Department of Electronics and Communication

Engineering

Module4
Modern Small Business Enterprises and
Institutional Support for Business
Enterprises

Prof. Amogha B,
Dept. of EC&E,
JIT, Davangere.
ROLE OF SMALL SCALE INDUSTRIES
 Today the small-scale industry (SSI) constitutes a very important segment of the Indian economy.
 The whole credit for developing the small scale industries goes to the former Prime Minister
Jawaharlal Nehru.
 Small sector enterprises are encouraged to develop a core industry and it also a key for the development
of the Indian Economy as India has a abundant labour supply, unemployment, capital scarcity etc

 SSI made the economy dynamic and vibrant.

 During the past five decades the SSI has been increased the statics says that in year 1981 to 2000 the SSI
industries have been raised from 8.74 lakh to 32.25 lakh.
 SSI contributes to about 35% in the industrial production, 40 percentage of exports and 60
percent in providing the employment.
 Due to globalization the performance of the SSI has been decreased in considerable manner.
 The SSI has increases the socio-economic status of the country in past six decades.
 The other sectors such as large and medium scale industries have provided a negative nominal growth
but during this period the SSI has exhibited a positive growth trends.
 Many policies were introduced by the government in order to protect the SSI against sickness and
through incentives by loans or credit facility. This encourages the SSI to gain strength for meeting to
medium or large scale level.
 After 1991 the liberalization and globalization created a tremendous growth in SSI but also throws many
challenges for SSI. Due to competition from globalization induces the technology up gradation, they
involved themselves to improve the quality of the product which can decreases the competitions.
 Provide increased employment through labour intensive process.
 Require lower development period ex: Achieving the success is earlier compared to large and medium
scale.
 Easy to setup a SSI in backward and rural areas.
 These need a lesser market area.
 Encourage of the local entrepreneurship by using local talented peoples.
 Introduce the new products mainly to attract the local market and decentralization of ownership.
 Increase the standard of living of the rural people. Example: the health, technology usage enhances the
overall development of the person.

IMPACT OF GLOBALIZATION ON SSI ON INDIA

 We know that before 1991 the SSI are over-protected i.e. government avoid the sickness of SSI. The
reason behind this the time is provided for SSI to grow from child to adult stage and face the
competitions from other industries.
 Because of the benefits provided to SSI, they never thought to grow to reach the medium and large scale
industry.
  Many of the policies framed by government were resisting the SSI to grow as medium or large scale
industries one of the reason is limitations on investment which effects on manufacturing, employment
and output growth.
 Due to globalization the SSI experienced the competition from large, domestic, foreign and also from
MNCs.
 During the post liberalization period the government has amended the policies in favor of globalization
and liberalization without ensuring the interests of sectors. (Ex: reserved listed products which need to
be manufactured only by SSI has been reduced considerably and made as general manufacturing units
i.e. can be manufactured by any of the industries)
 The main agenda (aim) of government after globalization is to serve the big and multinational
companies during this time the SSI faced the severe deviation in the quality of the products and entered
into industrial sickness.
 Problems of globalization on SSI are delay in completing the assigned projects, expensive
advertisements, marketing problem, lack of money, technical skills, infrastructure (ex: building,
computers, staff etc) and credit
 Tighter patent laws through regulation of intellectual property rights under the TRIPS agreement
 Worldwide market and opportunity to export
 Intensified competitions in the domestic market
 Import of high quality goods.
 Due to globalization the business environment is changing fast. Globalisation, whether understood in a
limited way in terms of multilateral trade liberalisation or in the broader sense of increasing
internationalization of production, distribution and so on, has resulted in the opening up of markets,
leading to intense competition.
 The World Trade Organization (WTO) regulates multilateral trade requiring its member countries to
remove import quotas, restrictions and reduce import tariffs.
 Every single individual enterprise in India, small or large, whether exporting or serving the domestic
market, has to face competition. The process was initiated for small-scale units by placing 586 of the
812 reserved items on the Open General License (OGL) list of imports.
 In 1990 the arrival of MNCs in the field of automobile electronics which increased the competitions for
SSI.
 In order to meet present competitions and to survive in future the SSI started signing the agreements and
developing the networks between the customers, large Industries.
 Due to networking, policies from government the SSI will have to effective and growth oriented so as to
achieve competitiveness, collective approach ( unity has strength) and capacity to upgrade.
 To support SSI from the globalization the central government provided below measures
o Industrial extension services
o To provide the credit facilities many institutes are established.
o To construct the sheds the government provided the sites.
o To educate the entrepreneurs a proper training facilities are provided.
o Provide the machineries to entrepreneurs on hire or lease base.
o Information centers to provide the domestic marketing, setting up industries in rural areas

IMPACTS OF THE WTO ON SSI (IF ASKED FOR MORE MARKS INCLUDE MORE
THEORY ABOUT LAWS AND YEAR)
Emerging challenges to ssis are due to the impact of the agreements under the WTO to which India is a
signatory along with 134 member countries.
Setting up of WTO has altered the framework of the international trade towards non-distortive market
oriented policies.
 This is due to the policy shift that occurred worldwide since the early 1980s in favor of free market forces
and tilt from the state intervention/regulation in the economic activity
The main outcome of such policy would be reduction in export subsidies greater market access, Removal of
non-tariff barriers and reduction in tariffs.
This would also bring about tighter patent laws through the regulation of intellectual property rights
The increased market access to imports started opening up the domestic market to large flow of imports.
To overcome the problems of the SSI the WTO has suggested agreement to decrease the effect of global
market.
Agreements by
Intellectual Property Rights ( TRIPS): these agreements are related to trade
Trade Related Investment Measures (TRIMS) : Related to trade related investment measures
Along with these agreements agreement themselves provides a inbuilt safety such as maintaining hygienic,
increase the labour standards ( ex providing gloves, safety helmet, pay etc) and environmental concerns
WTO prevents subsidies which directly affect competitions of the product. It helps activities of common
interest, which act indirectly as subsidy to the enterprise.
Advantages and Disadvantages
Policy literature and agreement on general impact of the WTO to SSI is not different as compared to large scale
industries as it contributes more to Indian economy.
SSI contributes to about 54 % non-traditional products and 10 % on traditional products (in addition with
exports)
Opportunity of the WTO is classified into three types
1. National Treatment (MFN) : used for exportable items all over the world using the internet as the
market
2. Bright entrepreneurs : they decrease the tariff (cost) of the product by seeing the competitors product
price
3. WTO always says the industries to keep in touch with the government and ensure that they are
getting the right polices at right time.
4. OGL open general license passed by the WTO has considerably increased the competitions for the
SSI with large scale industries.
5. Indian SSI can’t compete with companies (foreign or domestic) because of the poor quality goods,
high interest for credit, weak infrastructure and traditional technology being employed.

Definition
Ancillary
 Ancillary Unit: is a subclass of SSIs which is an industrial undertaking which is engaged or is proposed
to be engaged in
(i)the manufacture of parts ,components, sub-assemblies, tooling or intermediates
(ii)rendering of services, or supplying of or rendering not less than 50 percent of its production or its total
services as the case may be to other units for production of other articles and whose investment in fixed
 assets in plant and machinery does not exceed Rs.1 crore as on March 31,2001 and shall be treated as an
ancillary enterprise

Tiny units
Tiny Unit: is that unit whose investment in plant and machinery does not exceed Rs.25 lakhs irrespective of
the location of the unit.
Small scale Industrial Unit
An industry which invests on the machinery of the plant on rent or lease purpose which doesn’t exceed 100 lakh
as per the March 31, 2001 is to be treated as small scale industrial unit.
Export oriented Unit
An industry which invests on the machinery of the plant on rent or lease purpose or ownership which doesn’t
exceed 100 lakh and has a obligation to export 30 percent of production.

Women Entrepreneurs:
A small industries or firm are managed by one or more women entrepreneurs in proprietary (MD, President) or
individually or jointly have a share capital of not less than 51 percent as partners/shareholders of private limited
company or co-operation society members.
Small Scale Service and Business Enterprises (SSBEs)
Industry related and business related enterprises with investment in fixed assets which should not exceed 10
lakh irrespective of location
Some of the definition by SSBEs (business/services supported by SSBEs or various services by SSI)
Advertising agencies, Marketing consultancy, Industrial consultancy, Equipment rental and leasing,
Typing centers, Photocopy centers, Industrial photography and R&D, Industrial testing laboratory,
Desktop publishing, Internet browsing, Auto repair, services and garages, ISD/STD booths, fax services
or tele-printing, beauty parlor, Laundry and dry cleaning, X-ray clinic, Tailoring, Servicing the
agriculture farm equipments such as tractors, pumps, rings so on, weigh bridge, Studio or video
coverage, operating under franchise, electronic and electrical goods and service etc

GOVERNMENT POLICY AND DEVELOPMENT OF THE SMALL-SCALE SECTOR

IN INDIA
India focused to develop the SSI and this is the same opinion of Gandhiji i.e. he focused on developing the
handicrafts and village based industries.
The measures taken from state and central government are product reservation, financial reduction, extension of
business and technical services, marketing assistance by National Small Industries Corporation.
Developments of handloom and handicrafts promotion activities by Small industries Development
Organization.
India’s SSI is divided into seven industry group
Traditional Sector Modern Sector
1. Handicrafts 6. Powerlooms
2. Handlooms 7. Residual small scale industries
3. Khadi, village and cottage industries
 4. Coir
5. Sericulture
The first five are listed as traditional sectors and the products developed by these kinds of industries is called as
traditional products.
The last two are listed under modern industries
The incentives, subsidy by banks to the SSI firms depends on the definition of the SSI ( small, women, tiny,
ancillary etc)
The investment limits are given below
Year Investment Year Additional Condition
1950 Upto 0.5 millon on fixed asserts( Less than 50 to 100 should be in that
building, machines and so on) SSI
1960 Upto 0.5 millon on fixed asserts NA
1966 Upto 0.75 millon in plant and NA
machinery
1975 Upto 1 millon in plant and machinery NA
1980 Upto 2 millon in plant and machinery NA
1985 Upto 3.5 millon in plant and NA
machinery
1991 Upto 6 millon in plant and machinery NA
1997 Upto 30 millon in plant and machinery NA
1999 Upto 10 millon in plant and machinery NA

IPR 1948
1. Accepted for the first time the importance of small scale industries in the overall economic development
of the country.
2. Realized that small scale industries are particularly suited for utilization of local resources and for
creation of employment opportunities
3. Passed a resolution that the central government in cooperation with state governments should solve the
problems of SSI like raw materials, capital, skilled labour, marketing etc to protect SSIs

IPR 1956
1. Industries development and regulation act was passed in 1951to regulate and control the industries in the
country
2. Parliament accepted to develop “the socialist pattern of society” as the basic aim of economic policy
which cam in form in 1956

IPR 1948
After gaining independence on August 15, 1947 it was necessary to give new policy for industrial
development, decide priority areas and clear doubts in the minds of private entrepreneurs regarding
nationalization of existing industries.
The Government of India announced its Industrial Policy Resolution (IPR) on April 6, 1948 whereby both
public and private sectors were involved towards industrial development.
 Accordingly, the industries were divided into four broad categories:
(a) Exclusive State Monopoly- This includes the manufacture of arms and ammunition, production and
control of atomic energy and the ownership and management of railway transport. These industries were the
exclusive monopoly of the Central Government.
(b) State Monopoly for New Units- This category included coal, iron and steel, aircraft manufacture, ship
building, manufacture of telephone, telegraphs and wireless (apparatus (excluding radio receiving sets) and
mineral oils. New undertakings in this category could henceforth be undertaken only by the State.
(c) State Regulation- This category included industries of such basic importance like machine tools,
chemicals, fertilizers, non-ferrous metals, rubber manufactures, cement, paper, newsprint, automobiles,
electric engineering etc. which the Central Government would feel necessary to plan and regulate.
(d) Unregulated private enterprise: The industries in this category were left open to the private sector,
individual as well as cooperative.

Government policy for small scale enterprises

Measures were taken to provide sufficient vitality (energy) to decentralized sectors and to work with the
large scale industry.
Small scale industries board constituted a working group in 1959 to formulate a development plan for SSIs
during the third five year plan in 1961-66.
During this period projects like “Rural Industries Projects” and “Industries Estate Projects” were
started during this period to strengthen the small sectors.
Thus the IPR 1956 aimed at “Protection plus Development” which initiated a modern SSI in India

IPR1977
1. Emphasized new renewal policy was based on effective promotion of cottage and small industries
widely dispersed in rural areas and small towns.
2. Thus IPR1977 accordingly classified small sector into three categories
 Cottage and household industries: to provide self-employment on large scale
 Tiny sector: promoting investment in industrial units in plant and machinery upto 1 lakh
 Small scale industries : Comprising of industrial units with an investment of Rs.10 lakhs and upto 15
lakhs for ancillary industries

Measures suggested for Promotion of Small Scale and Cottage Industries

 Reservation of 504 items for exclusive production in small-scale sector
 Proposal to set up ‘district industry centre’ agency in each district which was introduced in1978
 Thus the as per this resolution the small sector was thus to be protected, developed and promoted.
IPR 1980
 The Government of India adopted a new industrial policy resolution(IPR) on July 1980
 The main objectives of this polices were
 Increase in investments of tiny plants from Rs1 lakh to 2 lakh and from 10 lakhs to 20 lakhs for SSIs and
from Rs.15 lakhs to 25 lakhs in case of ancillaries
(subordinates).
 Introduction of the concept of nucleus plants in case of DICS in each industrially backward district and
to promote maximum small scale industries there.
 Promotion of village and rural industries to generate economic viability in the villages well compatible
with the environment.
 Thus IPR 1980 emphasized the spirit of IPR 1956

IPR 1990
 Was announced during June 1990
 Resolution continued to give the increasing importance to small-scale enterprises to serve the objective
of employment generation
 Important elements in the resolution to boost the development of small scale industries.
 Investment ceiling increased in plant and machinery for SSIs was raised from 35 lakhs to 60 lakhs and
for ancillary industries from 45 lakhs to 75 lakhs
 836 items reserved for exclusive manufacture in small scale industry
 Subsidy introduced for SSIS by the central government for SSIS in rural and backward areas capable of
generating employment
 To improve competiveness amongst ssis pro-grams of technology up gradation was implanted under the
apex technology development centre in small industries development organization(SIDO)
 To ensure adequate and timely flow of credit facilities for the small scale industries a new apex bank
known as ‘SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)’ was established
in 1991
 Greater emphasis on training of women and youth under Entrepreneurship Development Program (EDP)
was started.
Industry Policy 1991
 This policy mainly stressed on promotion and strengthening of small, tiny and village industries.
 Instead of changing in the limit of investment and equality participation upto 24 percent of other
undertaking a new schemes by state government and financial institute were released
 This policy also supported for establishing common testing centers, information centers, pursue re-
orientation program for modernization in the technical field.
 Due to usage of newer technology the productivity, efficiency increases considerably

Policy initiatives since 1999

  Due to economic revolution i.e. from liberalization, globalizations, competitions these made a
structural change which causes a policies to shift from protection to promotion.
 In the post reformation of globalization the government taken many steps to develop SSI such as
removing the limitations on investment, providing facilities to participate in foreign programs,
export promotions, marketing assistance, incentives for quality improvements etc
 The more important steps are listed below
o In order to provide the extra care for solving the problems of SSI a new ministry of small scale
industries and agro and rural industries were established in year 1999 oct 14. They made a
Millennium policy
o In 1999-2000 to support SSI a new schemes were launched by providing loans through banks
which increases the flow of money and also profit rate. They particularly concentrated on export
products and tiny industries
o The turnover limit has increased from 4 to 5 crore. The 20 percent of turnover amount is
granted from the bank in form of loans. i.e (20% of 5 crore is the loan amount).
o To encourage the rural industries, a national program called as rural industrialization with a
mission to set up 100 industries in rural areas every year.

Policy initiatives on SSI sectors in 2003-04

 In July 2003, the 75 items are reserved to manufacture only by SSI in the field namely chemicals,
leather and its products, laboratory reagents etc
 Selective enhancement of Investment In plant and machinery from Rs 1 crore to Rs 5 crore carried out in
respect of 13 items in stationery sector and I0 items in the drugs and pharmaceutical sector from June 5,
2003.
 The Union budget 2003-04 announced that banks would provide credit to the 551 sector within an
Interest rate band of 2 per cent above and below Prime Lending Rated (PLR). All public sector banks
have adopted this norm.
 The composite loan limit for SSI units was enhanced from Rs 25 lakh to Rs 50 lakh.
 In Its mid-term review of Monetary and Credit Policy 2003-04, the RBI announced that banks may
enhance the limit of dispensation of collateral requirements for loans from the existing Rs 15 lakh to Rs
25 lakh on the basis of good track record and financial position of the units.
 The lower limit of Its 5 lakh on loans covered under the Credit Guarantee Scheme has been removed.
All loans up to Its 25 lakh made eligible for guarantee cover under the Credit Guarantee Scheme.
 417 SSI specialised bank branches made operational throughout the country. The final results of third
All India Census of Small-scale Industries were released on January 17, 2004.
 In the first phase, 60 clusters were identified (July, 2003) for focused development, by including their
credit requirements in the respective State Credit Plans.
 Setting up of a Small and Medium Enterprises Fund (SMEF) of Rs 10,000 crore under SIDBI, to inter
alia, address the problems of inadequacy of financial resources at highly competitive rates for small-
scale sector.
 Laghu Uddyami Credit Card scheme liberalized with enhanced credit limit of Rs 10 lakh (up from Rs 2
lakh) for borrowers with satisfactory track records.

GROWTH AND PERFORMANCE OF SMALL SCALE INDUSTRIES IN INDIA

Pre and Post-liberalization Periods
The five plans from the year 1950-51 mainly concentrated to create the employment the development of SSI
Performance of te SSI in during 1980 to 1990 is given in table
The level of output produced by SSI went up from 26,060 crores by 1980-81 to 5,78,470 crore by the end of
1999-2000 which shows the average increase of around 20 times over a span of 20 years.
In two decades the exports rate of the SSI has been raised to 40 times.
Till the 1995 the contributions of the SSI in exports were high but during the 1995-2000 the export rate start
declining due to global market and competitions.
The employment generation from the SSI was not satisfactory from 1951 but during 1995-2000 the
employment providing rate has been decreased considerably.
Performance of SSI units during 1980s (Pre-Liberalization period)

Performance of SSI during 1990s (Post-Liberalization period)

Progress comparison of SSI with before (1980) and after globalization (1991) {Post Liberalization}
Compared to employment generation and number of units established the SSI has increase their production
mainly for export purpose.
A comparison table for the growth rates in the performance level of the SSI in the periods are indicated and it
shows that there is a falling graph in number of units, production, employment and export.

Areas of Performance Average Growth

1980-90 1991-2000

No. of units 8.6 5.63

Production 19.9 16.14

Employment 6 4.05

Export 19.15 18.93

PERFORMANCE OF SMALL SCALE INDUSTRIES IN INDIA

In development with the GDP, industrial production, employment generation and exports, the contributions of
the SSI is adding up every year.

The third census results which held by 2004 has formulated the performance of SSI in the below table

According to census, by the year 2001-02 the SSI units in country were 105 lakh which includes registered and
unregistered firm. The registered were 13 lakh and unregistered units were 91 lakh and contribution to
production was Rs 2,82,270 crore and 249 lakh people employment.

In next year 2003-04, the SSI units has been increased from 115 lakh to 110 lakh i.e 4.7 percent growth rate.
The value of production increased from 3,48,059 to 3,11,993 crore, the growth rate 7.5 percent and
employment providing has been increased to 261 lakh people.
 Performance chart

SICKNESS in SSI SECTORS

The below table provides the working and closing units of SSI

Rural Urban
Working Units 44.33% 55.67%
Closed units 37..92% 62.08%
Total 41.82% 58.18%

120

100

80
59.98
62.08
60 Urban
Rural
40

20 44.33
37.92

0
Working Units Closed units

1. Sickness was identified through the latest definition of RBI given by the Kohli Committee. Incipient
sickness was identified in terms of continuous decline in gross output.
2. Sickness in the total SSI sector was to the tune of 1%, whereas In the registered and unregistered SSI
sectors It was 3.38% and 0.64% respectively.
3. The maximum number of sick units—about 59.33 % was located In West Bengal, Kerala, Maharashtra,
Karnataka, and Andhra Pradesh.
4. Out of the units having loan outstanding with Institutional sources such as banks and financial
institutions, sickness was reported to be about 19.6% in the registered SSI sector and 16.61% in the
unregistered SSI sector. In the total SSI sector, this percentage was 17.8.
5. Incipient sickness, identified in terms of a continuous decline in gross output was 11.5% in the
registered 551 sector and 6.48% in the unregistered 551 sector. In the total 551 sector, this percentage
was 7.4.
6. Combining the three yardsticks used to measure sickness, viz., (a) delay in repayment of loan over one
year, (b) decline In net worth by 50%, and (c) decline in output in last three years, about 13.98% of the
units In the registered SSI sector were Identified to he either sick or incipient sick. This percentage was
only 6.89 in the case of unregistered units. In the total SSI sector, this percentage was 7.82.
7. The States of Kerala, Tamil Nadu, Andhra Pradesh, Karnataka, and Maharashtra had maximum number
of sick/incipiently sick SSI units. These five States together accounted for 54.28% of the sick/incipiently
sick SSI units in the country.
8. "Lack of demand" and "Shortage of working capital" were the main reasons for sickness/incipient
sickness in both the registered and unregistered 551 sectors.

PROBLEMS OF SSI
The problems for the SSI has been divided into two groups external and internal

External problems- These are the problems which arise from the factors beyond the control of the industries
such as power, water supply and so on.

Internal Problems- these problems are not from external peoples but it causes due to employees of the
industry itself such as structure of the organization, co-operation, co-ordination and so on.

