. A manager to be successful in his profession must acquire the knowledge of science & the art of

applying it. Therefore management is a judicious blend of science as well as an art because it

proves the principles and the way these principles are applied is a matter of art. Science teaches

to ‘know‘ and art teaches to ‘do‘. E.g. a person cannot become a good singer unless he has

knowledge about various ragas & he also applies his personal skill in the art of singing. Same

way it is not sufficient for manager to first know the principles but he must also apply them in

solving various managerial problems that is why, science and art are not mutually exclusive but

they are complementary to each other (like tea and biscuit, bread and butter etc.). The old saying that ―Manager are Born‖ has been rejected in favor of ―Managers are Made‖. It

has been aptly remarked that management is the oldest of art and youngest of science. To

conclude, we can say that science is the root and art is the fruit. Manager Vs Entrepreneur

Bases of Difference Entrepreneur Manager

The main motive of an entrepre- But, the main motive of a manager is

1. Motive

neur is to start a venture by to render his services in an

setting up an enterprise. He

enterprise already set up by

understands the venture for his someone else i.e., entrepreneur.


WWW.VIDYARTHIPLUS.COM personal gratification.

An entrepreneur is the owner of A manager is the servant in the

2. Status enterprise owned by the

the enterprise.

entrepreneur.

An entrepreneur being the owner

3. Risk Bearing

of the enterprise assumes all risks A manager as a servant does not bear

and uncertainty involved in run- any risk involved in the enterprise.

ning the enterprise.

The reward an entrepreneur gets A manager gets salary as reward for

4. Rewards

for bearing risks involved in the the services rendered by him in the

enterprise is profit which is highly enterprise. Salary of a manager is

uncertain. certain and fixed.

Entrepreneur himself thinks over But, what a manager does is simply to

what and how to produce goods to

execute the plans prepared by the

meet the changing demands of the

5. Innovation entrepreneur. Thus, a manager simply

customers. Hence, he acts as an

translates the entrepreneur‘s ideas

innovator also called a ‗change

into practice.

agent‘.

An entrepreneur needs to possess On the contrary, a manager needs to

qualities and qualifications like

possess distinct qualifications in terms

6. Qualifications high achievement motive, origi-

of sound knowledge in management

nality in thinking, foresight, risk -

theory and practice.

bearing ability and so on.

After going through the above points of distinctions, it is clear that an entrepreneur differs from a

manager. At times, an entrepreneur can be a manager also, but a manager cannot be an

entrepreneur. After all, an entrepreneur is an owner, but a manager is a servant.


Types of Managers

Types of Managers categorized into 3 they are

Top level managers,

Middle Level Managers and

Lower Level Managers.

Levels of Management

The term ―Levels of Management‘ refers to a line of differentiation between various

managerial positions in an organization. The number of levels in management increases when the

size of the business and work force increases and vice versa. The level of management

determines a chain of command, the amount of authority & status enjoyed by any managerial

position. The levels of management can be classified in three broad categories.

Top level / Administrative level

Middle level / Executor

Low level / Supervisory / Operative / First-line managers Managers at all these levels perform different functions. The role of managers at all the

three levels is discussed below

1. Top Level of Management It consists of board of directors, chief executive or managing director. The top management is

the ultimate source of authority and it manages goals and policies for an enterprise. It devotes

more time on planning and coordinating functions. The role of the top management can be summarized as follows –

Top management lays down the objectives and broad policies of the enterprise.

It issues necessary instructions for preparation of department budgets,

procedures, schedules etc.

It prepares strategic plans & policies for the enterprise.

It appoints the executive for middle level i.e. departmental managers.


It controls & coordinates the activities of all the departments.

It is also responsible for maintaining a contact with the outside world. It provides guidance and direction.

The top management is also responsible towards the shareholders for the

performance of the enterprise.

2. Middle Level of Management The branch managers and departmental managers constitute middle level. They are

responsible to the top management for the functioning of their department. They devote more

time to organizational and directional functions. In small organization, there is only one layer

of middle level of management but in big enterprises, there may be senior and junior middle

level management.

3. Lower Level of Management Lower level is also known as supervisory / operative level of management. It consists of

supervisors, foreman, section officers, superintendent etc. According to R.C. Davis,

―Supervisory management refers to those executives whose work has to be largely with

personal oversight and direction of operative employees‖. In other words, they are concerned

with direction and controlling function of management.