1. Choice of idea : choosing the best among the idea based on sources of idea
2. Weak structure : the structure of the organization is weak means the controlling of employee can’t be
performed efficiently
3. Faulty planning: The planning can go wrong with lack of experience
4. Poor project implementation : due to weak managerial skills the implementation of project can be at
slow rate
5. Poor management
6. Poor production: the quality of the products is low due to older technology
7. Quality : the quality of products can’t satisfy the export rate
8. Marketing : the cost for marketing needs more and also need human power
9. Inadequate finance: the capital amount for providing on company will be insufficient
10. Labour problems: the skilled labours are less in rural areas and also expects the high salary
11. Capacity utilisation
12. Lack of vertical and horizontal integration (vertical co-operation between heads of different
department horizontal co-operation between employee and head of the respective unit)
13. Inadequate training in skills : the cost for technical and managerial training is more
14. Poor and loose organisation
15. Lack of strategies : observing the market and change the plans in organization needs experience
which is not possible in SSI
External

1. Infrastructure
a. Location
b. Power
c. Water
d. Post Office and so on
e. Communication
2. Financial
a. Capital
b. Working capital
c. Long-term funds
d. Recovery
3. Marketing
4. Taxation
5. Raw Material
6. Indusulal and financial regulations
7. Inspections
8. Technology
9. Policy
10. Competitive and volatile environment

1. Difficulty in obtaining credit from commercial banks because of their general Inability to provide
security.
2. Inability to offer liberal credit terms in the sale of their products.
3. Absence of management expertise. Often managed by one person who performs a number of functions
usually with no formal training.
4. Difficulty in competing with imported products due to high production costs.
5. Competition from other local entrepreneurs in the same line of business competing for the limited local
market.
6. Difficulty in obtaining industrial land in towns and cities. The shortage of industrial land is giving rise to
more and more backward operations.
7. Under capitalization.
8. Difficulty in identifying appropriate technology and technical assistance.
9. The manner in which both the needs of the economy and linkage with the existing industry can best be
served.
10. Bureaucratic red tape and regulations.
11. Surveys of material and human resources of the countries are not available to identify the regions or
areas for the development of small-scale and medium-scale industrial enterprises.
12. Identification of industrial projects for development. Project preparation and evaluation.
13. Financial or credit support and investment promotion. Consultancy and counseling services.
14. Technology development and applications such as the designing of prototype machines for products
identified according to country resources and requirements.
15. Development of infrastructure of various kinds in the appropriate areas.
16. Entrepreneurship development. Industrial training and skill formation.
17. Linkages between large industries and small industries and the creation of subcontracting facilities at the
national, regional, and international levels.
18. Quality control and testing facilities. Market promotion, both domestic and export. Procurement of raw
materials and equipment. Scientific and industrial research; information collection and dissemination on
technology, markets and so on.
19. Identification of and assistance to enterprises, which are experiencing difficulties. Management and
reorganization or restructuring of small- and/or medium-scale enterprises through various schemes.
Productivity increases through modernization.

INSTITUTIONAL SUPPORT FOR BUSINESS ENTERPRISES

The boards from central and state level supports the growth of the SSI to afford the competations.

CENTRAL LEVEL INSTITUTES

1. Small Scale Industries Board (SSI Board)

 In has been established in the year 1954

 They made a co-ordination and inter-institute linkage for development of SSI sectors

 These are the body which discuss with govt. about problems of Small scale Industries.

 Union Industry Minister is the chairman to the SSI board and selects the member to the central
government.

 Office of the development commissioner serves as the secretariat for board.

 The board operates in following areas

 Policies and programmes

  Development of industries in a specific region such as North East.

 Marketing assistance ex Gruha Shobha, ancillary and quality improvement.

 Providing loan facilities, reduction in the taxation and modernization in the machines

 Avoid industrial sickness.

2. Khadi and Village Industries Commission (KVIC)

 Established in 1956 with a act of parliament no 61 and amended with act no 12.
 Charged with planning, promotion, organization and implementation of the programme for
development of Khadi and other village industries

Functions of KVIC

 Collecting and storing the raw materials and implements for supply to producers.
 Create a common service facilities for processing of raw materials as semi-finished goods and
facilities for marketing only for KVIC products.
 Providing the technical information, supply of design, prototype modeling and promote the
industries through training.
 Provide the financial assistance to institutions or to persons who involved themselves in
development and operation of Khadi and village industries.
3. Small Industries Development Organization(SIDO)
The Small and Medium Enterprises (SME) sector is one of the fastest growing industrial sectors all over the
world.
Many countries of the world have established a SME Development Agency (SMEDA) as the nodal agency to
coordinate and oversee all government interventions in respect of the development of this sector.
In India, although a separate medium sector is not defined, the Office of Development Commissioner (Small-scale
Industries), also known as Small Industries Development Organisation (SIDO), functions as the nodal
development agency for small industries.

SIDO functions under the Ministry of SSI. SIDO was established in 1954 on the recommendations of the Ford
Foundation.

Over the years, it has seen its role evolve into an agency for advocacy, handholding and facilitation for the small
industries sector. It has over 60 offices and 21 autonomous bodies under its management. These autonomous
bodies include tool rooms, training institutions, and project-cum-process development centers.

SIDO provides a wide spectrum of services to the small industries sector. These include facilities for testing, tool
mending, training for entrepreneurship development, preparation of project and product profiles, technical and
managerial consultancy assistance for exports, pollution and energy audits, and so on.

SIDO provides economic information services and advises the government in policy formulation for the
promotion and development of SM. The field offices also work as effective links between the Central and the
State governments.

The office of the Development Commissioner Small Scale Industries DC(SSI) is directly under the Union
Ministry of Industry and is a nodal agency formulating, coordinating and monitoring the policies and programmes
for promotion and development of Small-scale industries in the country.
The Office of the Development Commissioner (Small-scale industries) is an attached office of the Ministry of SSI
and is the apex body to advise, coordinate and formulate policies and programmes for the development and
promotion of the Small-scale sector.

The office also maintains liaison with Central Ministries and other Central/State government agencies/
organizations and financial institutions. It maintains close links with all the agencies including State governments.

It provides a comprehensive range of facilities and services including consultancy in techno-economic and
managerial aspects, training, common processing and testing facilities, tooling facilities, marketing assistance etc.
to the small-scale units. DC(SSI) provides all its services through a network of SISIs.

Institutional Network( explaining the above figure)

The development commissioner heads the small industry development organization (SIDO) has 30 networks for
servicing SSI, 28 branch SSI[Br. SSI], four regional testing center, seven field testing stations, 19 autonomous
bodies, 10 tool rooms and tool design, four product cum project development, two central footwear training
institutes, one institute for design of electrical measuring instruments, two national level training institutions and
one department training institute and one production centre.
I. Small Industries Service Institutes (SISIs)

These boards function almost everywhere in the country, the functions performed are as follows

 Interface between central and state governments

 Technical support services and consultancy services
 Entrepreneurship development programmes
 Development efforts
 Promotional programmes
 Export promotion and connection activities

Reports which are submitted by SISIs are used during implementation of programs on energy saving,
modernization, quality control or pollution control

II. Sub-Contract Exchanges (SCXs at SISIs)

Sixteen subcontract exchanges had been established in the country the main motto of them is to promote
the ancillary industry.
 The activities are
 Register spare machine is available in SSI and tiny units
 Identify the items required for large industries and provide those products on regular bases by
these SSI.
 Provides the environment for making the interaction between the small and large units
 Organize the platforms for marketing by conducting the exhibitions or through promotional
activities.
 Establishing the linkage and interaction between the all SSI available in state or district.
III. Regional Testing Centers (RTCs)
 Four centers are at New Delhi, Mumbai, Chennai and Calcutta.
 They provide technical consultancy services to carry out systematic test in industries.
 These centers equipped with modern sophicated machinery and equipment for testing
mechanical, chemical and electrical products.
 These are accredited to pollution board, bureau of Indian Standards, testing centers which
provides testing products at different fields these are located in Jaipur, Bhopal, Kolapur,
Hyderbad, Bangalore, Pondicherry and Changanacherry.
IV. HTI-Programme Objectives
 Technology upgradation of Hand tool SSI in Punjab by adoptive energy efficient and clean
technology ( decrease in pollution).
 Strengthening of institutional structure and policy frame mainly to use the machines which are
energy efficient.
 Supporting the industry to achieve standards for the international markets by providing
information and newer technology enabled machines.
V. Small Entrepreneurs Promotion and Training Institute (SEPTI)
 Initial name was Production centre for electronic motor in 1992 it was changed.
 They train the unemployed youth in the technical field they had opened CNC lab, HEA lab,
Engineering workshops, Electronic Laboratory, EPABX, audio –visual aids.
 In order to develop the techno-managerial capabilities for the unemployed youth they conducts
the skill development activities like EDPs in various field such as general engineering, motor
rewinding, household electric applications, A/C, fridges etc.
 They usually conduct the 16 EDPs in two courses period every year
 They also provide diploma and PG diploma courses in computer science varying from 3 months
to 12 months.
 It also provides the training for the persons selected under TRYSEM and PMRY schemes.
VI. Tool Room and Tool Design Institute (TR/ TDI)
 It is the heart of engineering industry.
 As the cost required to setup a individual tool room, SIDO, TR imports the machines from
DENMARK, GERMANY and agencies like UNIDO and ILO hence these institutions provide
the needful machine
 These helps SSI units to obtain quality tools and these are located in Hyderbad, Ludhiana and
Nagpur.
 New tools were setup by indo-germany and Indo-Danish in Indore, Ahmedabad etc.
 The activities of TR/TDi is
o Designing or manufacturing of dies, gauges, tool, components etc.
o Service to the machines, assistance in testing, heating treatment, testing etc
o Providing short or part time courses for entrepreneurs
o Introduce the project cum process development work in specific industrial area.
VII. Central Footwear Training Institutes (CFTIs)
  CFTIs supports industries which involve in leather and footwear industries mainly in Agram
Chennai, Kolkata and Mumbai.
 The UNDP funded of Rs 90 million to modernize these CFTIs
 Objectives
o Training of manpower for the footwear industry
o Promote for designing the new varieties of footwear with newer designs
VIII. Product cum Process Development Centres (PPDCs)
There are PPDCs are six in number to serve the SSIs at Ferozabad, Kannauj, Meerut, Mumbai and Agra
Functions of the PPDCs are as follows
 In dense industry cluster these serves as research and development institutions.
 Identify the specific problem in the industry which effecting the productivity.
 Innovate the new technology and designing of new models, methods etc
 To develop the new process and upgrade the existing level of technology.
 To act as centres of excellence in the concerned field
 Develop the technical support service and improve the manpower through training.

SERVICES PROVIDED by SIDO

The main support services provided by SIDO and its associate institutions are listed below

a) Entrepreneurship Development and Management Training

 SIDOs are providing many Entrepreneurship Development Programmes (EDPs) and Management
Training Programmes to enhance the efficiency of SSI.
 The National Institute for Entrepreneurship and Small Business Development (NIESBUD) and the
National Institute of Small Industry Extension and Training (NISIET), which are under the administrative
control of SIDO, also organise various EDPs and devise training aids and materials for regular trainers.
 These programmes aim at identifying entrepreneurial capabilities and motivating and training
entrepreneurs to enable them to set up their industrial units with confidence. In addition, special courses
are organised for targeted groups of entrepreneurs.

b) Extension and Training Services:

 For about 0.2 million units the SIDO provides guidance to improve in technical, economical,
managerial and so on for every year.
 Provides the services to calibrate the machines if SSI at nominal charges.
 The different job works are undertaken by the branches attached to SISIs.
c) Skill Development:
 For about 42 branches attached to the SISI they enhanced the skills of the technical people
working over there.
 The other testing centres, tool rooms and training centres, tool design institutes, and so on also impart
training in different technical trades to upgrade the skills of workers and artisans in the 551 sector.
d) Entrepreneurship Development Institutes (EDIs)
 During the eigth five year plan a new schemes were introduced in favour of entrepreneurship
 In 1992-93 the SIDO launched this scheme mainly to strengthen the training infrastructure in
EDIs
 To construct the building, preparation of training aids, library, computers etc are provided to
each EDIs and reserved 5 million per EDIs
  Objective of EDIs is to train the ED trainers, motivators, potential entrepreneurs and peoples
selected under PMRYscheme.
 SIDO provided assistance to 14 such EDIs in the country.
e) Preparation of Project Profiles
 SIDO prepares and updates about 1,000 project profiles on various product groups annually.
These are supplemented by industrial potential/feasibility reports on a product-wise basis.
Information on markets and technology is also collected, assessed, and disseminated.
 Project profiles contain detailed information on the product manufacturing process, market
potential, quality control and standards, investment requirements. sources of raw material and
machinery suppliers, profitability, and so on.
 Project profiles have been compiled for different products by SIDO, in an industry group-wise
manner, for the benefit of entrepreneurs.
f) Plant Modernisation Studies: Detailed in-plant studies are undertaken for particular small-scale units
located in dense industry clusters to identify the present use of process/technology and prepare
programmes for modernisation.
g) Marketing Support: The marketing promotional scheme operated by SIDO involves two main activities:
imparting training in packaging technology and promoting participation of SSIs in domestic and
international trade fairs.
h) Collection of Data: Under a scheme entitled "Collection of the status on SSI units", SIDO updates its
database by organising sample surveys, industrial censuses. and other field studies. SIDO also processes
and interprets data, prepares the Index of Industrial Production (IIP), as well as develops profiles and
reports on SSIs. SIDO
i) Prime Minister’s Rozgar Yojana (PMRY)
 It is the self employment scheme introduced by SIDO for the educated unemployed youths to
enhance their skill and encourages to setup the industry.
 PMRY has funded to 0.7 million micro enterprises which provided a employment to more than 1
million people
 The scheme has taken the assistance of NGOs to reach the people of whole country.
 In the union budget 1999-2000 have announced a various self employment schemes programs
are merged to one and it is titled as SWARAN JYANTHI GRAM SWA ROZGAR YOJANA.
j) National Awards
It has started in 1983 which started giving the awards for the best entrepreneurs of the respective year.
From 1984 onwards the awards were provided at state level entrepreneurs
Quality award for the people / industry produced a high quality of goods.
Two special national awards for women entrepreneurs
The reason behind providing the awards is to encourage the entrepreneurs to expand market, effective
products production, innovative ideas and upgrade in the machinery.
k) Prototype development and Training Centre
 to impart practical and classroom training in several industrial trades with special training
programmes for rural artisans and weaker sections of the society:
 To develop prototypes of machines. tools, and import substitutes, which are passed on to
manufacturing units for commercial production.;
 To provide common facilities in areas such as testing, machining, casting. electroplating. and so
on
  To take up production of machines. partially or fully, as per market acceptability: and
 To design tailor-made crash programmes for entrepreneurs and industrialists, to keep them
abreast with the latest in technology.

SIDO SCHEMES
 Credit Linked Capital Subsidy Scheme for Technology Upgradation: Capital subsidy at 12 per cent upto
Rs 4.8 lakh on loans taken for technology upgradation-for individual SSIs.
 Credit Guarantee Scheme: Collateral-free loans upto a limit of Rs 25 lakh for individual SSIs.
 Provides the financial aid to obtain the ISI certificate for the products of SSI.
 Full subsidy on space rent and shipment of exhibits of SSI units—for individual SSIs.
 This is administered through the Single Point Registration Scheme of NSIC. Under this, 358 items are
reserved for exclusive purchase from SSI by the Central Government. Other facilities include tender
documents free of cost. exemption from earnest money and security deposit, and 15 per cent price
preference in Central Government purchases—for individual SSIs.
 Project limit upto Rs 1 lath for business and Rs 2 lath for other activities subsidy and margin money
upto 20 per cent of project with balance as loan; subsidy for NE twice that of rest of India—for
entrepreneurs, SSIs.
 For promoting technology upgradation in clusters for a group of SSI units of one industry.
 Integrated Infrastructure Development (IID): Assistance upto 40 per cent or Rs 2 crore, whichever is
less, for setting up industrial estates for SS1 units. For NE. assistance is 80 per cent or Its 4 crore—for
State Governments/industry associations/NG0s.
 Mini Tool Rooms: Assistance upto 90 per cent or Rs 9 crore. whichever is less, for setting up new Mini
Tool Rooms. For upgradation of existing Tool Rooms, assistance is 75 per cent or Rs 7.5 crore—for
State Governments.
 Assistance upto a 50 per cent or Rs 50 lath, whichever is less, for setting up Testing Centres—for
industry associations.
 One-time grant for procurement of hardware and thereafter matching grant on tapering basis at 50 per
cent. 30 per cent and 10 per cent of running expenses. not exceeding Its 1.25 lath, Rs 0.75 lath, and Rs.
0.25 lath respectively during the initial three years, subject to a ceiling of Rs 1.57 lakh per exchange—
for industry associations.

NATIONAL SMALL INDUSTRIES CORPORATION Ltd. (NSIC)

 Established in 1995

 Objective is to promote, aid and grow the SSI in country.

 Various programs are organized by the NSIC to support SSI

 In past four decades of transition and growth of SSI the NSIC has provided a modernization up
gradation in the in technology, quality of product, linkage with medium and large scale industries.(
Linkage of cars to govt, corporate offices)

 Some of the services offered are

 Machinery and Equipment (Hire –Purchase scheme)

  The machinery are provided on hire bases and the cost of the machine doesn’t exceed 30
million.

 They provide the financial aids mainly for first generation entrepreneurs, women
entrepreneurs, weaker sections, physically challenged and ex-service men.

 Machinery and Equipment (Lease Scheme)

 The finance to facilitate the SSI in the field of technology upgrade and diversification.

 During the rental days the tax for the SSI are completely NIL.

 Financial Assistance Scheme

o Five financial centers are present in Delhi, Mumbai, Ahmedabad, Bangalore and goa

o Activities are

o Marketing

o Discounting on bills and tax reduction

o Raw materials purchases

o Helps in exporting

 Assistance for procurement(obtain) of Raw material

o The off the shelf is the scheme which provides the raw materials to SSI

o If any needed some of the raw materials are imported ex: sticks of agarbathies are
imported.

o Providing the limited supply raw materials on the priority bases.

o NISC storage place will supply aw materials.

 Marketing Assistance

o The objectives of the marketing programme of NSIC

o Providing the margin rate for the producers of goods.

o Providing the testing facilities for the various produced products in order to check a
quality.

o Under a same brand name sell the products

o Upgrade in the technology by supplying necessary machines.

 Government Store Purchase Programme

o At NSIC a single point registration scheme is provided to SSI to obey the orders from
government.
 o The registered industries are benefited from the various schemes released from central
and state government.

Facilities provided are

o Providing the tender forms to SSI at free of cost. ( ex: there will be nominal 500 to
2000 rupees for other industries)

o The tenders call are informed well in advance by DGS and D.

o Exemption from payment of earnest money.

o Waiver (document) provided with security deposit are provided for registered units

 Technology Transfer Centre (TTC)

o It is established in Delhi to support the enterprise level mainly for small scale
enterprise by improving the technology, adoption of newer technology, promotional
services

Services offered are

o Providing information on technology, business and investment

o They assist in searching a perfect match for partners and search a perfect technology

o Evaluation of projects, technology, consultancy are provided

o Evolve in the technology by organizing the training programs

o To access a database they provide a private username and passwords.

NATIONAL SCIENCE AND TECHNOLOGY ENTREPRENEURSHIP DEVELOPMENT

BOARD(NSTEDB).

 Established in 1982by govt. of India.

 It helps knowledge driven and technology intensive enterprises.

 Its aim to convert from job seekers to job generators through science and technology.

Objectives

 Self employment using the developed science and technology.

 Information centers to promote entrepreneurship.

 Link entrepreneur to various institutions like R&D, academic to increase the customer belt especially in
rural areas.

 It acts as the policy advisory body

Major activities
  Training programs

 Institutional mechanism for entrepreneurship development

 Information providing centers.

NATIONAL PRODUCTIVITY COUNCIL (NPC)

 It is operating by ministry of Industry (Govt. of India)

 Head office in Delhi

 It acts as the catalyst to increase the productivity in industries and agriculture field.

 It is active to in the field of custom-made to agriculture and industry.

 They have two units

 Entrepreneurship Development Programmes: these are used to identify the person with
entrepreneurial skills.

 Training Institutes: present in Hyderbad (NISIET), NewDelhi(NISEBUD) used to provide

training, research and development for products

Entrepreneurship Development Programmes (EDPs)

EDPs will search for the person who posses the entrepreneurial skills and to train them to set up new small
and tiny industries

SIDO with its field officers present all over the country who involve themselves in training different
sections of the society such as

 Educating the unemployed youths

 Women entrepreneurs
 Train the weaker sections of the society
 Training the rural people for encourage to establish the industry
 Providing the special provision for physically challenged people
 Students training
 Entrepreneurs under self –employment schemes

NATIONAL INSTITUTE FOR SMALL INDUSTRY EXTENSION & TRAINING

(NISIET)
 Established in 1950s in Hyderbad

 It provides the training to state government agencies, financial institute, managers, entrepreneurs and
other agencies

 45 national 15 international level programs are designed per year.

  Information Center are established to provide the knowledge about to continue the extension and where
the excellent training are available.

INDIAN INSTITUTE OF ENTREPRENEURSHIP

 1993 established in Guwahati

 In order to make the training, research and consultancy services in SSI for improving the skills in the
entrepreneurs

 Institute started in operations from 1994 with north east council

 Objectives

 To organize and conduct training for entrepreneurship development

 To evolve strategies and methodologies for different target groups and locations and conduct
field tests

 To identify training needs and offer training programmers to Government and non-Government
organisations engaged in promoting and supporting entrepreneurship

 To document and disseminate information needed for policy formulation and implementation
related to self-employment

 To design, identify and conduct the training for existing entrepreneurs

 Publish their research work in the industrial field

 Organize the seminars workshops and conferences for making the various entrepreneurs to have
interaction between them for efficient improvement in their performance

 Encouraging to carry out the research for improving the knowledge inturn which accelerates the
entrepreneurship development

 It act as the catalyst for development of self employment or entrepreneurship or industry.