Their activities include –

Assigning of jobs and tasks to various workers.

They guide and instruct workers for day to day activities.

They are responsible for the quality as well as quantity of production.

They are also entrusted with the responsibility of maintaining good relation in

the organization.

They communicate workers problems, suggestions, and recommendatory appeals etc

to the higher level and higher level goals and objectives to the workers.

They help to solve the grievances of the workers. They supervise & guide the sub-ordinates.

They are responsible for providing training to the workers.

They arrange necessary materials, machines, tools etc for getting the things done.

They prepare periodical reports about the performance of the workers.

They ensure discipline in the enterprise.

They motivate workers.

They are the image builders of the enterprise because they are in direct contact

with the workers


Managerial Roles and Skills Roles of managers

Mintzberg published his Ten Management Roles in his book, "Mintzberg on Management: Inside

our Strange World of Organizations," in 1990.

The ten roles are:

Figurehead.

Leader.

Liaison.

Monitor.

Disseminator.

Spokesperson.

Entrepreneur.

Disturbance Handler.

Resource Allocator.

Negotiator.

The 10 roles are then divided up into three categories, as follows: Types Roles

A ) Interpersonal 1. Figurehead

2. Leader

3. Liaisons

B) Informational 1) Monitor

2) Disseminator

3) Spokesperson

WW.VIDYARTHIPLUS.COM C) Decisional 1) Entrepreneur

2) Disturbance handler

3) Resource allocators

4) Negotiator


Let's look at each of the ten roles in greater detail.

INTERPERSONAL CATEGORY The roles in this category involve providing information and ideas.

Figurehead – As a manager, you have social, ceremonial and legal responsibilities. You're

expected to be a source of inspiration. People look up to you as a person with authority, and as

a figurehead. Leader – This is where you provide leadership for your team, your department or perhaps

your entire organization; and it's where you manage the performance and responsibilities of

everyone in the group. Liaison – Managers must communicate with internal and external contacts. You need to be

able to network effectively on behalf of your organization.

INFORMATIONAL CATEGORY The roles in this category involve processing information.

Monitor – In this role, you regularly seek out information related to your organization and

industry, looking for relevant changes in the environment. You also monitor your team, in terms

of both their productivity, and their well-being. Disseminator – This is where you communicate potentially useful information to your

colleagues and your team. Spokesperson – Managers represent and speak for their organization. In this role you're

responsible for transmitting information about your organization and its goals to the

people outside it.

DECISIONAL CATEGORY The roles in this category involve using information.

Entrepreneur – As a manager, you create and control change within the organization.

This means solving problems, generating new ideas, and implementing them. Disturbance Handler – When an organization or team hits an unexpected roadblock, it's

the manager who must take charge. You also need to help mediate disputes within it.


WWW.VIDYARTHIPLUS.COM Resource Allocator – You'll also need to determine where organizational resources are best

applied. This involves allocating funding, as well as assigning staff and other

organizational resources. Negotiator – You may be needed to take part in, and direct, important negotiations within

your team, department, or organization.

Skills

Skills Description

Technical skills include knowledge of and proficiency in certain

specialized fields such as engineering, computers, accounting, or

Technical Skill

manufacturing.

These skills are more important at lower levels of management.

since these managers are dealing directly with employees doing the

organization's work.

This skill is associated with a manager's ability to work well with

others

both as a member of a group and as a leader who gets things done

through others.

Because managers deal directly with people, this skill is crucial!

Human Skill

Managers with good human skills are able to get the best out of their

people.

They know how to communicate, motivate, lead, and inspire

enthusiasm and trust.

These skills are equally important at all levels of management.

Evolution of Management 1. Scientific Management Approach

Fredrick Winslow Taylor (March 20, 1856 - March 21, 1915) commonly known as ’Father of

Scientific Management’ started his career as an operator and rose to the position of chief

engineer. He conducted various experiments during this process which forms the basis of

scientific management. It implies application of scientific principles for studying & identifying

management problems.


According to Taylor, ―Scientific Management is an art of knowing exactly what you want your

men to do and seeing that they do it in the best and cheapest way‖. In Taylors view, if a work is

analysed scientifically it will be possible to find one best way to do it.

Development of Science for each part of men‘s job (replacement of rule of thumb)

This principle suggests that work assigned to any employee should be observed,

analyzed with respect to each and every element and part and time involved in

it.