NATIONAL INSTITUTE FOR ENTREPRENEURSHIP AND SMALL BUSINESS

DEVELOPMENT
It is established in New delhi with a autonomous body under the administrative control of the Office of the
DC(SSI). NEESBUD, an apex body established by Ministry of In-dustries, Govt. of India for coordinating,
training and overseeing the activities of various institutions/agencies engaged in Entrepreneurship
Development Particularly in the area of small industry and small business. The National Institute for
Entrepreneurship and Small Business Development (NIESBUD) was established in 1983 by the Ministry of
Industry (now Ministry of Small-scale Industries), Govt. of India, as an apex body for coordinating and
overseeing the activities of various institutions/agencies engaged in Entrepreneurship Development
Particularly in the area of small industry and small business. The Institute which is registered as a society
under Govt. of India Societies Act (XXI of 1860) started functioning from 6th July, 1983. The policy,
direction and guidance to the Institute is provided by its Governing Council whose Chairman is the Minister
of SSI. The Executive Committee consisting of Secretary (Small Scale Industry and ARI ) as its Chairman
and Executive Director of the Institute as its Member Secretary executes the policies and Decisions of the
Governing Council through its whole-time Executive Director The Institute conducts about 28 National and
5 International Training Programmes every year. Besides, the Institute undertakes research studies,
consultancy assignments, development of training aids etc.

ENTREPRENEURSHIP DEVELOPMENT INSTITUTE OF INDIA (EDII)

The Entrepreneurship Development Institute of India, Ahmedabad, is an autonomous non-profit institution,
set up in 1983, sponsored by financial institutions, such as Industrial Development Bank of India (IDS!),
Industrial Finance Corporation of India (IFCD, Industrial Credit and Investment Corporation of India
(ICICI), and State Bank of India (SBI). The Government of Gujarat has also provided assistance for the
setting up of EDIT. EDIT has been spearheading an entrepreneurship movement throughout the nation in
the belief that entrepreneurs need not necessarily be born, they can be developed through well-conceived
and well-directed activities. In consonance with this belief. the objectives of the EDIT are as follows.

• Augment the supply of trained entrepreneurs through training

• Generate a multiplier effect on opportunities for self-employment

• Improve managerial capabilities of small-scale industries

• Contribute to the dispersal of business ownership and thus expand the social base of the Indian
entrepreneurial class

• Contribute to the creation and dissemination of new knowledge and insight into entrepreneurial theory and
practice through research

• Augment the supply of trainer motivators for entrepreneurship development

• Participate in institution-building efforts

• Sensitise the support environment to facilitate potential as well as existing entrepreneurs to establish and
manage their enterprises • Promote micro enterprises at the rural level

• Inculcate the spirit of 'entrepreneurship' amongst youth

• Collaborate with similar organisations in India and other developing countries to accomplish the above
objectives.

STATE LEVEL INSTITUTIONS

1. DIRECTORATE OF INDUSTRIES (DIS)

 State level- Director of Industries which promotes small, medium and large scale
 Central Level- Policies guides the SSI but at state level many packs and perks are provided
 At every district we posses District Industries Centers
 The policies implemented for the promotion and development of small scale, cottage, medium
and large industries
 The commissioner or director of the industries in all states will lookafter the progress of the field
officier for specific period of time.
2. DISTRICT INDUSTRIES CENTRES (DICS)
 1978 Centrally sponsored schemes to promote tiny and cottage industries
 DICs were established to generate the employment rate especially in rural areas
 1993 the central scheme sponsor was withdrawn by that time 430 DICs were developed except in
TIER-1 CITIES

Services

 Supply of machinery and equipment

 Provision for raw materials
 Arrangements of credit facilities( Giving the money after delivering to customer )
 Economic investigation of local resources
 Marketing assistance
 Quality inputs to the entrepreneurs for improve the quality of the finished products
 Consultancy and extension services
3. STATE FINANCIAL CORPORATION
 State Financial Corporations, established under the SFCs Act, 1951. play an important role in the
development of smell and medium enterprises.
 The main objectives of SFCs are to finance and promote small and medium enterprises in their
respective States for achieving balanced regional growth, catalyse investment.
 Generate employment and widen the ownership base of industry. At present, there are 18 SFCs
of which one was set up under the SFCs Act, while Tamil Nadu Industrial and Investment
Corporation (TNIIC) Ltd. was set up under the Companies Act.
 Financial assistance to small and medium enterprises is provided by way of term loans, direct
subscription to equity/debentures, guarantees, discounting of bills of exchange, and seed capital
assistance. SFCs operate a number of schemes of refinance of IDBI and SIDBI and also extend
equity type assistance.
 SFCs have tailor-made schemes for artisans and special target groups such as SC/ST, women,
ex-service man, physically challenged people and also provide financial assistance for small
road transport operators, hotels, tourism related activities, hospitals etc
 The single window scheme of SIDBI, SFC provides the assistance to mentioned activities.
 SFC provides the short term loans for increasing the working capital for the SSI which
increasing the marketing and profit rate.
4. STATE DEVELOPMENT OR INVESTMENT CORPORATION
SIDCs/SIICs. set up under the Companies Act. 1956, as wholly owned undertakings of the State
governments, act as catalysts for industrial development in their respective States. SIDCs play an
important role by developing land providing industrial infrastructural facilities in the form of ready
made factory sheds and/or developed plots together with facilities like roads, power, water supply,
drainagc, and other amenities. Set up primarily for providing assistance to medium-and large-scale
industries. SIDCs/SIICs also extend assistance to the small-scale sector by way of term loans,
subscription to equity and promotional services. Presently. there are 28 SIDCs in the country, of which
II also function as SFCs and are therefore, termed Twin-Function IDCs.
5. STATE SMALL INDUSTRIAL DEVELOPMENT CORPORATIONS (SSIDCS)
SSIDCs, established under the Companies Act. 1956. as State government under-takings, cater to the
needs of the small, tiny and village industries in their respective State/Union Territory. Being
operationally flexible. SSIDCs undertake a variety of activities for the benefits of the SSI sector. Some
of the important activities under-taken by SSIDCs include
• Procurement and distribution of scarce raw materials;
• Supply of machinery to SS1 units on hire-purchase basis;
• Assistance for marketing of products;
• Construction of industrial estates. provision of allied infrastructure facilities and their maintenance;
• Extending seed capital assistance on behalf of State government; and
• Providing management assistance to production units.
 Jain Institute of Technology Davangere

Department of Electronics and Communication

Engineering

Module1
MANAGEMENT AND PLANNING

Prof. Amogha B,
Dept. of EC&E,
JIT, Davangere.
Management Entrepreneurship and Development 15ES51

Module - 1
Introduction
Precise definition of management is not so simple because the term managements used in a
variety of ways. Being a new discipline it has drawn concepts and principle from a number of disciplines
such as Sociology, Economics, Psychology, Statistics, Anthropology and so on. The contributors from
each of these groups have viewed management differently. For example economists have treated
management as ‘a factor of production’; Sociologists treated it as ‘a group of persons’. Hence, taking all
these view points, it becomes difficult to define management in a comprehensive way and no definition
of management has been universally accepted. Many definitions were given by various contributors; one
popular definition is given by Mary Parker Follet.
According to Mary management is ‘the art of getting things done through people’. This
definition clearly distinguishes between manager and other personnel of the organization. A manager is a
person who contributes to the organization’s goal indirectly by directing the efforts of others, not by
performing the task by him. A person who is not a manager makes his contribution to the organization’s
goal directly by performing the tasks by himself, Sometimes a person may play both roles
simultaneously. For example, a sales manager plays managerial role by directing the sales force to meet
the organization’s goal and plays non-managerial role by contacting an important customer and
negotiating deal with him. The principal of an institution plays the role of manager by directing the heads
of the departments and plays non-managerial role by teaching a subject.

There are two weaknesses of this definition.

(1) The first weakness is that the definition states that management is an art. Art deals with application of
knowledge. But management is not merely application of knowledge. It also involves acquisition of
knowledge i.e., Science. Managing using intuition or thumb rule is not correct management.

(2) The second weakness of this definition is that it does not explain the various functions of
management. A better definition is given by George R Terry who defines management as “a process
consisting of planning, organizing, actuating and controlling performed to determine and accomplish
the objectives by the use of people and resources”.

According to her, management is a process, a systematic way of doing thing using four
managerial functions namely planning, organizing, actuating and controlling.

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Management Entrepreneurship and Development 15ES51

a. ‘Planning’ means thinking of the manager’s action in advance. The actions of the managers
are based on logic, plan or some method rather than hunch.
b. ‘Organizing’ means coordinating machines, materials and human resources of the
organization.
c. ‘Actuating’ means motivating, directing the subordinates.
d. ‘Controlling’ means that manager must ensure that there is no deviations from plans.

This definition also indicates that managers use people, materials and other resources to accomplish the
organizations objectives. The objectives may vary with each organization. For example the objective of a
technical or management institute might be to provide quality education according to the needs of the
industry.

The objective of a hospital might be to provide medical care to the community at reasonable
price. Whatever may be the objectives of the organization management is a process by which the
objectives are achieved. From the view point of economics, sociology, psychology, statistics and
anthropology management has different meanings.

There are four views of management:

(1) Management is a process.
(2) Management is a discipline.
(3) Management is a human activity.
(4) Management is a career.

(1) Management is a process: A process is defined as systematic method of handling activities. Often
we hear the statements “that company is well managed” or “the company is miss-managed”.
These statements imply that management is some type of work or set of activities, these activities
sometimes performed quite well and sometimes not so well. These statements imply that
management is a process involving certain functions and activities that managers perform.

(2) Management is a discipline: Discipline refers to the field of study having well defined concepts
and principles. Classifying management as discipline implies that it is an accumulated body of
knowledge that can be learnt. Thus, management is a subject with principles and concepts. The

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Management Entrepreneurship and Development 15ES51

purpose of studying management is to learn how to apply these principles and concepts at right
circumstances at the right time to produce desired result.

(3) Management is a human activity: If you say that “the restaurant has an entirely new
management” or “He is the best manager I have worked for”, you are referring to the people who
guide, direct and thus manage organizations. The word ‘management’ used here refers to the
people who engage in the process of management. Managers are responsible for seeing that work
gets done in organization.

(4) Management is a career: Today management is developed as a career focused on specialization.

Marketing management, finance management, personal management, Industrial management,
production management, quality management is some of the specializations in management.
Specialists are appointed at various positions of the organizational hierarchy. Hence, management
is career.

According to Ralph C Devis, “Management is the executive leadership anywhere”. According to William
Spriegal, “Management is that function of an enterprise which concerns itself with the direction and
control of various activities to attain business activities”. Ross Moore states “Management means
decision-making”.

According to Donald J Clough, “Management is the art and science of decision-making and leadership”.
Joseph L Massie defines as “Management is the process by which a cooperative group directs actions
towards common goals”.

According to F.W. Taylor, “Management is the art of knowing what you want to do and then seeing that
it is done in the best and cheapest way”.

John F Mee states “Management is the art of securing maximum results with minimum efforts so as to
secure maximum prosperity for employer and employee and give the public the best possible service”.

According to Koontz and O’Donnel, “Management is the direction and maintenance of an internal
environment in an enterprise where individuals working in groups can perform efficiently and

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effectively towards the attainment of group goals”. It is the art of getting the work done through and
with people in formally organized groups.

Managerial Functions or the process of management by “Fayol”

 Planning: Thinking of the manager’s action in advance. The actions of the managers are based on logic,
plan or some method rather than guess work.
 Organizing: coordinating machines, materials and human resources of the organization.
 Actuating: motivating, directing the subordinates.
 Controlling: manager must ensure that there are no deviations from plans.
Innovating:
 It’s not necessary for an organization to grow bigger but its required to constantly grow better. That’s how
innovation is an important aspect.
 Innovation means creating a new ideas which may improve a product, process or practice
Representing
 A manager is also required to spend his time in representing his organization before various outside groups
which have some stake in the organizations
 The manager must win their support by effectively managing the social impact.

Characteristics of Management
(1) Management is a continuous process:
i. Management of the resources to ensure that resources are used to the best advantages of
the organization.
ii. A single function alone cannot produce the desired results.
iii. Management involves continuous planning, organizing, directing and controlling.

(2) Management is decision-making:

i. Selecting the best among alternative courses. Decision-making is an important function of

a manager.

ii. The success or failure of an organization depends upon the quality of decision.

iii. A manager must make a right decision at right time.

(3) Universal application:

i. The principles and concepts of management are applicable to every type of industry.

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ii. The practice of management is different from one

iii. Organization to another according to their nature.

(4) Management is needed at all levels:

i. The functions of management are common to all levels of organization.

ii. The functions of management are performed by top

iii. Level as well as lower level supervisors.

(5) Management aims at maximum profit:

i. The resources are properly utilized to maximize profit. Maximizing the profit is the
economic function of a manager.

(6) Dynamic:

i. Management is not static. Over a period of time new principles, concepts and techniques
are developed and adopted by management.

(7) Management as a career:

i. Today management is developed as a career focused.

(8) Management is a profession:

i. Management is a profession because it possesses the qualities of a profession. The

knowledge is imported and transferred.

ii. The established principles of management are applied in practice.

(9) Management is a discipline:

i. Discipline refers to the field of study having well defined concepts and principles.

ii. It implies that it is an accumulated body of knowledge that can be learnt.

iii. The purpose of studying management is to learn how to apply these principles and
concepts at right circumstances, at the right time to produce desired result.

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Scope of the management:

1. The management is a must for every organization which includes

2. Profit as well as nonprofit organizations ( private and NGOs),

3. Government and non government organizations(BHEL and TATA GROUPS), and

4. Service as well as manufacturing organizations (TCS AND BROADCOM).

5. It is in fact difficult to find an area of activity where management is not applicable.

Functional Areas of Management:

1. Management process involves several functions.

2. A distinction should be maintained between management functions (planning, organizing,
staffing, directing and controlling) and the organizational functions (productions, finance etc.)
3. Organizational functions differ from organization to organization depending upon their nature
while management functions are common to all.
4. A manager may be put either in production or finance or marketing, he performs all the
managerial functions.
5. These organization functions are called functional areas of management.
6. There are four functional areas of management namely production, finance, marketing and
finance and personnel.
7. Each functional area may have a number of sub-activities
(1) Production: This is generally put under production manager and he is responsible for all
production related activities. This area has a number of activities, few of them are given below
a. Purchasing: This is related with the purchase of various materials required by the
organization. Purchasing involves procuring right quantity of materials at the right quality,
at the right time and at the right price from the right supplier.
b. Advertising: Involves giving information about products to buyers.
c. Marketing research: It is related with the systematic collection, analysis of data relating
to the marketing of goods and services.
d. Sales management: It involves management efforts directed towards movement of
products and services from producers to consumers.
(2) Finance and accounting: Intelligent investment of financial resources and record-keeping of
various transactions. The various sub-functions are
a. Financial Accounting: Deals with record keeping of various transactions.
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b. Management Accounting: Deals with analysis and interpretation of financial records so

that management can take certain decision.
(3) Personnel: It deals with the management of human resources with the following sub-activities:
a. Recruitment and Selection: It deals with recruitment and selection of employees.
b. Training and Development: It deals with training of employees and making them more
efficient.
c. Wage and Salary Administration: Deals with fixing of salaries, job evaluation,
promotion, incentives etc.
(4) Industrial Relations: Deals with maintenance of good employee relations.

MANAGEMENT: A SCIENCE OR ART?

There is great controversy whether management is science or art. It is an art in the sense of
possessing of managing skill by a person. Science, because developing principles or laws which
are applicable in a place where a group of activities are coordinated. In fact management is both
science and art as it clear from the following discussion.

Management as science: Science is a systematized body of knowledge. We call a discipline

scientific if its Methods of inquiry are systematic and empirical. Information can be ordered and
analyzed; and Results are cumulative and communicable.

Systematic’ means, being orderly and unbiased. Moreover, enquiry must be empirical and not
merely an armchair speculation. Science denotes two types of systematic knowledge; natural or
exact and behavioral or inexact.

In exact or natural science (such as physics and chemistry) we can study the effect of any one of
many factors affecting a phenomenon.

For example, we can study in the laboratory, the effect of heat on density by holding other factors
(like humidity, pressure etc.) constant, whereas in behavioral or inexact science it is not possible.

Management is an art:

Management is the art of getting things done through others in dynamic situations. A manager has
to coordinate various resources against several constraints to achieve predetermined objectives in
the most efficient manner.

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Manager has to constantly analyze the existing situation, determine objectives, seek alternatives,
implement, and control and make decision.

Management uses both scientific knowledge and art in managing an organization.

As the science of management increases so should the art of management.

Management: A Profession

According to McFarland, “Profession” possesses the following characteristics:

a. Existence of an organized knowledge. Formalized method of acquiring training and

expertise.
b. Existence of professional association.
c. Existence of an ethical code to regulate the behavior.
d. Charging of fees based on service with due regard to social interest.

Management and Administration

The term administration and management are used synonymously.

Some writers urge that running of a business requires skills, which is known as management and
functioning of government departments and non-profit institutions requiring skill is known as
administration.

Various views expressed by thinkers of management led to the emergence of their approaches:

a. Administration is above management.

b. Administration is a part of management.
c. Management and administration are same.

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According to classical thinkers, Administration is above management so far different organization

is concerned. Administration deals with establishing objectives and policies and is done by the
top level whereas management is the execution of these policies by the middle and lower
organizational level.

There is a début among the writers for formulating the meaning between the management and
administration.

Group of writers Sheldon, Spriegal and Milward have made a statement on administration as

(1) The administration proposes a plans, policies and objectives and it is the top level of functioning.

(2) Management involves the “doing” (achieving) the plans made by administration and it’s a low
level of functioning.

(3) To perform both the management and administration no need of two separate persons a manager
performs both the activities for some time as administrative and rest time for managerial functions
as shown in figure.

(4) Figure shows that the top level peoples spend more time in administrative and as we move down
people spend more time in management.

Figure: Time Spend in administrative and managerial functions in different levels.

(1) According to EFL and others Management is broadly includes the administration.

(2) Brech termed management which includes planning, organizing, directing and controlling,
according to him Administration is a branch of management which includes only two functions
planning and controlling.
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Brech provided categories for management

Administrative management: An upper level of management.

Operative management: A lower level of management is titled as operative management.

According to Peter Drunker

The basic difference between management and administration is usage of words in different field.

Levels of management:
Two leaders may serve as managers within the same company but have very different titles and
purposes.

Large organizations, in particular, may break down management into different levels because so
many more people need to be managed.

Typical management levels fall into the following categories:

Top level:

a. Managers at this level ensure that major performance objectives are established and
accomplished. Common job titles for top managers include chief executive officer
(CEO), chief operating officer (COO), president, and vice president.
b. These senior managers are considered executives, responsible for the performance of
an organization as a whole or for one of its significant parts.

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c. When you think of a top-level manager, think of someone like Dave Thomas of the
fast-food franchise Wendy‘s.

Although John T. Schuessler was elected CEO in 2000, Dave Thomas is the founder and still the
chairman of the board. He is the well-known spokesperson for the chain.

Middle level:

a. Middle managers report to top managers and are in charge of relatively large departments
or divisions consisting of several smaller units.
b. Middle managers develop and implement action plans consistent with company
objectives, such as increasing market presence.

Low level:

a. The initial management job is a first-line management position, such as a team leader or
supervisor — a person in charge of smaller work units
b. Job titles for these first-line managers vary greatly, but include such designations as
department head, group leader, and unit leader.
c. They ensure that their work teams or units meet performance objectives, such as
producing a set number of items

Role of Management
Henry Mintzberg has defined the Role of managers to identify what managers do in the organizations.
Mintzberg has identified ten roles of manager which are classified into three broad categories as shown

Interpersonal role:

Concerned with his interacting with people both organizational members and outsiders. There are three
types of interpersonal roles:

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a. Figure head role: Manager has to perform duties of ceremonial nature such as, attending
marriages of the employees, taking an important customer to lunch.
b. Leader role: Manager’s leader role involves leading the subordinates motivating and encouraging
them.
c. Liaison (comm. between two groups): Manager serves as a connecting link between his
organization and outsiders.

Managers must cultivate contacts outside his vertical chain to collect information useful for his
organization.

Information roles: It involves communication. There are three types of informational roles:

a. Monitor: manager continuously collects information about all the factors which affects his
activities. Such factors may be within or outside organization.
b. Disseminator: manager possesses some of his privileged information to his subordinates. The
act of spreading, especially information, widely; circulation.
c. Spokesperson: As a spokesperson manager represents his organization while interacting with
outsiders like customers, suppliers, financers, government and other agencies of the society.

Decisional roles:

Decisional role involves choosing most appropriate alternative among all so that organizational
objectives. In his decisional role manager perform some roles:

a. Entrepreneur: As an entrepreneur, a manager assumes certain risks in terms of outcome of an

action. A manager constantly looks out for new ideas and seeks to improve his unit by adopting it
to dynamic environment.
b. Disturbance handler: In this role manager works like a fire-fighter manager contains forces and
events which disturb normal functioning of his organization. The forces and events may be
employee complaints and grievances, strikes, shortage of raw materials etc.
c. Negotiator: manager negotiates with various groups in the organization. Such groups are
employees, shareholders and other outside agencies.

Managerial Skills

(1) The individual ability to perform physical or mental task to obtain specified outcome.
(2) Skill set can be gained by practice or experience and translating the one’s knowledge into action.

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(3) The three skill set are essential to successfully finish his role, conceptual, human relation and
technical skill
(4) Conceptual Skills provides the information of the ideas.
(5) Human skill deals with the art of interacting with people.
(6) Technical skills deal with learning how to use the new machines of the industries.
(7) To make a good decision maker the conceptual and technical skills are needed.
(8) To become good leader the human skill is essential.
(9) Conceptual Skill :

Figure: Skill mix different management levels.

Management functions or Management Process

 Planning: Thinking of the manager’s action in advance. The actions of the managers are
based on logic, plan or some method rather than hunch.

 Organizing: coordinating machines, materials and human resources of the organization.

 Actuating: motivating, directing the subordinates.

 Controlling: manager must ensure that there are no deviations from plans.

Innovating:

 It’s not necessary for an organization to grow bigger but its required to constantly grow
better. That’s how innovation is an important aspect.

 Innovation means creating a new ideas which may improve a product, process or practice

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Representing

 A manager is also required to spend his time in representing his organization before various
outside groups which have some stakes in the organizations

 The manager must win their support by effectively managing the social impact.

Planning

INTRODUCTION:
The management functions as discussed earlier are planning, organizing, staffing, direction and
controlling. These functions are essential to achieve organizational objectives. If objectives are not set then there is
nothing to organize, direct and control. An organization has to specify what it has to achieve. Planning is related
with this aspect every person whether in business or not has framed a number of plans during his life. The plan
period may be short or long. One of the characteristic of human being is that he plans. Planning is the first and
foremost function of management.
According to Koontz and O’Donnel “Planning is deciding in advance what to do, how to do it, when to
do it and who is to do it. It bridges the gap from where we are and to where we want to go. It is in essence
the exercise of foresight”. According to M.S. Hardly “Planning is deciding in advance what is to be done. It
involves the selection of objectives, policies, procedures and programs from among alternatives.
The nature of planning may be understood in terms of it being a rational approach, open system, flexibility and
pervasiveness.
Nature of Planning:

Planning: A Rational Approach

Planning is a rational approach for defining where one stands, where one wants to go in future and how to reach
there. Rationalist denotes a manager chooses appropriate means for achieving the stated objectives rational
approach fills the gap between the current status and future status.
The difference between two time periods T1 and T2 may be as long as 5 years or as short as one year. The desired
and the current results are usually expressed in terms of objectives, which can be achieved by an action or set of
actions. The actions required resources and the rational approach emphasis an appropriate use of resources.

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Fig. 2.1: Planning for bridging current & desired
Management Entrepreneurship and Development 15ES51

Planning: An Open System Approach

An organization is an open system because it accepts inputs from the environment and exports output
to environment.

1. Planning adopt an open system approach.

2. Open system approach indicates that the gap between current and desired status and the action
required to bridge this gap is influenced by a variety of environmental economic, legal, political,
technological, socio-cultural and competitive factors.

These factors are dynamic and change with time. Therefore managers have to take into account the
dynamic features of environment while using open system approach.

Flexibility of Planning

By flexibility of a plan is meant its ability to change direction to adapt to changing situations without
undue cost. The plans must be flexible to adapt to changes InTechnology, market, and finance, personal and
organizational factors. However flexibility is possible only within limits, because it involves extra cost. Sometimes
the benefit of flexibility may not be worth the cost.

Pervasiveness of Planning

Planning is pervasive and it extends throughout the organization. Planning is the fundamental management
function and every manager irrespective of level, has planning function to perform within his particular area of
activities. Top managements are responsible for overall objectives and action of the organization. Therefore it must
plan what these objectives should be and how to achieve them.

Similarly a departmental head has to devise the objectives of his department within the organizational
objectives and also the methods to achieve them. Thus planning activity goes in hierarchy as shown in fig BELOW

Fig. 2.2: Planning at various levels

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IMPORTANCE OF PLANNING
Planning is of great importance in all types of organization whether business or no business, private or
public, mall or large. The organization which thinks much ahead about what it can do in future is likely to succeed
as compared to one which fails to-do so. Without planning, business decisions would become random, ad hoc
choices. Planning is important because of the following reasons.
(1) Primacy of planning: Planning is the first and foremost function of management, other functions follow
planning. What is not planned cannot be organized and controlled. Planning establishes the objectives and
all other functions are performed to achieve the objectives set by the planning process as shown in fig

Fig. 2.3: Primacy of planning

(2) To minimize risk and uncertainty: The organization continuously interacts with the external dynamic
environment where there is great amount of risk and uncertainty. In this changing dynamic environment
where social and economic conditions alter rapidly, planning helps the manager to cope up with and
prepare for changing environment. By using rational and fact based procedure for making decisions,
manager can reduce the risk and uncertainty.

(3) To focus attention on objectives: Planning focuses on organizational objectives and direction of action for
achieving these objectives. It helps managers to apply and coordinate all resources of the organization
effectively in achieving the objectives. The whole organization is forced to embrace identical goals and
collaborate in achieving them.
(4) To facilitate control: Planning sets the goals and develops plans to achieve them. These goals and plans
become the standards or benchmarks against which the actual performance can be measured. Control
involves the measurement of actual performance, comparing it with the standards and initiating to plans.
Hence control can be exercised if there are plans.

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(5) To increase organizational effectiveness: Effectiveness implies that the organization is able to achieve its
objectives within the given resources. The resources are put in a way which ensures maximum
contribution to the organizational objectives. Effectiveness leads to success.
TYPES OF PLANS

Vision
1. At the top of the hierarchy
2. This is the dream that an entrepreneur creates about the direction that his business should pursue in future.
3. It describes his aspirations, beliefs and values and shapes the organization’s strategy.

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Mission
1. This sets the unique aim of the organization that sets it apart from others of its type
2. To provide quality education through innovation in teaching to create technologically competent
engineers.
3. Achieve excellence in research and development to advance science and technology to the ever changing
needs of society.
4. To create outstanding professionals capable of working in multi cultural environment.
5. To produce quality engineers with high ethical standards and professionalism.

Objectives:
1. These are the goals of the organization which the management wishes the organization to achieve.
2. These are the end points or pole-star towards which all business activities like organizing, staffing,
directing and controlling are directed.
3. Objectives are different from purpose, For example Purpose of an organization is its primary role;
purpose of a university is to give education. So it’s a broad aim that applies to all organizations of that
kind.
4. Objectives are the specific targets to be reached by an organization.
5. They are the translation of the organization’s mission into concrete terms against which the results can
be measured. For example, a university may decide to admit a certain number of students.

Characteristics of Objectives
1. Objectives are multiple in numbers: Every business enterprise has a package of objectives set in various
key areas. Peter Drucker has emphasized setting objectives in eight key areas namely market standing,
innovation, productivity, physical and financial resources, profitability, manager performance and
development, worker performance and attitude, and public responsibility.
2. Objectives are tangible or intangible: Some of the objectives such as productivity, physical and financial
resources are tangible; whereas objectives in the areas of manager’s performance, workers morale is
completely intangible.
3. Objectives have a priority: At a given point of time one objective may be important than another. For
example maintaining minimum cash balance is important than due date of payment.
4. Objectives are generally arranged in hierarchy: It implies that organization has corporate objectives at
the top and divisional, departmental and sectional objectives at the lower level of organization.
5. Objectives some time clash with each other: An objective of one department may clash with the
objectives of other department. For example the objectives of production of low unit cost achievement
through mass production of low quality products may conflict with goal of sales department selling high
quality products.
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Requirements of Objectives:

1. Objectives must be clear:

The objectives must be clear and understandable amongst people and should be compatible with their
individual goals.

2. Objectives must support one another:

a. Objectives could interlock or interfere with one another which require the need for coordination and
balancing the activities of the entire organization,

Eg. Goals of the production dept. may be operating at cross purpose of those of marketing dept.

Advantages of Objectives
1. Unified planning: Various plans are prepared at various levels in the organization. These plans are
consistent with the objectives and hence objectives encourage unified planning.
2. Individual motivation: Objectives act as motivators for individual and departments.
3. Coordination: Objectives facilitate coordinated behavior of various groups which otherwise may pull
in different directions.
4. Control: Objectives provide yardstick for performance. The actual performance is compared with
standard performance and hence objectives facilitate control.
1. Basis for decentralization: Department-wise or section wise objectives are set in order to achieve
common objectives of the organization. These objectives provide basis for decentralization.

Strategies
‘Every organization has to develop plans logically from goals considering the environmental opportunities and
threats and the organizational strengths and weakness. A strategy is a plan which takes into these factors and
provides an optimal match between the firm and external environment. Two activities are involved in strategy
formulation namely environmental appraisal and corporate appraisal. Environmental appraisal involves identifying
and analysis of the following factors:

(1) Political and legal factors: Stability of government, taxation and licensing laws, fiscal policies,
restrictions on capital etc.
(2) Economic factors: Economic development, distribution of personal income, trend in prices, exchange
rates etc.,
(3) Competitive factors: Identifying principal competitors and analysis of their performance, anti-monopoly
laws, protection of patents, brand names etc.

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Standing Plans
• Policies: A policy is a general guideline for decision making. It sets up boundaries around decisions.
Policies channelize the thinking of the organization members so that it is consistent with the organizational
objectives. According to George R Terry “ Policy is a verbal, written or implied overall guide, setting up
boundaries that supply the general limits and directions in which managerial action will take place”.
Although policies deal with “how to do” the work, but do not dictate terms to subordinates. They only
provide framework within which decisions are to be made by the management in various areas.
Hence an organization may have recruitment policy, price policy, advertisement policy etc.,

Types of policies: Policies may be classified on the basis of sources, functions or organizational levels as shown in
fig below

Advantages of Policies: The advantages of policies are as follows:

(1) Policies ensure uniformity of action at various organization points which make actions more
predictable.
(2) Since the subordinates need not consult superiors, it speeds up decision.
(3) Policies make easier for the superior to delegate more and more authority to his subordinates because,
he knows that whatever decision the subordinates make will be within the boundaries of the policies.
(4) Policies give a practical shape to the objectives by directing the way in which predetermined
objectives are to be attained.

Procedures
Policies are carried out by means of more detailed guidelines called procedures. A procedure provides a
detailed set of instructions for performing a sequence of actions involved in doing a certain piece of work. A
procedure is a list of systematic steps for handling activities that occur regularly. The same steps are followed each
time that activity is performed. A streamlined, simplified and sound procedure helps to accelerate clerical work
without duplication and waste of efforts and other resources.

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Difference between policies and procedures can be explained by means of an example. A company may
adopt a policy of centralized recruitment and selection through labor department. The labor department may chalk
out the procedure of recruitment and selection. The procedure may consist of several steps like inviting application,
preliminary interview aptitude and other tests, final interview, medical examination and issue of appointment
orders. The following are advantages of procedures.
1. They indicate a standard way of performing a task.
2. They result in simplification and elimination of waste.
3. Procedure improves the efficiency of employees.
4. Procedure serves as a tool of control by enabling managers to evaluate the performance of their
subordinates.

Methods
A method is a prescribed way in which one step of procedure is to be performed. A method is thus a
component part of procedure. It means an established manner of doing an operation. Medical examination is a part
of recruitment and selection procedure, method indicate the manner of conducting medical examination.

Methods help in increasing the effectiveness and usefulness of procedures. By improving methods,
reduced fatigue, better productivity and lower costs can be achieved. Methods can be improved by eliminating
wastes by conducting “motion study”.

Rules
The rules are the simplest and most specific type of standing plans. Every organization attempts to operate
in an orderly way by laying down certain rules.
1. Rules are detailed and recorded instructions that a specific action must or must not be performed in a given
situation. Rules are more rigid than policies.
2. Rules generally pertain to the administrative area of a procedure. For example sanctioning overtime wages to
workers, sanctioning traveling bills etc., need uniform way of handling them.
These are all covered by rules f the enterprises. A rule may not be part of procedure. For example‘no smoking’
is not related to any procedure.
3. Rules demand strict compliance. Their violation is generally associated with some sort of disciplinary action.

Single Use Plans

Programme
1. A program is a sequence of activities directed towards the achievement of certain objectives. A program is
action based and result oriented. A program lays down the definite steps which will be taken to accomplish a
given task. It also lays down the time to be taken for completion of each step.

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2. The essential ingredients of every program are time phasing and budgeting. This means that specific dates
should be laid down for the completion of each successive stage of program. In addition a provision should be
made in the budget for financing the program.
3. A program might include such general activity as purchasing new machines or introducing new product in the
market. Thus a program is a complex of objective, policies, procedures, task assignments, steps to be taken,
resources to be employed and other elements to carry out a given course of action.

Budgets
1. A budget is a single use plan since it is drafted for a particular period of time. A budget is a statement of
expected results expressed in quantitative terms i.e. rupees, man hours, product units etc. Since it is a
statement of expected results, it is also used as an instrument of managerial control.
2. It provides a standard by which actual operations can be measured and variation could be controlled. One
should not forget that making budget is clearly planning. The important budgets are sales

STEPS IN PLANNING
The planning process is different from one plan to another and one organization to another. The steps generally
involved in planning are as follows:
(1) Establishing goals/objectives: The first step in planning process is to determine the enterprise
objectives. These are set by upper level managers after number of objectives has been carefully
considered. The objective set depends on the number of factors like mission of the organization,
abilities of the organization etc., once the organizations objectives are determined, the section wise or
department wise objectives are planned at the lower level. Defining the objectives of every department
is a very essential one; then only clear cut direction is available to the departments. Control process is
very easy if the objectives are clearly defined.
(2) Establishing planning premises: This is the second step in planning which involves establishing
planning premises that is the conditions under which planning activities will be undertaken. Planning
premises are planning assumptions—the expected environmental factors, pertinent facts and
information relating to the future such as general economic conditions, population trends, competitive
behavior etc.
The planning premises can be classified as below:
a. Internal and External premises.
b. Tangible and Intangible premises.
c. Controllable and non-controllable premises.
(3) Deciding the planning period: Once the long term objectives and planning premises are decided, the -
next task is to decide the period of the plan. Some plans are made for a year and in others it will be
decades. Companies generally base their period on a future that can reasonably be anticipated. The
factors which influence the choice of a period are:
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a. Lead time in development and commercialization of a new product: An aircraft building

company planning to start a new project should have a planning period of five to ten years
where as a small manufacturer of spare parts who can commercialize his idea in a year or
so makes annual plans.
b. Time required for recovering capital investment or the payback period: The payback
period also influence the planning period. For example, if a machine costs 50 lakhs and
generates cash inflow of Rs. 10 lakhs a year, it has a payback period of 5 years. Therefore
the plans should also be for at least five years.
c. Length of commitment already made: The plan period should be long enough to enable the
fulfillment of already made commitments. For example if a company has agreed to supply
goods for five years, it needs to plan for the same period to fulfill its commitments.
(4) Identification of alternatives: The fourth step in planning is identifying alternatives. A particular
objective can be achieved through various actions. For example an organization’s objective is to grow
further which can be achieved in several ways like expanding in the same field of business or product
line, diversifying in other areas, joining hands with other organization and so on. With each category
there may be several alternatives. For example, diversification may point out the possibility of entering
into one of the several fields.
(5) Evaluation and selection of alternative: Once the alternatives are identified the next step is to
evaluate the alternatives in the light of the premises and goals and to select the best course or courses
of action. This is done with the help of quantitative techniques and operations research. In addition
software packages are available for evaluating alternatives.
(6) Developing derivative/supportive plans: Once the plan is selected, various plans are derived so as it
support the main plan. The derivative may be planning for buying equipments, buying raw material
etc. These derivative plans are formulated out of the main plan and therefore, they support.
(7) Measuring and controlling the process: One should not allow plan to run on its own without
monitoring its progress. Managers need to check the progress of their plans so that remedial action can
be taken to make plan work or change the plan if it is unrealistic. Hence process of controlling is a part
of any plan.
Limitations of Planning

(1) Planning is the expensive and time consuming process which needs money, risk, energy
but these doesn’t give an assurance that it achieves the objectives of organization and
smaller organization doesn’t afford this.
(2) Occasionally the planning restricts the ideas of some managers and forces to follow the
plans. During in the emergency conditions in makes a delay in taking the decision, they
may be restricted by rules of planning.

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Management Entrepreneurship and Development 15ES51

(3) For the organization whose situations changes rapidly the planning doesn’t holds good.
Example: Industries like fashion cloths, printing industries. During these cases working on
day-today basic is better than planned basis.
(4) Advance plans makes the administration inflexible during the cases of business recession,
crop failure, change in rules, the original(previous) plans are useless need to draft a new
plans but in more cases the it becomes tendency to stick to original plan.
(5) Difficulty in formulating the accurate property. Since the future is unpredictable property
can be subjected to margin of error.
(6) Planning may sometimes face people’s resistance to it. Well established institution’s
managers are unwilling to establish the new plans.

Decision Making
Decision-making is an essential part of modern management. Whatever a manager does he does by making
decisions. A manager makes hundreds of decisions consciously or subconsciously every day. Decisions are made
by the managers and actions are taken by others. Major decisions are taken carefully and consciously by the
application of human judgment and experience where as minor decisions are made almost subconsciously using
rules.
Decision-making permeates through all managerial functions namely planning, organizing, staffing,
directing and control. In planning for example manager decides what to produce, where and when etc., and in
organizing manager decides about division of work, delegating authority and fixing responsibility. Decision-
making’s commitment to something, a point of view, a principle or course of action. It is selecting the best among
alternative courses of action. The decision-making has the following factors.
a. Decision-making implies that there are various alternatives and the most desirable alternative is chosen
to solve the problem.
b. Existence of alternatives suggests that the decision-maker has freedom to choose an alternative of his
liking.
c. Decision-making like any other managerial process is goal oriented. It implies that the decision maker
attempts to achieve some results through decision making.
Types of Decisions:
Decisions are classified in a number of ways as below:
1) Programmed and non-programmed decisions: Programmed decisions are those that are made in
accordance to policy, procedure and rules. These decisions are routine and repetitive and programmed
decision are relatively easy to make.
i. For example determining salary payment to the workers who have been ill, offering discounts for
regular customers etc. are programmed decision.

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Management Entrepreneurship and Development 15ES51

ii. Non-programmed decisions are novel and non-repetitive. If a problem has not arisen before or if
there is no clear cut method for handling it, it must be handled by non-programmed decision.
iii. For example what to do about a failing product line is a non-programmed decision because no
definite procedure exists for it. For programmed decision clear cut rules exists and hence it is not
possible for two persons to reach different solutions to the some problem.
iv. In case of non-programmed decision there are no clear cut rules for handling the problem, each
manager may bring his own personal beliefs, attitudes and judgments to bear on the decision, it is
possible for two managers to arrive at distinctly different solutions to the same problem. For
manager at higher level this ability to make non-programmed decisions becomes important.
2) Major and minor decisions: The decisions which have their impact for long-period or which have impact
on other departments are known as major decision. On the other hand decisions which does not have long
term effect or affecting one department are known as minor decisions, diversification of existing product
lines, adopting new technology are the major decisions. The decision to procure raw materials is a minor
decision, Major decisions are made at higher level and minor decisions are taken at lower level in the
organizational hierarchy.
3) Simple and complex decisions: If very few variables are to be considered for solving a problem the
decision is sample. If the variables are many, then it is a complex decision.
4) Strategic and tactical or operational decisions: Strategic decision is a major choice of actions concerning
allocation of resources and contribution to the achievement of organizational objectives. Strategic
decisions are major and non-programmed decisions having long term impact. A strategic decision may
involve major departure from earlier ones. For example change in the product mix. Strategic decisions are
made by the higher level managers. Tactical or operational decision is derived out of strategic decision. It
relates to day-to-day working of the organization and is made in the context of well set policies and
procedures. Decisions relating to provisions of air conditioning, parking facilities are operational
decisions. These decisions are made at the lower level of the organization.
5) Individual and group decisions: Decision may be taken either by an individual or group. Decisions which
are routine in nature, with few variables and definite procedures exists to deal with them are taken by
individuals. On the other hand decisions which have their impact on other departments, which may result
into some changes in the organization, are generally taken by groups.

Decision Making Process: Steps in Rational Decision Making

A decision is rational if appropriate means are chosen to reach the desired end. The following steps are involved in
the process decision making.
(1) Recognizing the problem.
(2) Deciding priorities among the problems.
(3) Diagnosing the problem.
(4) Developing alternative solutions or courses of activities.
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Management Entrepreneurship and Development 15ES51

(5) Evaluating alternatives.

(6) Converting the decision into effective action and follow up of action.
1) Recognizing the problem: When a manager makes a decision it is in effect the organization’s response to a
problem. Hence it is necessary to search the environment for the existence of a problem. A problem is said
to exist;
a. When there is deviation from past experience. For example the present year’s sales are lower than
previous year, the expenses are more than previous years etc.,
b. When there is deviation from plan. For example sales are lower than anticipated, expenses are more
than pected etc.,
c. When competitors outperform. For example other companies manufacture the goods of same quality at
lower costs.
d. When people bring problems to the manager, For example workers may complain about poor
ventilation.
2) Deciding priorities among problems: A manager might have identified a number of problems. All these
problems vary in their importance. He may find that some of the problems are such that they can be solved
by their subordinates because they are closest to them. All such problems should be passed on to them.
Some problems may need information available only at higher level or affecting other departments. Such
problems are referred to higher level managers. And those problems which can be best solved by him are
to be focused.
3) Diagnosing the problems: Symptoms of the problem that are observed by the manager may sometimes
mislead him. The symptom may lead manager to suspect one part when the defect may lie hidden in
another part. For example if there is decline in sales, the management may think that the problem is one of
poor selling procedure or the saturation of the old market. But the real problem may be inability to move
quickly to meet changing needs of the customers. For diagnosing the problem a manager should follow the
systems approach. He should study all the sub-parts of his organization that he can modify or alter his
decision at the earliest opportunity.
4) Developing alternative solutions or courses of action: A problem can be solved in several ways; however
all the ways cannot be equally satisfying. If there is only one way of solving a problem, then no question of
decision arises. Therefore decision maker must identify various alternatives available in order to get most
satisfactory result of a decision. It should also be borne in mind that it is not possible to consider all
alternatives either because information about all alternatives may not be available or some of the
alternatives cannot be considered because of limitations. Hence while developing alternatives; the concept
of limiting factor should be applied. Limiting factor is one which stands in the way of accomplishing a
desired objective. For example, if an organization has limitation in raising sizable finance, it cannot
consider projects involving high investment.