This means replacement of odd rule of thumb by the use of method of enquiry,

investigation, data collection, analysis and framing of rules.

Under scientific management, decisions are made on the basis of facts and by

the application of scientific decisions.

Scientific Selection, Training & Development of Workers

There should be scientifically designed procedure for the selection of workers.

Physical, mental & other requirement should be specified for each and every job.

Workers should be selected & trained to make them fit for the job.

The management has to provide opportunities for development of workers

having better capabilities.

According to Taylor efforts should be made to develop each employee to his

greatest level and efficiency & prosperity.

Co-operation between Management & workers or Harmony not discord

Taylor believed in co-operation and not individualism.

It is only through co-operation that the goals of the enterprise can be achieved

efficiently.

There should be no conflict between managers & workers.

Taylor believed that interest of employer & employees should be fully

harmonized so as to secure mutually understanding relations between them.

Division of Responsibility

This principle determines the concrete nature of roles to be played by different

level of managers & workers.

The management should assume the responsibility of planning the work whereas

workers should be concerned with execution of task.

Thus planning is to be separated from execution.

Mental Revolution

The workers and managers should have a complete change of outlook towards

their mutual relation and work effort.


It requires that management should create suitable working condition and solve

all problems scientifically.

Similarly workers should attend their jobs with utmost attention, devotion and

carefulness. They should not waste the resources of enterprise.

Handsome remuneration should be provided to workers to boost up their moral.

It will create a sense of belongingness among worker.

They will be disciplined, loyal and sincere in fulfilling the task assigned to them.

There will be more production and economical growth at a faster rate.

Maximum Prosperity for Employer & Employees

The aim of scientific management is to see maximum prosperity for employer

and employees.

It is important only when there is opportunity for each worker to attain his

highest efficiency.

Maximum output & optimum utilization of resources will bring higher profits for

the employer & better wages for the workers.

There should be maximum output in place of restricted output.

Both managers & workers should be paid handsomely.

MANAGEMENT THOUGHTS BY HENRI FAYOL.

Division of Labor

Henry Fayol has stressed on the specialization of jobs.

He recommended that work of all kinds must be divided & subdivided and

allotted to various persons according to their expertise in a particular area.

Subdivision of work makes it simpler and results in efficiency.

It also helps the individual in acquiring speed, accuracy in his performance.

Specialization leads to efficiency & economy in spheres of business.

Party of Authority & Responsibility

Authority & responsibility are co-existing.

If authority is given to a person, he should also be made responsible.

In a same way, if anyone is made responsible for any job, he should also have

concerned authority.

Authority refers to the right of superiors to get exactness from their sub-ordinates

whereas responsibility means obligation for the performance of the job assigned.

There should be a balance between the two i.e. they must go hand in hand.

Authority without responsibility leads to irresponsible behavior whereas

responsibility without authority makes the person ineffective.


Principle of One Boss

A sub-ordinate should receive orders and be accountable to one and only one boss

at a time.

In other words, a sub-ordinate should not receive instructions from more than one

person because –

It undermines authority

Weakens discipline

Divides loyalty

Creates confusion

Therefore, dual sub-ordination should be avoided unless and until it is absolutely

essential.

Unity of command provides the enterprise a disciplined, stable & orderly

existence.

It creates harmonious relationship between superiors and sub-ordinates.

Unity of Direction

Fayol advocates one head one plan which means that there should be one plan for

a group of activities having similar objectives.

Related activities should be grouped together. There should be one plan of action

for them and they should be under the charge of a particular manager.

According to this principle, efforts of all the members of the organization should

be directed towards common goal.

Without unity of direction, unity of action cannot be achieved.

In fact, unity of command is not possible without unity of direction. Therefore it is obvious that they are different from each other but they are dependent on each

other i.e. unity of direction is a pre-requisite for unity of command. But it does not automatically

comes from the unity of direction.

Equity

Equity means combination of fairness, kindness & justice.

The employees should be treated with kindness & equity if devotion is expected of them.

It implies that managers should be fair and impartial while dealing with the

subordinates.

They should give similar treatment to people of similar position.

They should not discriminate with respect to age, caste, sex, religion, relation etc.

Equity is essential to create and maintain cordial relations between the managers and

sub-ordinate.


But equity does not mean total absence of harshness.

Fayol was of opinion that, ―at times force and harshness might become necessary for

the sake of equity‖.

Order

This principle is concerned with proper & systematic arrangement of things and people.

Arrangement of things is called material order and placement of people is called social

order. WWW.VIDYARTHIPLUS.COM

Material order- There should be safe, appropriate and specific place for every article and

every place to be effectively used for specific activity and commodity.

Social order- Selection and appointment of most suitable person on the suitable job.

There should be a specific place for every one and everyone should have a specific place

so that they can easily be contacted whenever need arises.

Discipline

According to Fayol, ―Discipline means sincerity, obedience, respect of authority &

observance of rules and regulations of the enterprise‖.

This principle applies that subordinate should respect their superiors and obey their

order.

It is an important requisite for smooth running of the enterprise.

Discipline is not only required on path of subordinates but also on the part of

management.

Discipline can be enforced if –

There are good superiors at all levels.

There are clear & fair agreements with workers.

Sanctions (punishments) are judiciously applied.

Initiative

Workers should be encouraged to take initiative in the work assigned to them.

It means eagerness to initiate actions without being asked to do so.

Fayol advised that management should provide opportunity to its employees to suggest

ideas, experiences& new method of work.

It helps in developing an atmosphere of trust and understanding.

People then enjoy working in the organization because it adds to their zeal and energy.

To suggest improvement in formulation & implementation of place.

They can be encouraged with the help of monetary & non-monetary incentives.

Fair Remuneration


The quantum and method of remuneration to be paid to the workers should be fair,

reasonable, satisfactory & rewarding of the efforts.

As far as possible it should accord satisfaction to both employer and the employees.

Wages should be determined on the basis of cost of living, work assigned, financial

position of the business, wage rate prevailing etc. .VIDYARTHIPLUS.COM

Logical & appropriate wage rates and methods of their payment reduce tension &

differences between workers & management creates harmonious relationship and

pleasing atmosphere of work.

Fayol also recommended provision of other benefits such as free education, medical &

residential facilities to workers.

Stability of Tenure

Fayol emphasized that employees should not be moved frequently from one job

position to another i.e. the period of service in a job should be fixed.

Therefore employees should be appointed after keeping in view principles of

recruitment & selection but once they are appointed their services should be served.

According to Fayol. ―Time is required for an employee to get used to a new work &

succeed to doing it well but if he is removed before that he will not be able to render

worthwhile services‖.

As a result, the time, effort and money spent on training the worker will go waste.

Stability of job creates team spirit and a sense of belongingness among workers which

ultimately increase the quality as well as quantity of work.

Scalar Chain

Fayol defines scalar chain as ‘The chain of superiors ranging from the ultimate

authority to the lowest‖.

Every orders, instructions, messages, requests, explanation etc. has to pass through

Scalar chain.

But, for the sake of convenience & urgency, this path can be cut shirt and this short cut

is known as Gang Plank.

A Gang Plank is a temporary arrangement between two different points to facilitate

quick & easy communication as explained below:



In the figure given, if D has to communicate with G he will first send the communication

upwards with the help of C, B to A and then downwards with the help of E and F to G

which will take quite some time and by that time, it may not be worth therefore a gang

plank has been developed between the two.

Gang Plank clarifies that management principles are not rigid rather they are very

flexible. They can be moulded and modified as per the requirements of situations

Sub-Ordination of Individual Interest to General Interest

An organization is much bigger than the individual it constitutes therefore interest of

the undertaking should prevail in all circumstances.

As far as possible, reconciliation should be achieved between individual and group

interests.

But in case of conflict, individual must sacrifice for bigger interests.

In order to achieve this attitude, it is essential that –

Employees should be honest & sincere.

Proper & regular supervision of work.

Reconciliation of mutual differences and clashes by mutual agreement.

For example, for change of location of plant, for change of profit sharing ratio, etc.

Espirit De’ Corps (can be achieved through unity of command)

It refers to team spirit i.e. harmony in the work groups and mutual understanding

among the members.

Spirit De‘ Corps inspires workers to work harder.

Fayol cautioned the managers against dividing the employees into competing groups

because it might damage the moral of the workers and interest of the undertaking in the

long run.

To inculcate Espirit De‘ Corps following steps should be undertaken –

There should be proper co-ordination of work at all levels


Subordinates should be encouraged to develop informal relations among

themselves.