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Management Entrepreneurship and Development 15ES51

5) Measuring and comparing consequences of the alternative solution: Once various alternatives are
developed, the next step is to measure and compare their consequences of alternatives using quality and
acceptability. The quality of a decision must be determined considering both tangible and intangible
consequences. Tangible consequences are those which can be quantitatively measured or mathematically
demonstrated. For example the one can calculate the installing and running costs of two types of air
conditioners. Intangible consequences cannot be measured quantitatively. For example the effect of good
labor relationship in one location cannot be compared with the local taxes in another location.
Converting the decision into effective action and follow up of action: This step involves communication of
decisions to the employees. Decision must be communicated in clear and unambiguous terms. All necessary efforts
should be made to secure employees participation in some stages of decision making. Association of employees in
decision making not only enhance the acceptability, but also improves the quality of decision. Sometimes due to
non-availability of data, a manager may not take correct decision. As a safeguard against incorrect decision, the
manager while converting a decision into effective action should institute a system of follow-up so that he can
modify or alter his decision at the earliest opportunity.

Difference between the strategic and tactical(operational) planning

Assignment questions
1. Define management and write the various characteristics of management.
2. Explain various functions of management and various levels of management?
3. Explain the five principles of management as formulated by Fayal and skills required by
manager at various levels of management?
4. Explain the functional areas of management?
5. Define planning and discuss the importance of planning?
6. Explain the steps and types of planning?
7. What is profession and administration management ?
8. What is decision making and explain he different types of decision making?
9. Explain characteristics of planning and importance of planning?
10. Differentiate between administration and management. Differentiate between management as
science and management as art?
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 Department of Electronics and Communication
Engineering

Module 2
Organizing and Staffing.

Prof. Amogha B,
Dept. of EC&E,
JIT, Davangere.

Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG. 1

 Module-2

Introduction (What is organization)

There is no exact definition for the organization; various authors have suggested their views regarding the organization.
According to the

Amitai Etzioni “An Organization is a Social Unit or Human Grouping, deliberately structured for the purpose of
attaining Specific Goals.”

Sehein defines as the rational co-ordination of the activities of a number of people for the achievement of common
explicit purpose or goal through division of labour and functions through hierarchy of authority.

Examples for the organization are college, school, hospital, temples.

Friends and the group of friends never make the organization because they do not involve any significant amount of
conscious planning or deliberate structuring.

Characteristics of Organization

• Purpose or goals are listed in the planning.

• Clear concept and duties to respective departments are listed in planning.

• Classification of activities into jobs.

• Establishment of relationship with employee.

Process of Organization

• Designing a organization structure.

• Organization functions which includes manager activities for differentiation and integration.

• Differentiate- making segmentation based on the similar tasks performed.

• Integrity- achieving the unity among every department.

Steps for Process of Organizing

– Consideration of objectives:
a) Finding the activities for the organization is the first and most important step.
b) Based on the activities the type of the organization is chosen.
c) Example based on the activities the machines or structure of the machines changes.
– Deciding organizational boundaries
a) Framing the rules to the department based on the activities performed in the industries or organizations
b) The rules includes of behavior of the employee with the outside world i.e. the company’s private data should
be properly secured.
c) Example: Interaction of clients directly with technical persons.
– Grouping of activities into departments
a) All the units which work for one cause are made as one department. Example: Production units and marketing
are interlinked.
b) The production and storing units are interdependent hence the manager of the unit should take care about the
traffic which is due to movement of the goods, storage issues etc.

Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG. 2

 – Deciding which department should be key department
a) Prioritize the units in order to meet the objectives of the organization.
b) The major activity unit are chosen because there is a need of survival of organization hence other units are
ignored.
c) Based on the requirements the companies make a separate group of people or few persons in a group for
specific task. Example : Most of the companies focus on advertising ( a separate groups will work), some
companies focuses on marketing ( a small unit is made for advertising inside a marketing dept.).
– Determining levels at which various types of decisions are to be made
a) After making the department as per the activities a set of rules should be made to take the proper actions.
b) During worst conditions the intense centralized or de-centralized based rules may fail to take proper action
hence a balanced rules establishment is essential.
– Determining the span of management
a) The number of co-workers allotted to each of the manger should be less.
b) Flat structure is preferred by the organizations instead of paying the more salary to the executives.
– Setting up a co-ordination mechanism
a) The co-ordination between the employees are essential by managing the smoother relationship between the
co-workers and employees.

Principles of Organization

In order to have perfect working of the organization the structure of it should be properly maintained, hence a certain
principles are essential to achieve it which are as follows

Objectives:
• The objectives of the enterprise influence the organization structure and hence the objectives of the enterprise
should first be clearly defined.
• Then every part of the organization should be geared to the achievement of these objectives.
Specialization:
• Effective organization must promote specialization.
• The activities of the enterprise should be divided according to functions and assigned to persons according to their
specialization.

Span of control:
• As there is a limit to the number of persons that can be supervised effectively by one boss, the effective span of
control should be minimum.
• That means, an executive should be asked to supervise a reasonable number of subordinates only.

Exception :
• As the executives at the higher levels have limited time, only exceptionally complex problems should be referred
and routine matters should be dealt with by the subordinates at lower levels.
• This will enable the executives at higher levels to devote time to more important and crucial issues.

Scalar Principle:
• Also known as the “chain of command”.
• The order of authority from the chief executive at the top to the first-line supervisor at the bottom.

Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG. 3

Unity of command:
• Each subordinate should have only one superior whose command he has to obey.
• Multiple-subordination must be avoided for it causes Uneasiness, disorder, indiscipline and undermining of
authority.
• Delegation( assignment of authority):
• Proper authority should be delegated to the lower levels of manager
• The authority delegated should be equal to responsibility
• That is each manager should have enough authority to accomplish the task assigned to him

Balance:
• There should be a reasonable balance in the
• Size of various departments,
• Between centralization and decentralization,
• Between the principle of span of control and the short chain of command, and
• Among all types of factors such as human, technical and financial.
• Unity of direction:
• There should be one objective and one plan for a group of activities having the same objective.
• Unity of direction facilitates unification and coordination of activities at various levels.

Personal Ability:
• As people constitute an organization, there is need for proper selection, placement and training of staff
• . Further the organization structure must ensure optimum use of human resources and encourage management
development programmes.
Acceptability:
• The structure of the organization should be acceptable to the people who constitute it.
• Two things generally happen if people oppose the structure
• It is modified gradually by the people, or
• It is used ineffectively.
Span of Management
Meaning and importance
Span of management is also called as span of control, span of supervision, span of authority and span of
responsibility.
It provides the number of sub-ordinates who reports progress of the plant directly to the manager.
Two Reasons
1. Effects the effective utilization and performance of the manager and their sub-ordinates.
2. Creates the miscommunication between the sub-ordinates because of more number of divisions in the
management levels.
The figure illustrates the picture of the sub-ordinates ratio with the manager
Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG. 4
Factors affecting the span of management

A continuous approach to attain the problems which are generated in the industries which are listed below,
1. Ability of the manager
a) Some of the managers are well qualified, has a good knowledge, attention as compared to other
managers in the industries or organizations hence these kinds of mangers can handle more number of
sub-ordinates.
b) The manager’s average ability are considered in the span of management or planning.
2. Ability of the Employee
a) Some of the employee are punctual performs their work without the supervision of the managers.
b) On the other hand some employee needs more attention for working which will reduce the span of
management.
3. Type of work
a) The span of management is larger during the case of employee doing the similar jobs and small span is essential if
job performed are different.
b) Example are like, the woodchoppers supervisory can handle any number of labours as they are under a
single roof. If the same supervisor need to look-after the warehouse and the wood chopping machines
then the number of labours whom to be supervised should be less.
4. Well defined Authority and responsibility

Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG. 5

 a) During the case of proper plans, policies, responsibilities are circulated to each and every employee
there will be no need of frequent visit of sub-ordinates to the higher officers to get the guidelines for the
problem.
b) Helps in managing the large number of subordinates if only if possessing the correct structure of the
organization.
5. Geo-graphic Location
a) An manager can manage the twenty five sub-ordinates if their working area belongs to one place.
b) With the different working locations the mangers finds difficult to supervise their operations.
6. Sophisticated Information and control system
a) This factor helps to control the subordinates by detecting the deviations in the plan at earlier rate using the
sophisticated methods and technology.
b) A keen supervision is essential to succeed during these kinds of situation.
7. Level of Management
a) Span of management changes as the level of managerial working changes
b) As per the GERALD made a managerial hierarchy into four levels
I. Super managers: these kinds of managers involve in broad policy controlling rather than direct
involvement in controlling the sub-ordinates of about 50.
II. General managers: these kinds of managers posses a sub-ordinates of around 12 to 15 and posses
a close relationship with them.
III. Middle managers: These managerial functions depend on the precise of mix of executive and
operative supervision. Controls the sub-ordinates in an around 50
IV. Supervisors: A routine work supervision is provided to managers of this level who can able to
control 100 sub-ordinates in an average.
8. Economic Consideration
a) Economic condition is also depends on span, as explained above if they posses lesser number of sub-
ordinates the level of risk will be more and hence salary provided also increases.
b) There should be economic balance should be managed while making the span of control as it directly
reflects on the amount of salary they demands.

Departmentalization
Definition:
• The horizontal differentiation of tasks or activities into discrete segments is called departmentalization.
• Departmentalization is one important step of building an organization.

Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG. 6

 • There are several bases for departmentalization, each of which is suitable for particular corporate sizes,
strategies and purposes.
Process Departmentalization
• There are two widely used and internally oriented arrangements for dividing work by process
• Functions:
• The most widely used base for departmentalization is function.
• Each major function of the enterprise is grouped into a department.
• It leads to improved planning and control of the key functions.
• It ensures economy, there is only one department related to one function for the entire function.
• Manpower and Other resources of the company are effectively utilized by time-sharing then across
products or projects.

Drawbacks
• It fosters sub-goal loyalties. It is difficult for anyone to understand the task of the whole and to relate his
own work to it.
• Each manager thinks only in terms of his own departmental goals and does not think in terms of the
company as a whole.
• Example: the manufacturing department may concentrate on meeting cost standards and delivery dates,
and neglect quality control
• Does not offer a good training ground for the overall development of manager who gains expertise in
handling problems of his particular department only .
• Result: the sales or marketing department may be flooded with complaints lead to inter-departmental
conflicts and disagreements, feuds, misunderstandings etc.
• Unsuitable for organizations which are large in size, complexity or innovative scope.

Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG. 7

 • In this form the customer needs evoke conflicting interpretations from each department head like the
story of twelve blind people and an elephant.
• In this form the procedures are overly complicated, wasteful and time consuming - a weakness called
organizational arthritis develops where the structure is rigid and resists adaptation.
• It is difficult to judge whether the activities of a particular department are worth their cost.
Technology

• On the basis of discrete stages or technologies involve in manufacturing the product.

• Eg. Vegetable oil involves crushing, refining, finishing.

Advantages
• It facilitates the use of heavy and costlier equipments in an efficient manner.
• Follows the principle of specialization.
• Suitable in org. where the production process involve the various stages.
• These externally orient ways in which work can be departmentalized
• Products:
• Eminently suited for large organization manufacturing a variety of products.
• For each major product a separate semi autonomous department is created and is put under the charge of
a manager.
• For each department, all the needed manufacturing, engineering, marketing, manpower and other
facilities are assembled.
• Product departmentalization is the logical pattern to be followed when each product requires
• raw materials,
• manufacturing technology and
• Marketing methods.
• Example: many companies like Hindustan Lever, Richardson Hindustan and Johnson & Johnson have
product based departments.
• Customers
• Division of department on the basis of customers
• E.g. Electronics firm has different departments for military, industry and consumer customers.
• Advantage is that full attention for major customer group.
• Disadvantage is that, under utilization of some departments.
• Regions, Territory or Location
• Units of the organization are geographically dispersed in various location.
Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG. 8
 • E.g. Chain of hotels.
Purpose Departmentalization
These externally orient ways in which work can be departmentalized
1. Products:
• Eminently suited for large organization manufacturing a variety of products.
• For each major product a separate semi autonomous department is created and is put under the charge of
a manager.
• For each department, all the needed manufacturing, engineering, marketing, manpower and other
facilities are assembled.
2. Customers
• Division of department on the basis of customers
• Eg. Electronics firm has different departments for military, industry and consumer customers.
• Advantage is that full attention for major customer group.
• Disadvantage is that , under utilization of some departments.
3. Regions, Territory or Location
• Units of the organization are geographically dispersed in various locations.
Advantages.
• Motivates the regional heads.
• Provides the regional head to adopt the local situations.
• Enable the organization to take advantage of location factors , such as availability of raw materials.
• Enables the organization to compare the performance .
Disadvantages.
• Give rise to duplicate of various activities.
• Various regional units may become so engaged in short run competitions among them and forget the
overall goal
4. Division
• Large multi product companies segment themselves into several independent profit centers on the
basis of product, territory, or customer , these units are called DIVISIONS .
• Example the companies like wipre and L&T has a different structure for manufacturing units.
5. Time
• In departmentalization by time, activities are grouped on the basis of timing of their performance .
• Eg. Small machine shop grows in size , its owner has the choice of either adding extra shifts or renting
two more shops

Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG. 9

 • Generally the timing is found in production function of the enterprises

COMMITTEES
• A committee is a group of people who have been formally assigned some task or some problem for their
decision and implementation.
• Classification of committees:
• Advisory committees and
• Executive committees.
• Advisory committees:
• Committees are vested with staff authority.
• Only have a recommendation role and cannot enforce implementation of their advice or
recommendation.
• Examples of advisory committees formed in business enterprises: works committees, sales committees,
finance committees etc.

Executive committees:
• Vested with the line of authority
• Not only take decisions but also enforce decisions and
• Thus perform a double role of taking a decision and ordering its execution.
• Example: Board of directors is an example of an executive committee.
• Committees are also classified as standing committees or ad-hoc task forces.

Standing committees
• Are formed to deal with current organizational problem.
• Example: finance committee in a company, loan approval committee in a bank etc.
• Members of this committee are chosen because of their title or position, instead of individual
qualifications or skills.

Ad-hoc committees:
• Have a short duration, dissolved after the task is over, or the problem is solved and their members are
chosen for their skills and experience.

Advantages:
• People get an opportunity to better understand each other’s problems and move towards organizational
goals.
• Provide a forum for the pooling of knowledge and experience
Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG.
10
 • Provide an opportunity to many people to participate in decision-making process.
• Are excellent means of transmitting information and ideas, both upward and downward
• Contribute indirectly to their training and viewpoints.
• Are impersonal inaction and hence their decisions are generally unbiased.
• Based on facts and there is no fear of single individual taking a decision.

Weaknesses
• Committees waste hours by setting up a committee which takes a longer time to get action than from an
individual manager.
• If wrong decision taken, no member can be individually blamed which encourages irresponsibility
among members of the committee.
• Can be expensive form of administration where huge amount is spent on convening meetings and giving
allowances to the members.
• Decisions are generally based on some compromise among members which are not best decisions which
results in log rolling.
• Consists of large number of persons, difficult to maintain secrecy.
• As the Chairman of a committee often changes, influence accumulate in the hands of persons who may
dominate the committee.

Authority and Responsibility:

Authority
• Is the institutionalized right of a superior to command and compel his subordinates to perform a certain
act.
• Rests in the chair or position.
• If position changes, the authority of the individual also changes.

Use of authority:
• It enforces the obedience to norms:
• The subordinate who accepts the authority of the superior is motivated to an extent that by the fear of
sanctions against him.
• Secures expertise in making the decisions: Helps to enable the enforcement and execution of expert
advice given by the specialists in the organization.
• Permits centralization of decision making and coordination of activity: It is possible to centralize
the function of decision making and force all the members to take mutually consistent decisions.

Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG.

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Responsibility
• Responsibility is the obligation of a subordinate to obey these commands.
• Whenever a superior assigns a task to him, it is the responsibility of the subordinate to perform it.
• Has two dimensions
• Responsibility for
• Responsibility to
• Responsibility for: Is the obligation of a person to perform certain duties in job description or accepted
by him
• Responsibility to: is his accountability to superiors and associated with check up, supervision, control
and punishment.
• Responsibility cannot be delegated or transferred.
• The superior can delegate to subordinate the authority to perform and accomplish a specific job.

Decentralization of authority
• The delegation of authority by an individual manager is closely related to the organization’s
decentralization of authority.
• Management has to decide the amount of decision-making authority should be centralized in the hands
of the chief executive and
• The amount to be distributed among them at lower levels
• In centralization: decision making is in few hands.
• In decentralization: its delegated to the levels where the work is to be performed.
• Ernest dale’s 4 criteria to measure decentralization
• The greater the decentralization
• The greater is the number of decisions made at the lower levels.
• The greater are the important decisions made at the lower levels.
• The greater is the number of decisions made at the lower levels.
• The fewer are the people to be consulted at the lower level and lesser is the checking required on the
decisions made at the lower levels.
Centralization versus decentralization
• A centralized organization systematically works to concentrate authority at the upper levels.
In a decentralized organization, management consciously attempts to spread authority to the lower organization
levels.

Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG.

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STAFFING
• The process of recruiting, retaining, developing and nurturing the workforce is called staffing.

Advantages
• It helps in discovering talented and competent workers and developing them to move up the corporate
ladder.
• Ensures greater production by putting the right man in the right job.
• It helps to avoid a sudden disruption of an enterprises production run by indicating shortages of personal
if any in advance.
• Helps to prevent underutilization of personnel through over manning and the resultant high labour cost
and low profit margins.
• Provides information to management for the internal succession of managerial personnel in the event of
unanticipated (unexpected) turnover.

Recruitment
• It is defined as the process of identifying the sources for prospective candidates and to stimulate them to
apply for the jobs.
• Is also defined as the generating of the applications or applicants for specific positions.
• Is defined as the process of attracting potential employees to the company.
• The management should have a proper plan of recruitment regarding the quantity and quality of
personnel required and the time when it is needed.

Sources of requirement:
• Broadly classified into two categories.
• Internal
• External
• Internal sources refer to the present working force of the company.
• vacancies other than the at the lowest level may be filled by the existing employees of the company.
• About more commonly used external sources of recruitment are:
• Re-employing former employees: laid off employees or employees left due to personal reasons may be
reemployed who may require less training compared to the strangers of the enterprise.
• Friends and relatives of the present employees: personnel with a record of good relationships may be
encouraged to recommend their friends and relatives for
• Appointment in the concern where they are employed.
Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG.
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 • Applicants at the gate:
• Suitable unemployed employees who call at the gates of the factories or companies are called for
interviewed by the factory or company personnel .
• Those who are found suitable for the existing vacancies are selected.
• 4. College and technical institutes:
• Many big companies remain in touch with the colleges and technical institutions to recruit young and
talented personnel.
• 5. Employment exchanges:
• Employment exchange set up by the government for bringing together those men who are in search of
the employment.
• These who are in search of employment and those who are looking for men.
• Employment exchanges are considered a useful source for the recruitment of clerks, accountants, typists.
• Advertising the vacancy:
• Advertising the vacancy in leading news papers which may be used when the company requires services
of persons possessing certain special skills or when there is acute shortage of labour force.
• Labor unions:
• Persons are sometimes recommended for appointment by their labour unions.
Steps in the selection procedure:
• There are three steps in the selection procedure namely job analysis, job description and job
specification.
1. Job analysis:
• Is the process by means of which a description is developed of the present methods and procedures of
• Doing a job,
• Physical conditions in which the job is done,
• Relation of the job to other jobs and other conditions of employment

2. Job description:
• The results of the job analysis are set down in job descriptions for production workers, clerical people
and the first-line supervisors and managers also.

3. Job specification
• A job specification is a statement of the minimum acceptable human qualities necessary to perform a
job satisfactorily.
• Commonly used selection procedure steps.
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4. Trade or performance achievement test:
• This test is used to measure the candidate’s level of knowledge and skill in the particular trade or
occupation in which all he will be appointed,
• In case he is finally selected. In this test the candidate is asked to do a simple operation of the proposed
job.
• Example: a candidate for a driver may be asked to drive to test his driving proficiency, a typist may be
asked to type out some letters to find out his speed and efficiency.
5. Checking references:
• Used to know about the important personal details about the candidate, his character, past history his
background verified from the people mentioned in the application after selection and found satisfactory
at the interview.
6. Physical or Medical examination:
• To check the physical fitness of the applicant for the job applied for

Directing and Controlling

Definition of Direction: Direction consists of the process and techniques utilized in issuing instructions and making
certain that operations are carried on as originally planned

or

It is the interpersonal aspects of managing by which subordinates are led to understand and contribute effectively and
efficiently to the attainment of enterprise objectives.

Introduction
Directing is a key managerial function to be performed by the manager along with Planning Organizing Staffing and
Controlling

It takes place wherever the superior and sub-ordinates are existed.

Directing is a continuous process initiated at top level and flows to the bottom through organizational hierarchy.

Requirements of Effective Direction

Direction is the complex functions of the management which needs more experience to get it through, some are listed
below

1. Harmony of Objectives
 The performance of organization is efficient when employee fulfill the harmony (rules) with an
complementary (combine) to the goals of organization.
 The person who directs the sub-ordinates should be in such a way that he should motivate a employee to
motivates to achieve group goals.

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  The motivation should be in proper way for ex: if the director tells the employee to work hard to
increase the profit level normally no human beings won’t do it instead of it if director provides the
bonus, extra salary he/her starts to work hard on his/her own interest.
 The personal and organizational goals should be achieved through motivation.
2. Unity of Command
 These principle stats that the employees should get the orders from higher authority itself.
 The violation of the orders often leads to conflict, decrease in the faith of the employee and their
responsibility.
 Reasons for not violating the passed rules are the immediate boss is the only person who knows best
about the nature of his sub-ordinates and about their responses to motivate with different techniques.
 Director alone takes the decision which provides the huge results, the outsiders are rusticated to make
the decisions.
3. Direct Supervision
 Face to face supervision with the employee is the first and foremost thing followed by good supervisors.
 It increases the loyalty, morality of employee.
 Employees get the immediate feedback about their performance.
4. Efficient Communication
 Communication is the key because supervisor gives orders, allocates jobs, explain duties and tell their
performance.
 Communication is a two-way process, the supervisor understands how employee feels about new rules
but employees should also think about the company
 Understanding is essential in communication rather than a content present in it.
 How much information is correctly understood by the sub-ordinates is more important than what is said
and how it. This can be ensured through proper feedback from the employee.
5. Follow-Through
 Direction is not only telling sub-ordinates what they should do but also follow up whether they are in
pre-determined plan or not.
 The manager is going to keep a record of the performance of sub-ordinates for not to check the activities
but also to help them to come out of their deficiency and if any improvements are needed those are been
made.