Efforts should be made to create enthusiasm and keenness among subordinates

so that they can work to the maximum ability.

Efficient employees should be rewarded and those who are not up to the mark

should be given a chance to improve their performance.

Subordinates should be made conscious of that whatever they are doing is of

great importance to the business & society.

He also cautioned against the more use of Britain communication to the subordinates

i.e. face to face communication should be developed. The managers should infuse team

spirit & belongingness. There should be no place for misunderstanding. People then

enjoy working in the organization & offer their best towards the organization.

Centralization & De-Centralization

Centralization means concentration of authority at the top level. In other words,

centralization is a situation in which top management retains most of the decision

making authority.

Decentralization means disposal of decision making authority to all the levels of the

organization. In other words, sharing authority downwards is decentralization.

According to Fayol, ―Degree of centralization or decentralization depends on no. of

factors like size of business, experience of superiors, dependability & ability of

subordinates etc.

Anything which increases the role of subordinate is decentralization & anything which

decreases it is centralization.

HUMAN BEHAVIOUR APPROACH

Theme

It bears the existing and newly developed theories and methods of the relevant social sciences

upon the study of human behaviour ranging from personality dynamics of individuals to the

relations of culture.

Divisions Interpersonal B.A. => individual Psychology

Group B.A. => Social Psychology and Organizational Behaviour.

Features

As management is the process of getting things done by people, managers should

understand human behaviour.

http://en.wikipedia.org/wiki/Social_sciences

http://en.wikipedia.org/wiki/Human_behavior

http://en.wikipedia.org/wiki/Individual_psychology

http://en.wikipedia.org/wiki/Social_psychology

http://en.wikipedia.org/wiki/Organizational_studies


Emphasis is put on increasing productivity through motivation and good human relations.

Motivation, leadership, communication, participative management and group dynamics

are the central core of this approach. Uses


It suggests how the knowledge of human behaviour can be used in making people more

effective in the organization. An individual‘s behaviour is not determined by organization

factors alone but also by his attitude, pressure, conflicts of cultural environment etc.

Hence these factors must be taken into account. Limitations

Managers can be better placed by understanding human behavior but equating

management with human behavior is untenable.

SYSTEMS APPROACH

System is defined as ―An organized or complex whole; an assemblage or combination of things

or parts forming a complex unitary whole.

Features

A system is basically a combination of parts, subsystems. Each part may have various

sub-parts.

An organization is a system of mutually dependent parts, each of which may include

many subsystems. Features of Management as System

Management is regarded as a system and it is taken in the following ways,

Management as a Social System

Management as Open System

Adaptive

Dynamic

Probabilistic

Multilevel and Multidimensional

Multivariable

An integral approach

Multidisciplinary.

Limitations

It is considered as an Abstract Approach and Lack of Universality in it.

http://en.wikipedia.org/wiki/Group_dynamics


CONTINGENCY OR SITUATIONAL APPROACH Features

Management action is contingent on certain action outside the system or subsystem as the

case may be.

Organizational action should be based on the behaviour of action outside the system so

that organization should be integrated with the environment.

Because of the specific organization – environment relationship, no action can be

universal.

It varies from situation to situation.

Limitations

Inadequate literature.

Complex

Difficult empirical testing

Reactive not Proactive.

TYPES OF BUSINESS ORGANIZATIONS SOLE PROPRIETORSHIP

PARTNERSHIP

COMPANIES

PUBLIC AND PRIVATE SECTOR ENTERPRISES

1. SOLE PROPRIETORSHIP

A sole proprietorship is a business owned by one person.

This is the simplest type of business to start and is the least regulated form of organization.

For this reason, there are more proprietorships than any other type of business and

many businesses that later become large corporations start out as small proprietorships.

The owner of a sole proprietorship keeps all the profits. Also the owner has

unlimited liability for business debts.

This means that creditors can look beyond business assets to the proprietor's

personal assets for payment.

Similarly, there is no distinction between personal and business income, so all

business income is taxed as personal income.

The life of a sole proprietorship is limited to the owner's life span, and the amount

of equity that can be raised is limited to the amount of the proprietor's personal

wealth.

This limitation often means that the business is unable to exploit new opportunities

because of insufficient capital.



Ownership of a sole proprietorship may be difficult to transfer because this

transfer requires the sale of the entire business to a new owner. PARTNERSHIP

A partnership is similar to a proprietorship except that there are two or more owners

(partners). In a general partnership, all the partners share in gains or losses, and all have

unlimited liability for all partnership debts, not just some particular share.

The way partnership gains (and losses) are divided is described in the

partnership agreement.

This agreement can be an informal oral agreement, such as ―let's start a lawn

mowing business,‖ or a lengthy, formal written document.

In a limited partnership, one or more general partners will run the business and have

unlimited liability, but there will be one or more limited partners who will not

actively participate in the business.

A limited partner's liability for business debts is limited to the amount that

partner contributes to the partnership.

This form of organization is common in real estate ventures.

ADVANTAGES OF PARTNERSHIP Easy to Form the business with

informal agreement. It increases the ability of the partners to

raise the capital through their combined

wealth.

3. COMPANIES

DIS ADVANTAGES OF PARTNERSHIP Unlimited liability for business debts on

the part of the owners.

Limited life of the business.

Difficulty of transferring ownership.

The company or corporation, must be registered at a public office or court designated

by law or otherwise obtain official acknowledgment of its existence.

The company or corporation is incorporated by filing the company‘s constitution

(memorandum and articles of association, articles or certificate of incorporation)

signed by its first members at the Companies before the corporation

commissioner.



a notarized copy of the constitution is filed at the local commercial tribunal, and

proof is tendered that the first members of the company have subscribed the whole or

a prescribed fraction of the company‘s capital and that assets transferred to the

company in return for an allotment of its shares have been officially valued and

found to be worth at least the amount of capital allotted for them.

A private company cannot have more than 50 members and cannot

advertise subscriptions for its shares.

For practical purposes, however, public and private companies function the same

way in all countries.

Private companies are formed when there is no need to appeal to the public to

subscribe for the company‘s shares or to lend money to it, and often they are

little more than incorporated partnerships whose directors hold all or most of the

company‘s shares.

Public companies are formed—or more usually created by the conversion of

private companies into public ones—when the necessary capital cannot be

supplied by the

directors or their associates and it is necessary to raise funds from the public

by publishing a prospectus.

In a typical public company the directors hold only a small fraction of its shares,

often less than 1 percent, and in Great Britain and the United States, at least, it is not

uncommon for up to one-half of the funds raised by the company to be represented

not by shares in the company but by loan securities such as debentures or bonds.

PUBLIC AND PRIVATE SECTOR

ENTERPRISES Definition of Public Sector

―The sector, which is engaged in the activities of providing government goods

and services to the general public is Public Sector‖.

The enterprises, agencies and bodies are fully owned, controlled and run by

the Government whether it is central government, statement government or a

local government.

There are two types of public sector organizations, i.e. either they are fully financed

by the Government through the revenues they raise by collecting taxes, duties, fees,

etc. or



the government holds more than 51% of the total share capital of the company

which comes under various ministries.

The enterprises are generally established with service motive. It is the largest sector,

which works for the upliftment of the people by providing the following services to

the people:

Generation of employment opportunities

Postal services

Providing education and health facilities at low cost

Providing security

Railway service Definition of Private Sector

―The segment of a national economy that is owned, controlled and managed by

private individuals or enterprises is known as Private Sector‖.

The private sector enterprises are divided on the basis of sizes like small &

medium enterprises and large enterprises which are either privately or publicly

traded organizations.

They can be created in two ways, i.e. either by the formation of a new enterprise or

by the privatization of any Public Sector Enterprise.

Business entities of the private sector are generally established with the sole

objective of making profit and building brand reputation.

They provide quality services to the community to win the trust and goodwill from

people in order to survive in the long run and compete with the enemies.

These enterprises also have to follow the government law and order.

It is the largest sector in terms of employees.

Although in private sector performance is the basic criterion for job stability, i.e. if

you perform well you will get promoted and if you won‘t, you will be perished.

The major services provided by the Private sector are as under:

Quality education

Telecommunication services

IT services

Courier Services

Infrastructure development


WWW.VIDYARTHIPLUS.COM Key Differences between Public Sector and Private Sector:

Public Sector Private Sector

Public Sector is a part of the country‘s economy Private Sector is owned and managed by the

where the control and maintenance is in the private individuals and corporations.

hands of Government.

The aim of the public sector is to serve people,

Private sector enterprises are established with

profit motive.

government has full control over the public Private sector enjoys less government

sector organizations interference.