Giving Orders
 Orders are used by the line mangers to control their immediate sub-ordinates to start, stop or modify the
task.
 Staff executive is not having authority to provide the orders and some people feels like giving orders and
obeying the same is a easy task but it has difficult ways.
Some of the principles need to followed while passing orders listed below (According to Mary Parker Follett)

 The necessary changes in attitude should be made in accordance with the orders need to pass. A care
should be taken that orders ensure that it satisfies every employee habits because people obey the orders
if it matches their habitats.
 In order get a long- distance orders from the customer a face to face suggestions are essential.
 An order should be depersonalized and a proper answers should be given to particular questions. Hence
the role of the manager is to convey a message to employees based on the situation ( problems, strikes).
According to Chester Barnard Lays

 Orders should be clear and complete

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  Order should be compactable with the purpose of the organization.
 Order should be compatible with the employee’s personal interest
 Order should be operationally feasible.

Orders can be given orally or in written format, we prefer written orders during the below cases

 When the subject is very important

 Many details are involved
 The order provider and receiver may be from different geo-graphical locations.
Managers follow four methods to pass the orders

 Force: ex: “Do what I say” the employee is punished if he doesn’t follow the rule passed and result of
this is very bad, the employee may end up with frustration, restriction of output, sabotage (injure a
person with talks) etc.
 Paternalism: ex:” Do what I say because I am good to you” employee develops a gratitude towards
manager, initially manger provides a rewards to employee and later expects to follow him.
 Bargain: Ex: “ you do as I say in certain respect and I do as you say in certain other respect” here
the disadvantage is like the manager losses his power over employee gradually.
 Harmony of objective: “If we perform together each will achieve his goal” a best method to make
the people to work and achieve the goal easily.

Motivation : The meaning of motivation has been derived from latin word called as “Move”. It is the ability to
move the people in right direction day after day.

Maslow
Maslow’s Hierarchy need categories is the most famous example

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 Figure Order of Priority of Human Needs

 Every people posses the needs, in some are fulfilled, rest needs becomes the motivation for person to
work to achieve those which makes a chain as shown in above figure.
 Goal is the one, person identifies a way to fulfill the unsatisfied needs.
 Once the goal has been identified, the person frames the action plan to reach it.

Basic physiological needs:

 These are made at the lowest level that means these needs to be filled first for example food, water, air,
shelter etc.
 These needs should be least possibly satisfied to survive a life.
Security needs

 These needs should cover both economical and psychological.

 If these needs are fulfilled the person can face the unexpected health problems, accident, disaster etc.
 If the person is strong economically and psychologically he can handles the problems in efficient
manner with high confidence level which help him to tackle the problem in near future.
Social Needs

 These needs are concerned to other people and to be accepted to them.

 These refers to hard instinct, gregariousness and likes
 Every human beings finds their happiness with other’s opinion. If it is not possible they end in
depression.
Egoistic or Esteem Needs

 Are the needs which relate to respect and prestige the need for dominance for egoistic needs.
 There are two types in these needs self-esteem and esteem
 Self esteem is the need for worthiness of oneself (Satisfied life) and the esteem is the necessity to think
others that he is worthy.
Self-Fulfilment Needs

 Are the needs to realize ones potential that is realizing one’s own capabilities to the fullest-for
accomplishing what one is capable of to make to optimum level.
 In simple words the happiness of person is in his passion ex: musician needs to play music, a poet need
to write poems etc
Need Home Job
Selfactualization Education, Religion, Hobbies, Training, Advancement, Growth,
Personal Growth Creativity
Esteem Approval Of Family, Friends, Recognition, High Status,
Community Responsibilities
Belongingness Family, Friends, Clubs Teams, Depts, Coworkers, Clients,
Supervisors, Subordinates
Safety Freedom From War, Poison, Work Safety, Job Security, Health
Violence Insurance
Physiological Food Water Heat, Air, Base Salary

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According to Maslow, They must be fulfilled before the others are activated. There is some basic common
sense here -- it's pointless to worry about whether a given color looks good on you when you are dying of
starvation, or being threatened with your life. There are some basic things that take precedence over all else.

If people were rational. But is that a safe assumption? According to the theory, if you are hungry and have
inadequate shelter, you won't go to church. Can't do the higher things until you have the lower things. But the
poor tend to be more religious than the rich. Both within a given culture, and across nations. So the theory
makes the wrong prediction here. Or take education: how often do you hear "I can't go to class today.

Alderfer's ERG theory

Alderfer classifies needs into three categories, also ordered hierarchically:

 Growth needs (development of competence and realization of potential)

 Relatedness needs (Satisfactory Relationships)
 existence needs (physical well-beings)
This is very similar to Maslow -- can be seen as just collapsing into three tiers. But maybe a bit more rational.
For example, in Alderfer's model, sex does not need to be in the bottom category as it is in Maslow's model,
since it is not crucial to (the individual's) existence. (Remember, this about individual motivation, not species'
survival.) So by moving sex, this theory does not predict that people have to have sex before they can think
about going to school, like Maslow's theory does. Alderfer believed that as you start satisfying higher needs,
they become more intense (e.g., the power you get the more you want power), like an addiction. Do any of these
theories have anything useful to say for managing businesses? Well, if true, they suggest that

 Not everyone is motivated by the same things. It depends where you are in the hierarchy (think of it as
a kind of personal development scale)
 The needs hierarchy probably mirrors the organizational hierarchy to a certain extent: top managers are
more likely to motivated by self-actualization/growth needs than existence needs.
Acquired Needs Theory (mcclellan)
Some needs are acquired as a result of life experiences

 Need for achievement, accomplish something difficult for themselves.

 Need for affiliation, form close personal relationships, as kids rewarded for making friends.
 Need for power, control others. as kids, able to get what they want through controlling others

Two Factor theory (Herzberg)

Maslow’s hierarchy provides the base study about people behavior (mind) using it Herzberg formulated specific
reason for motivation.

Herberg started a research on 200 engineers and accountant to share their good and bad felt while working in
company,

 Both of them said the same answer for bad feelings such as unfavorable company policies, poor
relationship between employees and low pay for their work

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  On the good reasons they have told like job have enhanced their personal skills and improve them
individually.
Herberg and other investigators taken different organization for their experiment but the result are same based
on this he suggested a two kinds of factors affect motivation, and they do it in different ways:

 hygiene factors(maintenance factors). These are factors such as turnover, high pay, perks, health
cover, trips ets whose absence motivates, but whose presence doesnot makes any difference in the
employee
Some of the maintenance factors concluded by Herberg are
– Fair company policies and administration
– A supervisor who knows the work
– A good relationship with one’s supervisor
– A good relationship with one’s peers
– A good relationship with one’s sub-ordinates
– A fair salary
– Job security
– Personal Life
– Good working condition
– Status
 Perceived effect. They are things that when you take them away, people become dissatisfied and act to
get them back. A very good example is heroin to a heroin addict. Long term addicts do not shoot up to
get high; they shoot up to stop being sick -- to get normal. Other examples include decent working
conditions, security, pay, benefits (like health insurance), company policies, interpersonal relationships.
In general, these are extrinsic items low in the Maslow/Alderfer hierarchy.
TO build high level of motivation, a different set of factors are essential however if those factors are not
present, they do not in themselves lead to strong dissatisfaction. Herberg called these the motivators

 Motivators. These are factors whose presence motivates. Their absence does not cause any particular
dissatisfaction, it just fails to motivate. Examples are all the things at the top of the Maslow hierarchy,
and the intrinsic motivators.
– Opportunity to accomplish something significant
– Recognition for significant accomplishments
– Chance for advancement
– Opportunity to grow and develop on the job
– Chance for increased responsibility
– The job itself.
So hygiene factors determine dissatisfaction, and motivators determine satisfaction. The two scales are
independent, and you can be high on both. If you think back to the class discussion on power, we talked about a
baseline point on the wellbeing scale. Power involved a threat to reduce your well-being, causing
dissatisfaction. Hence, power basically works by threatening to withhold hygiene factors. Influence was said to
fundamentally be about promising improvements in well-being -- when you are influenced to do something, it is
because you want to, not because you were threatened. Influence basically works by offering to provide
motivators (in Herzberg's terms).

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 Maslow and Herber’s theory are compared

 Hcrzberg's theory has drawn attention to the importance of intrinsic job satisfaction in work motivation.
He deemphasizes economic motivation and off-the-job and around-the-job need satisfactions.
 According to Herzberg, one important way to increase intrinsic job satisfaction is through job
enrichment
 By job enrichment is meant the deliberate upgrading of responsibility and challenge in work.
 Job enrichment should be distinguished from job enlargement in which a job is made structurally bigger
by adding other tasks from the horizontal chunk.
 According to Herzberg, this does not motivate a worker because the mere increase in the size of his task
does not make it more interesting.
 Job enrichment makes a job more interesting by increasing its planning and controlling contents and
reducing its doing content. This can be accomplished in several ways, such as by:
– Eliminating a layer of supervision.
– Increasing worker’s autonomy ( degree of freedom should be provided) and authority.
– Introducing the direct feedback to the workers from clients without the intervention of the supervisor.
– Introducing the more difficulty and new works to employee which are not handled previously by them.
– Making the worker to work for whole one unit which makes the employee to develop a new skills.

COMMUNICATION
According to NEWMAN and SUMMER, communication is an exchange of facts, ideas, opinions or emotions
by two or more persons.

Or

In accordance to Lousis : defines as sum of all the things one person does when he wants to create
understanding in the minds of another.

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Importance of Communication

 Group of arts and commerce people have ignored the communication and considered a business unit is
just a technical group.

 After 1930’s with extensive research by the Hawthrone, to achieve the goals of organization a people
working at different units should posses a interaction between them

 Organizations’ action comes to an end when communication ends

Purpose of Communication

 Essential in Recruitment process to brief about the advantages of the organizations : Example HR will
discuss about perks for employee, policy and opportunity.

 Essential in area of orientation to understand about the company’s rules and regulation: example to
discuss with peers, company head etc.

 In order to work efficiently the employee need to be properly informed with their responsibilities from
the top level peoples. : ex: for proper working of the employee he should need the proper guidelines.

 In order to carry a evaluation and contribution of the employee to the company communication is
essential and the appraisals from the boss can enhance the working spirit of the employee.

 To aware the employee about their personal security: this is advantage to both company and
employee, company-decreases of the leaving employee, training charges drastically reduces.
Employee- knows about perks.

 Projection of the company in society: ex: tower installation, discussing about effects are less from
radiation.

 Helps in taking proper decisions: Manager should posses accurate information by sub-ordinates before
taking decisions.

 Helps in maintaining Co-ordination, co-operation: Which helps in achieving the peace inside the
organization. Ex: most of the disputes in companies arise if there is no proper communication between
the employees. Communication helps for both management and workers as per management concerning
a rules can be efficiently delivered and workers point of view they can provide suggestions, complaint to
management.

Leadership
According to Peter: Leadership is lifting of man’s visions to higher sights, raising of man’s performance
to a higher standard, building of one’s personality beyond normal stats.
Or
According to Alford and Beatty: it is the ability to secure desirable action from a group of followers
without the using force.

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 Characteristics of the Leadership

The important characteristics of the leadership are as follows

 Leadership implies the existence of followers:

 The quality of the leadership are decided by answering the questions like what kind of followers
they posses and how many in number. How long the followers be in group due to nature of
leadership.

 How many followers are created, commitment, time. Ex: In a company supervisor works as
division manager, vice-president of department, branch head etc but should work efficiently with
all the roles.

 Leadership involves a community of interest between the leader and his followers:

 The objective of leader and the members of the group should posses a common goal.

 Terry told that the leadership is the activity of influencing people to strive willing for mutual
objectives.

 Ex: if leader decides to make a strike on purpose all his followers should posses same. i.e. mob
of people with mutual objectives.

 Leadership involves an unequal distribution of authority among leaders and group members:

 The leader can control the activities of the group members but the group members can’t change
the decisions of the leader which ends in poor leadership capabilities.

 Group members should abide the rules from leader.

 Leadership can influence the sub-ordinates in-addition to providing orders to sub-ordinates

 Leaders doesn’t tell their sub-ordinates through commanding nature but sub-ordinates gets
inspired with nature of leader and perform their task on their own.

 Commanding nature of the leader will just bring a temporary changes due to fear the sub-
ordinates works but for permanent solution is through influencing through their behavior.

 Ex: Abdul Kalam: Missile man, Nuclear test.

Behavioural Approach
 The researchers are conducted an experiment to find the answer for the what determines the leadership,
they looked up the behavior of the leadership
 Example a way of communication, providing directions, delegate, plan, conducting meeting etc.
 Leaders aren’t born they are perfectly trained. The researchers have suggested a three points
o Motivation
o Authority
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 o Supervision
 Motivation the leader can motivate the sub-ordinates in two ways positively and negative
o Positive these types of leaders encourage the sub-ordinates by providing rewards to work more.
o Negative these types of leaders impose punishments, penalties and frightens on sub-ordinates to
make them to obtain higher productivity hence the employee waste time in escaping from them.
Ex: preparing documents, files, letters because these are essential for them to defend in near
future.
 Authority contains types in it leadership style such as autocratic, democratic or free rein.
o Autocratic the leader alone determines policies and makes do and how to do it which is termed
as authoritarian leader. Benevolent leader(kind) who uses the rewards for getting the
obedience from employees
 The above two forms authoritarian and benevolent can’t have a efficient leader. The
employee will be in fear or in the form of gratitude hence during the absence of leader all
employees will not work properly or nil performance of that day.
Merits

 Increase efficiency, save time and get quick results. especially in a crisis or an emergency
situation
 Chain of command, and division of work (who is supposed to do what) are clear and fully
understood by all
 Benevolent or paternalistic forms of leadership works well with the employee who posses
low tolerance, insecure etc.
De-Merits

 One-way communication which is often less efficient in the long run and also leads to
misunderstanding the situation and leads to performing errors.
 Decision making is only by autocratic leader he doesn’t take any inputs from workers
which is dangerous in today’s environment with respect to technical and organizational
companies.
 Due to autocratic rules employees are treated as machines which reduces the efficiency
of the person due to lack of self-respect.
o Democratic leadership The entire group is involved in and accepts responsibility for goal
setting and achievements.
 The leader shows greater concern for his people (people-oriented ) than the high
production.
 Involves the co-ordination with the employees.
 Democratic leader is no longer a autocratic leader and won’t be famous as autocratic
leader but still he have his authorities to control their sub-ordinates
Merits

 When people participate in and heIp formulate a decision(instead of fighting Or ignoring

it). they support it and work hard to make it work. because it is their idea and now a part
of their life and their ego
 He receives information, ideas, suggestions and talent and experience from people.
 These kinds of leaders encourages people to develop grow and rise in the organization.

De-merits
 The employee style can take enormous amounts of time and. may degenerate into a
complete loss of leader's control.
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  Some leaders may use this style as a way of avoiding responsibility.

o Free Rain
 The leader exercises absolute no control. He only provides information, materials and
facilities to his men to enable them to accomplish group objectives.
 This can be disadvantage in some situation the employee can misuse the degree of
freedom.
 The spectrum of a wide variety of leadership styles moving from a very authoritarian
style(strict) at one end to a very democratic style(free) at the other end, as suggested by
Robert

Figure : Leadership Styles

The points are delivered to sub-ordinates by leadership styles with the number ranging from 1 to 7 as shown in
above figure is given below

1. The leader "tells" subordinates what his decision is.

2. The leader "sells" his decision i.e., persuades subordinates to accept it.
3. The leader invites questions from subordinates to give them a fuller explanation of his thinking.
4. The leader presents only a tentative decision subject to change.
5. The leader presents only the problem, invites solutions and then makes his decision.
6. The leader presents the problem and lets the group make a decision within certain limits of action.
7. The leader permits the group to make decision within limits defined by the situation.

 Supervision
o The leadership can be either employee-oriented or production oriented.
o The employee oriented leader thinks about the goodness about the employee rather than production
o The production oriented leader takes care about more number of production than the wellness of the
employees
o For employee and production welfare a two case study is proposed one is Ohio state university and
management grid

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Ohi state university
The figure shows the working of the leader in structure of job area the consideration on the graph shows the
behavior of the leader.

Based on the consideration the types of leaders are classified some follow structure with less consideration and
rest follow full consideration with lesser structure .

The leaders can’t be same all the time sometimes they should be structured and some times consideration as
distributed in the figure. Some leaders use the mix of both.

These shows the four broader sectional behavior of the leader which has been prepared by Leader Behaviour
Description Questionnaire(LBDQ).

Ohio State model

Managerial Grid
The Robert blake and Jane provided a chart to describe the behavior of the leader by taking the concern of the
people and production

The separation of thoughts concern of products and people are as shown in the figure moving from low to high.

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The tasks are

Task management:

 It is called as authority obedience .

 This shows the interest to increase the production rate rather than concentrating about the people who
working for it
Country Side management

 It is Love conquers.
 Concentrates about the welfare of the people compare to the production rate
Impoverished Management

 They are speak no evil, hear no evil see no evil approach

 They don’t make concerns on employees or the production side, they just wants to keep going the
organization or industries.
Team Management

 These managers are concerned about both the employee and the production side.
 These follows the concept called “ one plus one can add up to three”
 Maximum concern for production is based on decision of the workers.
 The team and task management both are similar in nature but differ in achieving the production rate.
 Team management and country club management are similar but differ in their concerns.
 Country side management stress about improving the social relationships(building the integrity between
the employee or peoples living in a apartments) but task management concentrate about effective
performance of task ( Hotel management or conducting a event or marriage program) .

Co-ordination
Co- ordination is the unification, integration, synchronization of the efforts of group members so as to provide
unity of action in the pursuit of common goals. It is a hidden force which binds all the other functions of
management.

According to Mooney and Reelay co-ordination is orderly arrangement of group efforts to provide unity of
action in the pursuit of common goals

According to Charles Worth, Co- ordination is the integration of several parts into an orderly hole to achieve
the purpose of understanding

Management seeks to achieve co- ordination through its basic functions of planning, organizing, staffing,
directing and controlling. That is why, co- ordination is not a separate function of management because
achieving of harmony between individuals efforts towards achievement of group goals is a key to success of
management. Co- ordination is the essence of management and is implicit and inherent in all functions of
management

Example: From hospital if patient need to get proper caring there should be synchronization between doctor,
nurse, lab technician etc.
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Difference between the co-ordination and co-operation
Team work needs both the co-ordination in work projects and co-operation between the employees.

Team members should show their volunteer willingness to work in the groups to achieve common
organizational goals is called as co-operation. Two important factors of cooperation are emotional context and
need for continuous attention

A voluntary cooperation between the supervisor and sub-ordinates are the example for emotional cooperation
which depends on the feelings of the sub-ordinates towards boss and relationship with the company.

A voluntary cooperation requires a continuous nourishment to maintain the smoother relationships by providing
rewards this increase the enthusiasm of a person over a time.

Co-operation

If co-operation is not there in any organization the purpose won’t be survived or won’t reach the goal.

Ex: A group of persons need to move the heavy objects(tree fallen on tree or work area)

Before moving the object all the persons should posses a same goal wiliness to push the stone, all should focus
to one direction. A leader should provide a proper direction to the people at a right time and right place to apply
the force. Hence co-ordination is superior compared to co-operation.

Types of Co-ordination
1. Based on scope
a. Internal
b. External
2. Based on flow
a. Vertical
b. Horizontal
Internal

 Refers to co- ordination between the different units of an organisation within and is achieved by
integrating the goals and activities of different departments of the enterprise.
External

 External – refers to co- ordination between an organisation and its external environment comprising
government, community, customers, investors, suppliers, competitors, research institutions, etc. It
requires proper match between policies and activities of the enterprise and the outside world.

Vertical – implies co- ordination between different levels of the organisation and has to ensure that all the
levels in the organisation act in harmony and in accordance with the goals and policies of the organisation.

Vertical co- ordination is assured by top management through delegation of authority.

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Example : The coordination between the employee and the departmental head

Horizontal or lateral – refers to co- ordination between different departments and other units at the same level
of the management hierarchy. For instance, co- ordination between production department and marketing
department is horizontal or lateral co- ordination.

Example: The coordination between heads of the several departments.

Co- ordination may also be:

3. Procedural and substantive – which according to Herbert A. Simon, procedural coordination implies the
specification of the organisation in itself, i.e. the generalised description of the behaviour and relationship of the
members of the organisation. On the other hand, substantive co- ordination is concerned with the content of
the organisation‘s activities. For instance, in an automobile plant an organisation chart is an aspect of
procedural co - ordination, while blueprints for the engine block of the car being manufactured are an aspect of
substantive co- ordination.

Techniques of co-ordination or approaches of co-ordination

The main techniques of effective co- ordination are as follows.

Rules procedure and policy:

 In order to posses a proper activities in the department some rules are essential.
 Standard rules, policy and procedures and laid to solve any kind of problems
 During some cases if the rules are broken still more smaller, procedures to take care of the breakdowns.

1. Planning –
 Unity of purpose is the first essential condition of co- ordination.
 The goals of the organisation and the goals of its units must be clearly defined.
 Planning is the ideal stage for co- ordination.
 Clear- cut objectives, harmonised policies and unified procedures and rules ensure uniformity of
action.
2. Simplified organization (Hierarchy) – a simple and sound organisation is an important means of co-
ordination. The lines of authority and responsibility from top to the bottom of the organization structure
should be clearly defined. Clear- cut authority relationships help to reduce conflicts and to hold people
responsible. Related activities should be grouped together in one department or unit. Too much
specialisation should be avoided as it tends to make every unit an end in itself.