The employees of the public sector has the

security of the job along with that they are All are absent in the case of the private

sector.

given the benefits of allowances, perquisites

and retirement like gratuity, pension,

superannuation fund etc.

Competition is missing in the public sector

In the private sector working environment

because they are not established to meet

is

quite competitive.

commercial objectives.

In general Public Sector uses Seniority for

Unlike Private Sector, where performance is

promoting employees, however, merit cum

everything and so merit is taken as a parameter

seniority is also taken as a base for promoting

to promote them.

employees.

Public and Private Sector Comparison Chart

BASIS FOR PUBLIC

SECTOR

PRIVATE SECTOR

COMPARISO

N

The section of a nation's economy, The section of a nation's economy,


which is under the control of which owned and controlled by

Meaning government, whether it is central, private individuals or companies is

state or local, is known as the Public known as Private Sector.

Sector.


BASIS FOR

PUBLIC SECTOR PRIVATE SECTOR

COMPARISON

Basic objective To serve the citizens of the country. Earning Profit

Raises money Public Revenue like tax, duty, penalty Issuing shares and debentures or by

from etc. taking loan

Police, Army, Mining, Health, Finance, Information Technology,

Manufacturing, Electricity, Education, Mining, Transport, Education,

Areas Transport, Telecommunication, Telecommunication, Manufacturing,

Agriculture, Banking, Insurance, etc. Banking, Construction,

Pharmaceuticals etc.

Benefits of Job security, Retirement benefits, Good salary package, Competitive

working Allowances, Perquisites etc. environment, Incentives etc.

Basis of Seniority Merit

Promotion

Job Stability Yes No

Organization culture and environment Organizational culture refers to a system of shared assumptions, values, and beliefs that

show people what is appropriate and inappropriate behavior.

Assumptions:- These assumptions are taken for granted and reflect beliefs about human nature and

reality. For example, in an organization, a basic assumption employees and managers share might

be that happy employees benefit their organizations. Values : - Values are shared principles, standards, and goals. For example, in an organization,

Employee benefits might be translated into values such as egalitarianism, high-quality

relationships, and having fun.


3. Artifacts:- These are visible, tangible aspects of organizational culture. For example, in an

organization, the executive ―open door‖ policy, an office layout that includes open spaces and

gathering areas equipped with pool tables, and frequent company picnics are tangible and visible.

How employees learn organization culture :-

The employees of the company learn their organization culture through the

following elements.

Mission Statement : A mission statement is a statement of purpose, describing who the

company is and what it does. It serves an important function for organizations as part of the first

facet of the planning P-O-L-C function.

Stories & Language : - A story can highlight a critical event an organization faced and the organization‘s response to it, or a heroic effort of a single employee illustrating the company‘s

values. Companies often have their own acronyms and buzzwords that are clear to them and help

set apart organizational insiders from outsiders. In business, this code is known as jargon. Jargon

is the language of specialized terms used by a group or profession. Physical Layout : - A company‘s building, layout of employee offices, and other workspaces

communicate important messages about a company‘s culture. The layout of the office space also

a strong indicator of a company‘s culture. A company that has an open layout where high-level

managers interact with employees may have a culture of team orientation and egalitarianism,

whereas a company where most high-level managers have their own floor may indicate a higher

level of hierarchy. Microsoft employees tend to have offices with walls and a door because the

culture emphasizes solitude, concentration, and privacy. In contrast, Intel is famous for its

standard cubicles, which reflect its egalitarian culture. Rules & Policies : - Companies create rules to determine acceptable and unacceptable behavior

and, thus, the rules that exist in a company will signal the type of values it has. Policies about

issues such as decision making, human resources, and employee privacy reveal what the

company values and emphasizes. For example, The presence or absence of policies on sensitive

issues such as English-only rules, bullying and unfair treatment of others, workplace

surveillance, open-doorM policies, sexual harassment, workplace romances, and corporate social responsibility all provide

pieces of the puzzle that make up a company‘s culture. Rituals : - Rituals refer to repetitive activities within an organization that have symbolic

meaning. Usually rituals have their roots in the history of a company‘s culture. They create

camaraderie and a sense of belonging among employees. They also serve to teach employees

corporate values and create identification with the organization. In IBM, the ceremonies are


conducted in large auditoriums where participants wear elaborate evening gowns and sing

company songs that create emotional excitement.