3. Effective communication –

 Open and regular communication is the key to coordination.

 Effective interchange of opinions and information helps in resolving difference and in creating
mutual understanding.
 Personal and face- to- face contacts are the most effective means of communication and co-
ordination. Committees help to promote unity of purpose and uniformity of action among different
departments.
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4. Effective leadership and supervision –
 Effective leadership ensures co- ordination both at the planning and execution stage.
 A good leader can guide the activities of his subordinates in the right direction and can inspire them to pull
together for the accomplishment of common objectives.
 Sound leadership can persuade subordinates to have identity of interest and to adopt a common outlook.
 Personal supervision is an important method of resolving differences of opinion

5. Chain of command –
 Authority is the supreme co- ordinating power in an organisation.
 Exercise of authority through the chain of command or hierarchy is the traditional means of co ordination
 Co- ordination between interdependent units can be secured by putting them under one boss.

6. Indoctrination and incentives –

 Indoctrinating organisational members with the goals and mission of the organisation can transform a
neutral body into a committed body.
 Similarly incentives may be used to create mutuality of interest and to reduce conflicts.
 For instance, profit- sharing is helpful in promoting team- spirit and co- operation between employers and
workers.

7. Liaison departments –
 Frequent contacts between different organisational units are necessary, liaison officers may be employed.
 For instance, a liaison department may ensure that the production department is meeting the delivery dates
and specifications promised by the sales department.
 Special co- ordinators may be appointed in certain cases. For instance, a project co- ordinator is appointed
to co- ordinate the activities of various functionaries in a project which is to be completed within a
specified period of time.

8. General staff –
 In large organisations, a centralised pool of staff experts is used for coordination.
 A common staff group serves as the clearing house of information and specialised advice to all department
of the enterprise.
 Such general staff is very helpful in achieving interdepartmental or horizontal co- ordination. Task forces
and projects teams are also useful in coordination
9. Voluntary co-ordination – when every organizational unit appreciates the workings of related units and
modifies its own functioning to suit them, there is self- co- ordination. Self co-ordination or voluntary co-
ordination is possible in a climate of dedication and mutual co-operation. It results from mutual consultation
and team spirit among the members of the organization.

CONTROLLING
According to Brech Control is checking current performance against pre-determined standards contained in the
plans with a view ensuring adequate progress with satisfactory performance.

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 Figure: Steps in Controlling

STEPS in a Control Process

1. Establishing Standards

 A standard is a criterion (base) which is used to measure the performance of the subordinates.
 Standards may be of two types, i.e. Quantitative Standards and Qualitative Standards.

 Quantitative Standard can be easily defined and measured. For e.g. number of products,
number of customers, cost, net profit, time limits, etc.
 Qualitative Standard cannot be easily defined and measured.
For e.g. measurement of morale, measurement of job satisfaction, measurement of effect of a
training programme, advertisement programme, etc.
It is better to have quantitative standards because they are measurable. However, today there are
many new techniques for measuring qualitative standards.
The standards should be as clear as possible. It should be easily understood by both superiors and
subordinates. The responsibility of each individual should also be clearly defined i.e. everyone
should be responsible for achieving a particular goal, objective, target, etc.
For e.g. The marketing department fixes a standard - "We will sell 2,000 units of product X in
one month". So here the standard is 2,000 unit
2. Measuring And Comparing Actual Results Against Standards

 After establishing the standards, the subordinates should be provided with all the resources for
performing the job. They should be properly directed and motivated to perform the job.
 Similarly, they should be properly supervised. If the subordinated come under Theory X they
require maximum supervision.
However, if they come, under Theory Y then they require minimum supervision. After they complete
the job their performance should be carefully measured.
 There are many traditional and modern techniques for measuring the performances of subordinates.
For e.g. After one month, the marketing department sold only 10,000 units of product X. So,
their actual performance is only 10,000 units.

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 3. Comparison
 The actual performances of the subordinates are compared with established standards, and then
the deviations are found out. The deviations which are found out may be positive or negative.
 Positive Deviation means that the actual performances are better than the established standards.
Positive deviations should be appreciated.
 Negative Deviation means that the actual performance is less than the established standards.
 The management should pay special attention to the negative deviation. They should find out the
causes of negative deviations.
 Generally, minor (small) deviations are ignored. However, major deviations should be immediately
addressed and reported to the top management. PERT, Budgetary Control, Observation, Inspection,
Reports, etc. are some of the methods used for comparison.
For e.g. 10,000 units (Standard) - 9,000 units (Actual Performance) = 1,000 units (Negative Deviation).

4. Corrective Action
 After finding out the negative deviations and their causes, the managers should take steps to correct
these deviations. Corrective actions should be taken promptly.
 Corrective action may include, changing the standards, providing better motivation, giving better
training, using better machines, etc. The management should take essential steps to prevent these
deviations in the future.
For e.g. The cause of the negative deviation was less advertising and untrained salesmen. So, the
company must spend reasonable money on advertising and training

5. Follow up
 After taking corrective action, the management must do a follow- up. Follow- up is done to find out
whether the corrective actions are taken properly.
 It also finds out whether the deviations and their causes are removed. If follow- up is done properly,
then the actual performance will be equal to or better than the established standards.

Need for Control System

The control systems are essential for four reasons

1. Measure the progress

2. To uncover deviations
3. To indicate corrective action
4. To transmit corrective action to the operation.

1. To Measure Progress
 There is a close link between planning and controlling the organisation's operations.
 The fundamental goals and objectives of the orgnnisation and the methods for attaining them are
established. The control process continually measures progress towards goals.
 As Fayol so clearly recognised decades ago. "ln an undertaking. control consists in verifying whether
everything occurs in conformity with the plan adopted. the instructions issuecl und principles
established".

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  As the navigator continually takes readings to ascenain wlu'n: he is relative to a planned course, so does
the manager take readings to sec where his enterprise or department is on the charted and predetermined
course.

2. To uncover Deviations
 Once the business set to move towards the specific objectives, the events which pull it “off target”
some of them are as follows

o Change Change is an integral part of almost any organisation's environment.

 Markets shifi, new products emerge, new materials are discovered and new regulations
are passed.
 The control function enables managers to detect changes that are affecting their
organisation's products or services.
 They can then move to cope with the threats or opportunities that these changes
represent.
o Complexity Today's vast and complex organisations, with geographically separated plants and
decentra. lised operations make control a necessity.
 Diversified product lines need to be watched closely to ensure that quality and
profitability are being maintained; sales in different retail outlets need to be recorded
accurately and analysed; the organisation's various markets-foreign and domestic-require
close monitoring.
o Mistakes
 Managers and their subordinates very ofien commit mistakes. For example, wrong pans
are ordered, wrong pricing decisions are made, problems are diagnosed incorrectly, and
so on.
 A control system enables managers to catch these mistakes before they become serious.
o Delegation
 When managers delegate authority to subordinates, their responsibility to their own
superiors is not reduced.
 The only way managers can determine if their subordinates are accomplishing the tasks
that have been delegated to them is by implementing a system of control.
 Without such a system, managers will not be able to check on their subordinates'
progress, and so not be able to take corrective action until after a failure has occurred.

3. To indicate Corrective Action

 Action Controls are needed to indicate corrective actions.
 They may reveal. for example that plans need to be redrawn or goals need to be modified or there is
need for reassignment or clarification of duties or for additional staffing or for conforming to the
way the work should be done.
4. To transmit Corrective Action to the Operation

 Controls are needed to transmit corrective action to the operation while it is progressing so that the
transformation subsystem modifies its inputs or its production plan to reduce any discrepancy or error
and keeps the output "on course".

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  The thermostat is a classic example of this operating principle. When the room temperature drops below
a desired level, the control mechanism in the transformation begins to subsystem at once transmits this
information (called "feed forward") and the temperature rise till it reaches the selected level.
 Control-related information flows in most of our modern organizations also follow the above-mentioned
thermostat operating principle. They make available to the transformation subsystem at all times the
information about operating results in various forms, such as electronic impulses. written or spoken
words, reports, etc. To serve as the basic input for comparison with the standards and for automatic
decision-making.
 The transformation subsystem thus takes the shape of a closed loop as shown in Figure. However, the
system is closed only in the short run. Human intervention is involved to adjust the system periodically,
according to a subjective impression of the environment. Thus the overall system is open but we have
closed loop control once the system is set.

Figure: Transformation Sub-System As A Closed Loop

Essentials of Effective Control System

The essentials of an effective control system are
 Suitable
o The control system should sustain the needs of the activity.
o Control system which are used in sales department is different from the methods used in finance
and personal.
o A rules used in manufacturing units is different for labor department.
 Timely and forward looking
o In ideal control system the deviations should be detected well in advance but these are not
possible in personal and marketing department.
o The feedback should be short, quick and reach the supervisor before it becomes late.
 Objective and Comprehensible

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 o Objective controls specify the expected results more clearly and define the terms exactly which
doesn’t provide a space for argument by the employee. A provision is provided to employees to
access the additional information directly.
o During the precise purposes in control system they often provides the less information which
leads to dispute.
 Flexible
o The system which are designed should be flexible in nature which should be adoptable to the
changes in the environment.
o The adjustments automatic is the one of the technique used to introduce the flexibility into the
system
o Providing the shifting standards for expenses as the volume of work goes up or down.
o The basis for shifting the control standard is build right into the system.
 Economical
o Economical controlling is an important aspect should be maintained in the industries.
o To spend a dollar to protect 99 cents is not a control its just a waste and poor management.
o Eighty years ago a entrepreneurs called as Roebuck and Sears had a method that the money for
goods are not counted they just take a record of weight of the money which was one of the
method employed in those days to maintain the economical status.
 Prescriptive and Operational
o A control system in order to be effective and adequate must not only detect deviations from the
standards but should also provide for solutions to the problems that cause deviations.
o In other words. the system should be prescriptive and operational. It must disclose where
failures are occurring. who is responsible for them, and what should be done about them.
o It must focus more on action than on information.
 Acceptable to Organisation Members
o The system should be acceptable to organisation members. When standards arc set unilaterally
by upper level managers, there is a danger that employees will regard those standards as
unreasonable or unrealistic.
o They may then refuse to meet them. Status differences between individuals also have to be
recognised. Individuals who have to report deviations to someone they perceive as a lower level
staff member may stop taking the control system seriously.
 Reveal Exceptions at Strategic Points
o A control system should be such as to reveal exceptions at strategic points. Small exceptions in
certain areas have greater significance than larger deviations in other areas.
o Five per cent deviation from the standard in office labour cost is more important than 20 per cent
deviation from the standard in cost of postage stamps. That we can quantify something is no
reason for measuring it.

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 ASSIGNMENTS 2 AND 3
Appeared Question papers on Direction and Controlling

Sl.No Question Marks Year

1. Briefly explain comparison of Maslow’s and 10 Jan-2013
Herzberg theories of human motivation
2. Explain the different steps involved in 10 Jan -2013
controlling process
3. Difference between co-ordination and co- 05 July-2013
operation
4. Write difference among autocratic, 05 July-2013
participative and free-rein leadership styles
5. Explain various methods of establishing 10 July-2013
control
6. Explain various stages in entrepreneurial 10 July-2013
process
7. How does Maslow’s hierarchy of needs help 10 Jan-2015
a manager to motivate his sub-ordinates?
8. Explain motivation factors as per Herzberg and 10 Jan-2015
explain their implications
9. What are the purposes of communications in an 10 July-2016
organization
10. Briefly explain the Maslow’s hierarchy of 10 Jan-2017
needs
11. Differentiate between Autocratic, Participative 10 Jan-2017
and Free-Rein leadership styles

Questions on Social Responsibility (NO previous years questions on it newly introduced)

1. Social responsibilities of business towards

different groups
2. Business ethics

Questions on Entrepreneurship

2. Explain the barriers involved in 10 Jan-2013

Entrepreneurship
3. Important qualities of an Entrepreneur 5 July-2013
4. Explain various stages in entrepreneurial 10 July-2013
process
5. List the stages of entrepreneur process and 10 Jan-2015
explain any one of them
6. List the characteristics of entrepreneurship and 10 Jan-2015
explain any one of them
7. Explain entrepreneurs based on the type of 08 July-2016
business
8. Discuss three barriers in connection with 06 July-2016
entrepreneurship
9. Define entrepreneurship and functions of them 10 Jan-2017
10. Explain various barriers of entrepreneurship 10 Jan-2017

Management Entrepreneurship and Development (15ES51) Dept. of EC&E, JIT, DVG.

36
Department of Electronics and Communication
Engineering

Module3
Social Responsibility and
Entrepreneurship.

Prof. Amogha B,
Dept. of EC&E,
JIT, Davangere.
 SOCIAL RESPONSILITY
Berle defined as manager’s responsiveness to public compromise.

According to Keith Davis.' the term "social responsibility" refers to two types of business obliga-
tions. viz..

(a) the socio-economic obligation, and (b) the socio-human obligation. The socio-economic
obligation of every business is to see that the economic consequences of its actions do
not adversely affect public welfare. This includes obligations to promote employment
creation, to maintain competition, to curb inflation, etc. The socio-human obligation of
every business is to nurture and develop human values (such as morale. cooperation.
motivation and self-realization in work).
(b) Every business firm is part of a total economic and political system and not an island
without foreign relations. It is at the centre of a network of relationships to persons,
groups and things. The businessman should. Therefore, consider the impact of his actions
on all to which he is related. lie should operate his business as a trustee for the benefit of
his employees, investors, consumers, the government and the general public. His task is
to mediate among these interests, to ensure that each gets a square deal and that nobody's
interests arc unduly sacrificed to those of others.

Social Responsibilities of Business Towards Different Groups

Towards Consumer and community

• Cheap and quality products with good service, choose of market area and balance of
budget.

• Balancing the production and employment (seasonal changes)

• Priority for production based on environment and level of natural resources (Ex: Mining).

• Honoring contracts and honest trade practices ex: Taking a used cars with company
promise)

• Hijacking the customer’s needs through advertisements ex: toothpaste either they say it
fights with germs it makes teeth white. Soaps, cosmetics

• Providing service after sale ( Ex: water filters, Mobile etc)

• Clearing the waste generated by industries, ensuring public relationship

Towards Employee and Workers

• Fair wages to workers based on risk bearing

 • Selection, training and promotion ground be irrespective of place, gender, race, religion
etc

• Freedom to employee, self respect.

• Selection of talented persons in the industries

Towards Share holders and other business

• Transparency should be maintained between the share holders or partners especially in

financial issues

• Fair race with competitors .

Social Audit

• The systematic study and evaluation of the organization's social performance

as distinguished from its economic performance.

• Social performance refers to any organizational activity that effects the

general welfare of society.

Advantages/ Benefits
• Provides data for organization’s standards and policies.

• Social awareness among the employees

Limitations

• Social audit just determines the activities of the organization performed in social area
but not records the results generated from it.

• Difficulties of collecting social results are

– Difficult to measure ex: benefited people percentage is difficult to analyze as

they leave their birth place and settled in different places.

– Results are opinion based it can be good or bad.

– Securing the data is difficult because tasks are happening outside the
organization.

Business Ethics
• Application of moral ethics to business problem ex: ethical hacking not to harm.
 • Ethics is beyond lawfulness deciding an act involving good or bad.

Ex: Prize hike: A grocery shop for a village the owner of it should not hike the cost my making
use of the people’s weakness.

• Discrimination in the pay between the men and women. The act in 1976 ( equal
remuneration act) and harassment is not acceptable.

• Employees right for privacy work place shouldn’t question it.

Factors to decide business is ethical or unethical

• Government laws

• Pressure group( boycotting the use of crackers as child labors are employed to prepare it)

• Personal values of the manager- inspiring decision makers.

Ethics and Corruption in International Business

• While managing the tasks in international levels two major things are ethics and
corruption.

• As the market is open globally the number of people are more hence corruption is not
noticeable.

• Difficulties in international business

• Cultural difference

• Law difference

Corporate Governance
• It is the extent in which companies run in open and honest manner in accordance with
stake holders( Transparency in administration and finance).

• Example to syllabus a Britain company made a scandals in 1990 and a committee is

formed in 1991 to prepare a code for governance.

• Committee suggestion

• Non-Execute directors should make a efficient decisions on strategy, performance and resource
utilization.

• Companies should posses remuneration committee for checking the salary is made.

• Audit is essential at least three directors should report problems to financial management.
 Entrepreneurship
Meaning and Definition
• Entrepreneurship is a process undertaken by an entrepreneur to enlarge his business
interests.
• It is an exercise involving innovation and creativity that leads towards establishing
his/her enterprise.
• One of the qualities of entrepreneurship is the ability to discover an investment
opportunity and to organize an enterprise.
• There by contributing to real economic growth.