Environment : - External Environments

External environments are all the events outside a company that have the potential to influence

or affect it. For example, Canada exported more than $10 billion worth of lumber to the United

States in 2000. In mid-2002, after many years of threatening to place tariffs on Canadian exports,

the United States imposed a 27 percent tariff on softwood lumber. This significantly affected

producers in British Columbia, Quebec, Ontario, and Alberta, with exports from Quebec and

Ontario falling by more than half. Canadian trade officials and industry groups appealed to the

World Trade Organization (WTO) and under the North American Free Trade Agreement

(NAFTA). In August 2005 Canada won a major NAFTA judgment, but the U.S. government

ignored the ruling and appealed a un favorable WTO ruling. In the meantime, the effect on some

companies and communities has been devastating. Thousands of jobs have been lost, mills have

closed, and the economies of entire towns have been ruined. In mid-2006, it appeared that the

U.S. and Canadian governments had come to a resolution, but until the final agreement is signed,

the industry will continue to struggle. Internal Environments

The internal environment consists of the trends and events within an organization that affect the

management, employees, and organizational culture. For example, consider the internal

environment at SAS, the leading provider of statistical software. Unlike most software

companies that expect employees to work 12- to 14-hour days, SAS offices close at 6 P.M. every

evening. Employees also receive unlimited sick days each year. And to encourage employees to

spend time with their families, there‘s an on-site daycare facility, the company cafeteria has

plenty of highchairs and baby seats, and the company even has a seven-hour workday. Plus,

every Wednesday, the company passes out M&M chocolate candies, plain and peanut, to all

employees—a total of more than 200 tonnes of M&Ms per year. SAS senior vice president Jim


WWW.VIDYARTHIPLUS.COM Davis says, ―We are firm believers that happy employees equal happy customers.‖42 Internal

environments are important because they affect what people think, feel, and do at work. Given

SAS‘s internal environment, it shouldn‘t surprise you to know that almost no one quits. In a

typical software company, 25 percent of the work force quits each year to take another job. At

SAS, only 4 percent leave.43 Jeff Chambers, SAS‘s vice president of human resources, says ―We

have always had a commitment to investing in and cultivating meaningful, long-term

relationships with our employees and clients. This has led to unusually low turnover in both

populations and is at the core of our 28 years of sustained profitability and success.‖

Comments such as these reflect the key component in internal environments—organizational

culture. Organizational culture is the set of key values, beliefs, and attitudes shared by

organizational members. Clearly, one of SAS‘s key values is its commitment to its employees. Current Trends and Issues in Management: -

Globalization

Ethics

Workforce Diversity

Entrepreneurship

E-business

Knowledge Management

Learning Organizations

Quality Management

Globalization :-

Management in international organizations

Political and cultural challenges of operating in a global market.

Working with people from different cultures

Coping with anti capitalist backlash

Movement of jobs to countries with low-cost labor

Ethics :- Increased emphasis on ethics education in college curriculums

Increased creation and use of codes of ethics by businesses

Workforce Diversity :- Increasing heterogeneity in the workforce

More gender, minority, ethnic, and other forms of diversity in employees Aging workforce

Older employees who work longer and do not retire

The increased costs of public and private benefits for older workers

An increasing demand for products and services related to aging.


Entrepreneurship :-

Entrepreneurship Defined The process of starting new businesses, generally in response to opportunities.

Entrepreneurship process Pursuit of opportunities

Innovation in products, services, or business methods

Desire for continual growth of the organization

E – Business :-

E-Business (Electronic Business)

The work preformed by an organization using electronic linkages to its key constituencies

E-commerce: the sales and marketing aspect of an e-business

Categories of E-Businesses E-business enhanced organization

E-business enabled organization

Total e-business organization

Knowledge Management :-

Learning Organization

An organization that has developed the capacity to continuously learn, adapt, and change.

Knowledge Management

The cultivation of a learning culture where organizational members systematically gather and share knowledge with others in order to achieve better performance.

Quality Management WWW.VIDYARA philosophy of management driven by continual improvement in the quality of

work processes and responding to customer needs and expectations.

Inspired by the total quality management (TQM) ideas of Deming and Juran, Quality Management means

Intense focus on the customer.

Concern for continual improvement

Process-focused.

Improvement in the quality of everything.

Accurate measurement.

Empowerment of employees.

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