Importance of Entrepreneurship
 Entrepreneurial development today has assumed special -significance, since it is a key to
economic development.
 The objectives of industrial development. regional growth, and employment generation
depend upon entrepreneurial development. Entrepreneurs are, thus the seeds of industrial
development and the fruits of industrial development are greater employment
opportunities to unemployed youth, increase in per capita income, higher standard of
living and increased individual saving.
 Revenue to the government in the form of income tax, sales tax. export duties, import
duties. and balanced regionai development. In practice. encrepreneurs have historically
altered the direction of national economies. industries, or markets.
 They have invented new products and developed organisations and the means of
production to bring them to market. They have introduced quantum leaps in technology
and more producrive uses.
 They have forced the reallocation of resources away from existing users k) new and more
productive users. Many innovations have transformed the society and altered our pattern
of living, and many services have been introduced to alter or create new service
industries.
 This does not include disguised unemployment of over 50 per cent among the 230 million
employed in rural lndia. Since traditional target employers-including the government and
the old economy players-may find it difficult to sustain This level of employment in the
future. it is entrepreneurs who will create these new jobs and opportunities.
Concepts of Entrepreneurship
• It involves taking of risks and making the necessary investments under conditions of
– uncertainty and innovating,
– planning and
– taking decisions
• so as to increase production in agriculture, business, industry etc.
• Entrepreneur is a person who undertakes an enterprise.
• The process of creation is called entrepreneurship.
• An entrepreneur can be considered as a person who bears the risk of operating a
business in the face of uncertainty about the future conditions.
• Who innovates and introduces something new in the economy who shifts resources out
of an area of lower into an area of productivity and helps in greater yield
• Who plays a critical role in economic development and an integral part of economic
transformation.
• To conclude an entrepreneur can be considered as an agent
• who buys the four factors of production at certain prices in order to combine them into
product with a view to selling it at uncertain prices in future.
• The word entrepreneur has been derived from the French.
• Word which means to undertake Was originally meant to designate an organizer of
musical or other entertainments.
• According to oxford English dictionary in 1897 was defined as the director or manger
of public musical institution who gets entertainment in the form of musical performance.
th
• 16th century: In 16 century it was applied to those who were engaged in military
expeditions.
• 17th century: In 17th century it was extended to cover civil engineering activities such as
construction and fortification.
th
• 18th century: In the beginning of the 18 century the word was used for economic
aspects.
• In the way the evolution of the concept of entrepreneur can be considered to be over more
than four centuries
Characteristics of successful Entrepreneur
1. Creativity
 Innovation and creativity both are the same terms but each have a unique suggestion.
 Creativity means ability to bringing something new into existence.
 Innovation is bringing the new things and creativity is the first step in this.
 Ideas are usually generated by creative process, people nurture them, develop them
and make a successful achievement to do so there are five stages as stated below
o Germination:
 It is the seeding stage it is no way connected with what a farmer sour a
seed but this means that a innovative idea sparks in the brain.
 The ideas which are generated are based on the individual interest or
curiosity.
o Preparation
 Once the seed of curiosity has taken form as a focused idea, a creative
persons should find the answers for it.
 If it is related to mathematics then it can be solved by using
mathematician
 If a new product should be launched, the market research should be
performed.
 If the product need to be experimented a laboratory should be made
and respective procedures need to be performed.
o Incubation
 Individual sometimes concentrate intensely on an idea but more often
they simply allow ideas time to grow without intentional efforts.
 The idea once seeded and given substance through prepration is put on
a back burner.
 It is a stage of “mulling it over” while the sub-conscious intellect
assuming control of the creative process.
o Illumination
 The fourth stage is where the idea turns to way for developing into
commercial product
 The important point is that most creative people go through many
cycles of preparation and incubation, searching for that catalyst of an
incident that can give their idea full meaning.
 Reaching the illumination stage separates daydreamers and tinkerers
from creative people who find a way to transmute value.
o Verification
 An idea once innovate innovation is specific instrument of
entrepreneurship.
  Verification is a stage of development that refines knowledge into
application.
 Many ideas fall by the wayside as they prove to be impossible or have
little value.
 Inventors quite often come to this harsh conclusion when they seeks to
patent their products only to discover similar inventions.
2. Innovation
 The most important function of an entrepreneur, according to Joseph Schumpetcr, is
innovation. It is the core attribute of an entrepreneur. Innovative spirit is fed by
information, knowledge, or even by intuition.
 Using information and skill, the idea of a novel project could be conceptualised. For
an innovator, the market is never too saturated. Innovation need not merely be
activities like replacing fruit juices or squashes with soft drink concentrates. It may
be a new method for reducing the cost of production. It can be a totally new concept
of commodity or an improvement in the design and specifications of a product. Or,
simply exploring a market, which had not been thought of or tried out earlier.
 Innovation could be the result of positive reflexes or continuous and spontaneous
thought processes. A small business is always entrepreneur based. The scope for
delegation of authority is limited.
 Entrepreneur-managers must always encourage and nourish new ideas about every
aspect of business. And it is change that always provides the opportunity for the new
and different. Systematic innovation, therefore, consists in purposeful and organised
search for changes, and in the systematic analysis of the opportunities such changes
might offer
 The unexpected—unexpected success. unexpected failure, unexpected outside event.
 The incongruity—between reality as it actually is and reality as it is assumed to be or
as it "ought to be"
 Innovation based on process need changes in industry structure or market structure
that catches everyone unawares Demographics (population changes) • Changes in
perception, mood, and meaning
 New knowledge—scientific and non-scientific
3. Dynamism
 Dynamism revises the targets of the enterprise upwards time and again. The
enterprise may open up new vistas, better product mix.
 Charismatic product image stimulating steady growth. A dynamic entrepreneur is
always pragmatic. Given the potentialities of the enterprises, he sets attainable goals,
which are to be accomplished within specific timefnunes. An entrepreneur tends to
approach problems to solve them rather than running away from them. Being the de-
cision maker, he cannot wish away problems.
  They have to be analysed systematically and solved in the interest of the enterprise.
He must believe in, create. and practice "win-win" situations. This is a condition
where everyone wins and no one looses.
 A good entrepreneur-manager trains his staff continuously besides undergoing the
same process himself. A sole entrepreneur should promote a second line of decision-
making mechanism to prevent a void being created in his absence. There cannot be a
vacuum in the deci-sion-making system.
 A dynamic entrepreneur believes in action rather than depend-ing on lengthy paper
correspondence. An engineer at heart, he should update his knowledge of various
functions. An efficient entrepreneur must be good at managing change. He must
foresee and plan for change and administer it with minimum discomfort and
dislocation.
 Profitable enterprises are known for their dynamic and aggressive leadership
4. Leadership
 Leadership is the bask quality of an entrepreneur.
 This spirit keeps him paces forward in any field. Leadership qualities will enable a
person to stand apart in whatever profession he might be in.
 The quality of his leadership is clear from personal relationships, mode of handling a
problem, generating resources and taking others in to ones own stride. An enterprise
endowed with the resource of leadership will always be prominent in the market.
5. Teambuilding
 An entrepreneur should have an ability to build a team. A team is a group of
individuals with a common purpose that is focused and aligned to achieve a
specific task or set of outcomes.
 A team is a group of individuals with a common purpose, that is focused and aligned
to achieve a specific task or set of outcomes. A good team will be able to share
knowledge, core competency, and goals. The teambuilding skill consists of the
following steps.
 Step 1 Wanting to feel better
 Step 2 Identifying the problem and needs of the enterprise
 Step 3 Creating a vision
 Step 4 Setting goals for the group
 Step 5 Reviewing progress With mutual trust in place, team work breeds a healthy
organisational climate needed for developing a perfect team. The collaboration and
consensus brings synergetic effect in the enterprise.
6. Achievement motivation
 Achievement motivation: Entrepreneurs have a high need for achievement and are
guided by their inner self, motivating their behaviour towards accomplishment.
 Most entrepreneurs are attracted to this innovative career for one good reason that it
is challenging and demands a high degree of intelligence, and involvement.
  Entrepreneurs can be classified into three categories. Some are only dreamers and
though they indulge in nice dreams, they are not capable of translating their dreams
into action. The growth of such entrepreneurs is soon stunted. Some entrepreneurs
belong to the category of doubters.
 They always have a negative attitude, never expand their activities, never take any
risk, and never go out of their way to achieve anything.
7. Problem solving
 It is important that an entrepreneur should be able to solve problems and not avoid
them. A formal problem-solving model helps entrepreneurs solve problems on a
logical manner. The model consists of six steps.
 Define the problem
 Gather information
 Identify various solutions
 Evaluate alternatives and select the best option
 Take action
 Evaluate the action taken Brainstorming is a creative group problem-solving
technique that involves generating a large number of fresh ideas. In a brainstorming
session, several people
8. Goal orientation
 Goal orientation: Goal setting is the achievement of targets and objectives for
successful performance of an entrepreneur, both long run and short run. It helps to
measure how well individuals and groups are meeting the performance standards.
Human behaviour is goal directed.
 Everyone needs to feel that they have a worthwhile goal that can be reached with the
resources and leadership available.
 The goal-setting process requires three steps, which are as follows.
i. Definition of goal
ii. Specific goals
iii. Feedback about goal achieved The definition of a goal requires that a
leader explain the purpose and necessity of the specified goals to his team
members. Whatever the situation, people need goals that are meaningful to
them in order to be highly motivated and involved. Goals must be as
specific as possible so that employees can feel a sense of achievement
when a goal is attained. Goals must lead to tangible results. Aspects of
goal setting
iv. Clarity of goals Clear and simple objectives will bring expected results.
Misinterpretation and confusion will not allow people to achieve the set
goals. If the goals are set in tams of action, there will be clarity.
 Aspects of goal setting:
 i. Clarity of goals Clear and simple objectives will bring expected results.
Misinterpretation and confusion will not allow people to achieve the set
goals. If the goals am set in terms of action, there will be clarity.
ii. Reformulation of goals: If any discrepancy occurs in initial formulation
the outcome would be subject to change. Goal setting should, therefore, be
dynamic. Goals should be redefined according to the requirements. The
prospect of achieving a goal can be assessed through reformulation. A
change in the situations may require a change in strategy and perhaps even
the goals. Therefore, constant re-examination of goals is necessary.
 Types of goal
i. Target oriented: At times established targets that have been set in advance
bind an individual/organisation. The ultimate objective is to reach the
targets despite the constraints and a specified time frame. The process
through which one should achieve the goal is not as important as the goal.
One should keep in mind that the process, though not sidelined. is just a
means. Moreover, results are often gauged in quantitative, rather than
qualitative, terms.
ii. Achievement oriented: The value and effectiveness of goals are weighed
in the true sense, in real terms. The qualitative aspects and achievement
orients-lion of an entrepreneur should be ranked higher than any other
requisites such as sales turnover or employee welfare. Goal effectiveness
is not evaluated merely in terms of numbers. Performance is given a very
high weightage.
9. Risk taking and decision making
 Entrepreneurs are persons who take decisions under conditions of uncertainty, and
therefore are willing to bear risk, but never gamble with results.
 This is evidenced by market studies, exploring alternative lines of production or a
new product mix, or a new combination of inputs, and so on. They set goals that
require high level of performance. Risk bearing and decisions making calls for
absolute clarity in thinking and coordinated actions.
 Though decision-making can be taught in classrooms and perfected through
experience. individual ability always stands supreme. Every decision pertaining to an
enterprise involves risk.

10. Commitment
 One of the subtle qualities of an entrepreneur is his willpower. Strong determination
with sound thinking fortifies will power. It is determination that provides the
entrepreneur energy to work for 15-18 hours a day. 7 days a week and 52 weeks in a
year till the unit reaches a natural stage of take off.
Classification of Entrepreneurs
• The entrepreneurs have been broadly classified Based on

• Functional Characteristics

• Departmental angle

• Entrepreneurial Business

• Nine personality type of Entrepreneurs

• School of thought of Entrepreneurship

Functional Characteristics
1. Innovative Entrepreneur : introduce new goods or new methods.
2. Imitative or adoptive Entrepreneur: imitate the technology and techniques for
others.
3. Fabian Entrepreneur: such people display great caution and skepticism in
experimenting with any change in their enterprise.
4. Drone Entrepreneur: such are characterized by die- hard conservatism and even
be prepared to suffer a loss.

Type of Entrepreneurs
Prime mover : this entrepreneur sets in motion a powerful sequence of development,
expansion and diversification of business.
Manager: who does not initiate expansion.
Minor innovator: contribute to the economic progress by finding the better use of
existing resources.
Satellite: assumes a supplier’s role and moves towards a productive enterprise.
Local trading: limits the market to local

Entrepreneurial business
1. Manufacturing: who runs such business which produce products.
2. Wholesale: who sell the products to middle man.
3. Retailing : Sells directly to the people.
4. Service: sells service rather than products.
Nine Personality type of Entrepreneurs:
• If you better understand the business personality , then he can give his best to company.
1. The improver : improver have an unwavering ability to run their business with
high integrity .
2. The Advisor : the business personality will provide high level of assistance and
advice.
3. The superstar: this personality often will cause you to build your business around
your own personal brand.
4. The artist: the business personality is reserved but highly creative. Eg Scott
Adams, Creator of Dilbert.
5. The visionary: a business built by the visionary will often be based on the future
vision and thoughts of the founder. Eg. Bill Gates .
6. The Analyst : if you run a business as an analyst ,your company focus is on fixing
problem in a systematic way.
7. The fireball: a business owned and operated by a fireball is full of life, energy and
optimum
Eg. Publisher of forbes magazine.
8. The hero : one have an incredible will and leading ability through a challenge. Eg.
Jack
Welch CEO of GE.
9. The Healer : who provides nurturing and harmony to your business.

School of thought on Entrepreneurship:

1. Assessing personal qualities.
 The great person school of entrepreneurship
 The psychological characteristics school of entrepreneurship
2. Recognizing opportunities
 The classical school of entrepreneurship
3. Acting and managing.
 The management school of entrepreneurship
 The leadership school of entrepreneurship
4. Reassessing and adopting
  The intrapreneurship school of entrepreneurship

Myths of Entrepreneurship
1. Entrepreneurs are born not made
 This the most common myth all the persons posses that the characteristics of the
entrepreneur can’t be taught or learned they are qualities gained by birth.
 Today however this myth has been proven wrong as researchers have provided a
numerous case study and a structural framework to learn the entrepreneurship.
2. Entrepreneurs are academic and social misfits
 There is myth called as the person who is weak in academics(school drop outs)
and socially inefficient persons born to start a business.
 The case study says that the education system doesn’t recognize the
entrepreneurial activities inside the students they just pushed to work inside the
system.
 Now due to success in the field of entrepreneurship they are called as the hero
socially, economically and academically.
 Now a days entrepreneurship is a profession.
3. Entrepreneurs fit an ideal profile
 Researchers have presented checklists of characteristics of a successful
entrepreneur. these lists were neither validated nor complete; they were based on
case studies and on research findings among achievement-oriented people.
 Today we realize that a standard entrepreneurial profile is hard to compile. The
environment venture itself and the entrepreneur have interactive effects, which
result in many different types of profiles.
 Contemporary studies being conducted at universities across the world will in the
future. Provide more accurate insights into the various profiles of successful
entrepreneurs.
4. All you need is money to be an entrepreneur
 Researchers have presented checklists of characteristics of a successful entrepreneur.
These lists were neither validated nor complete; they were based on case studies and
on research findings among achievement-oriented people.
 Today we realize that a standard entrepreneurial profile is hard to compile. The
environment venture itself and the entrepreneur have interactive effects, which result
in many different types of profiles.
 Contemporary studies being conducted at universities across the world will in the
future. Provide more accurate insights into the various profiles of successful
entrepreneurs.
5. All you need is luck to be an entrepreneur
 Entrepreneur Being in "the right place at the right rime" is always an advantage but
"luck happens when preparation meets opportunity" is an equally appropriate adage.
  Prepared entrepreneurs who see an opportunity when it arises often appear to be
"lucky".
 They are in fact simply better prepared to deal with situations and turn them into
successes. What appears to be luck is really a combination of preparation.
Determination desire knowledge, and innovativeness.
6. A great idea is the the only ingredient in a recipe for success

 A great idea may stay just that if it is not backed by adequate finance demand for the
product and, most importantly, good management.
 Venture capitalists say bad management is the main cause of failures among small
businesses. "The quality of management will determine the success or failure of the
venture:'
7. My best friend will be a great business partner

 Teaming up with your best friend just because you share an idea and a drink every
weekend may not be a good idea. Sure, you may agree on most issues but
misunderstandings can erupt over insignificant aspects like who should be in the office
first. who's in charge of supervising the office staff and so on
8. Having no boss is great fun
 If you thought your boss was way too demanding, watch out for your vendors, bankers,
investors, suppliers and customers.
 The owner of a restaurant delivery service we met complains that a client refused to pay
for the order because the restaurant did not put in pickles.
 Since customers can make or break you, their wish often ends up being your command.
9. I can make a lots of money
 Before the business gets setup the entrepreneur should sacrifice with pleasure(cash), a
secure income as salary.
 A Sumit was a person who quit his job and opened a outlet called as Univbrands for
three months he used public transport instead of his own cars in this manner the people
should be ready to sacrifice to obtain the success.
10. I will definitely become successful
 Every entrepreneur has a fear of failure, a survival strategy will be very much less
 A successful entrepreneur always thinks of the proverb called as winners never quit,
quitters never become winners.
 Failure is common but should find solutions to overcome it.
11. Life will be much simpler if I work for myself
 It is hard to believe for working to others.
 Working for others may end up in taxing for us ex: Dinesh Gupta he was guiding and
take care of the individual share holding due to this his working hours starts from 5am to
7pm.
Entrepreneurial Development models
The models suggested are

1. Psychological models
2. Sociological models
3. Integrated models

Psychological models

 McClelland has provided a model identified a determinants of entrepreneurship

 The change of the motivation is seen primarily as a result of the ideological awakening
among adults.
 He suggested that policy measure can be a motivational factor and will really encourage
the willing entrepreneurs to identify the new opportunities.
 The Everett Hagen’s theory concentrates on “ creative personality” is essential behavior
and “status withdrawal” is determined by creative.
 Hagen exactly explains the behavior of the entrepreneurship but this policy fails to
explain the varying policy in developmental of entrepreneurs
 John Kunkel Considered entrepreneurial supply by suggesting a behaviorists model. His
model suggests that entrepreneurial behavior is a function of the surrounding social
structure, both past and present, and can really be influenced by manipulating economic
and social incentives. Thus, Kunkel's model is based upon experimental psychology,
which identifies sociological variables as the determinants of entrepreneurial supply.

Sociological Models
 Frank W. Young's theory of' entrepreneurship is a theory of change based upon society's
incorporation of relative sub-groups.
 The relativeness of a sub-group which has a low status in a larger society will lead to
entrepreneurial behavior if the group has better institutional resources than others in the
society at the same level.
 Young's model of entrepreneurship suggests the creation of supporting institutions in
society as the determinant of entrepreneurship.
Integrated Models
 T. V. Rao ( 1975) in "entrepreneurial disposition" has included the following I'actors.
 Need for motive is the dynamic which. for the prospective entrepreneur has
 The greatest possibility of achieving the goals if one performs those activities. Long-term
involvement is the goal either at thinking level or at activity level in entrepreneurial
activity that is viewed as a target to he fulfilled.
  Personal. social and material resources which. he thinks. are related to entry and success
in the area of entrepreneurial activity.
 Socio-political system to be perceived as suitable for establishment and development of
his enterprise.

Above points are the primary root causes which are need to be followed by
any entrepreneurs to start a new business
B S VENKATA Rao described a five stages for promoting small entrepreneurship
1. Stimulation
2. Identification
3. Development
4. Promotion
5. Follow up
Stimulation:
 This stage includes the creation of an industrial atmosphere policy statement
emphasizing the role of smalI industry, wide publicity of industry, wide publicity of
industry development programmes , and formation of special schemes and creation of
support institute.
 This stage is necessary to stimulate interest of the backward regions in industrial
activity and to create awareness.
Identification
 This stage is used to identify prospective entrepreneurs such as factory workers, persons
with formal training in technological field and graduates in business management.
Development
 This stage would include organization of motivation and managerial training
programrnes along with advice on technology, formulation of bankable projects etc.
Promotion
 This stage would include government policy initiatives for promoting small
entrepreneurship
Follow up
 This stage includes reviewing the policies and programmes of government and seeking
follow up with a view to making them more effective.
Entrepreneurial Development Cycle

Figure: Entrepreneurial Development Cycle.

Entrepreneurship is a behavior rather than a personality

Only few of them know the whole process about what they are doing and it’s a risky process.

The MP Akhori suggested a entrepreneurial development cycle as shown in above Figure and
components are as shown below

Stimulatory activities:

 These activities ensure the emergence of entrepreneurs in the society. They prepare the
background for the entrepreneurship to sprout and for people to start looking for
entrepreneurial pursuits.
 They generate initial motivation and offer opportunity to acquire skill. These can he
achieved by the following activities
o Entrepreneurial education
o Planned publicity for entrepreneurial opport-unities
o Identification of potential entrepreneurs through scientific methods
o Motivational training to new entrepreneurs
o Help and guide in selecting products and preparing project reports.
 o Evolving the locally available suitable new products.
o Recognition and creating the entrepreneurial forums
Support activities

 These activities help for the person to nurture the entrepreneurial characteristics of the
persons.
 These can be achieved by providing computers, Internet connectivity, offering
consultancy and training, and providing all required information as to how a person
should groom himself as an entrepreneur.
 Financial assistance for projects and seminars could also promote entrepreneurship.
These activities can be become an entrepreneur promoted in the incubation centre to
groom a person to the various support activities are given below.
o Registration of unit
o Arranging finance
o Providing land, shed, power, water, and so on.
o Guidance for selecting and obtaining machinery
o Supply of scarce raw materials
o Getting tax relief.
o Providing common facilities
o Offering management consultancy services
o Providing information
Sustaining activities

 These activities are all those that help in the continuous and efficient functioning of
entrepreneurship.
 These include modernisation of infrastructure, encouraging diversification, providing
opportunities and supporting industry-institute interaction through consultancy,
promoting quality, and organising need-based common facilities centres.
 The various sustaining activities are as follows.
o Help modernization
o Help diversification
o Additional financing for full capacity utilization
o Deferring repayment or interest
o Diagnostic industrial extension consultancy services Production units legislation
policy change

Problems faced by Entrepreneurs and capacity building for entrepreneurship

Entrepreneurs face a number of problems in the promotion of units and during production,
marketing, distribution, procurement ( getting )of raw materials and getting incentives
offered by the government.

The problems of Entrepreneurs divided into two groups they are

External the factors are beyond the control of entrepreneur

Internal the problems which are not influenced by the external factors

The problems of small and well settled or organized sector are almost identical.

Organized industry is financially very strong and resources are more hence can easily solve their
problems.

Small sectors are weak in financially and resources are limited

Organized industry recruits the well trained managers and technical team.

Small sectors posses only a proprietor or partners nor directors should take care of the problems
arise.

Internal problems of Entrepreneurs

1. Planning
a) Technical feasibility
 Inadequate knowledge about the new technology and usage of it.
 Place of working location causes problem
 The production process is outdated which takes more time and energy( electrical
power and man power).
b) Economic viability
 Investment is high for getting the inputs.
 Break even points are too high.( profit margin for yearly will be less)
 Poor project implementation
 Lack of strategies
 Lack of vision
 Inadequate connections
 Lack of motivation
 Underestimation of financial requirements
 Unduly large investment in fixed assets
 Overestimation of demand
2. Implementation
Cost over-runs resulting from delays in getting licenses, sanctions. and so on and inadequate
mobilization of finance.

3. Production
a) Production management
 Inappropriate product mix
 Poor quality control
 Poor capacity utilization
 High cost of production
 Poor inventory maintenance and replacement
 Lack of timely and adequate modernization and etc
 High wastage Poor production
b) Labour Management
 Excising high waste structure
 Inefficient handling of labor problems
 Excessive manpower
 Poor Labor productivity
 Poor Labor relations
 Lack of trained skilled labor or technically competent personnel
c) Marketing Management
 Dependence on a single customer or to a limited group of customers whose needs
are same
 Poor sales realization
 Defective pricing policy
 Booking of large at fixed prices in an inflationary(changing) market
 Weak market organization ex: weak in advertising or unable to afford the charges
of it.
 Lack of market feedback and surveys. Needs extensive market research regarding
place of marketing, choosing goods etc.
d) Financial Management
 Poor financial planning and resource management which directly reflects on profit
rate
 Faulty costing
 Divided policy
 Deficiency of funds
 Over trading by investing more amount on day trading may end up with loss
 Working capital i.e liquid cash will be lesser which creates problem.
 The machines are less in number or modern machines are not available.
e) Administrative management
  More centralized systems consumes more time to report the aspects to senior
officers.
 Lack of professionalism
 Lack of feedback or improvements to the management or to employees to
improve their performance
 Investment more money on R & D.

External Problems of Entrepreneurs

a) Infrastructure (assets to the companies)
 Purchasing the land for the company.
 Power requirements for fulfilling the demands of the industries.
 Need of water to factory for smooth running of it.
 The place of working should be near to city if not should invest on transport
 Communication between the employees
b) Financial
 Capital investment( an overall invested amount by the company)
 Working capital ( a day bases investment )
 Long term funds ( making a reserve funds for usage during emergency condition)
 Recovery
 Marketing ( Investing on advertisement)
 Taxation ( the amount to be paid to the government in the form of tax)
 Getting the raw material is tougher for all the days of year,
 Inspection group by government ( pollution board, labor officers to check the
safety provided to labors etc)
 Technology ( introduce of the new technology into the production needs more
investment)

Capacity building for Entrepreneurship

 Creating the accurate environment for success

o Entrepreneurs should find it easy to start a business.
o To do so most Indians would start slow with capital borrowed from family and
friends: the CEO playing the role of salesman and strategist: a professional team
assembled months or perhaps years after the business was created and few if any
external partners.
o Compare this with a stand up in the Silicon Valley: a venture capitalist (VC) or
angel investor would be brought in early on: a professional management ream
would drive the business: a multifunctional team would be assembled quickly:
and partnerships would be explored early on to scale up the business.
 Ensure that entrepreneurs have access to the right skills
 o The survey by MCKinsey and company conducted a survey on Indian based
startups and comments about the two gaps are
 Entrepreneurial: Building a team, managing the people, marketing
skills, raising the funds from people or government etc
 Functional: how to market the product, managing the financial support
etc.
o In other countries entrepreneurial skills are gathered or hired by other source
like for business management universities etc.
o India can move forward by changing the syllabus according to the industrial
standards.
 Ensure that entrepreneurs have access to smart capital
o For a long time, Indian entrepreneurs have had little access to capital.
o It is true that in the last few years, several venture funds have entered the Indian
market.
o While the sector is still in its infancy in India, VCs are providing capital as well as
critical knowledge and access to potential partners, suppliers, and clients across
the globe. However, India has only a few angel investors who support an idea in
the early stages before VCs become involved. India Venture 2000 showed this to
be a critical. gap.
o While associations such as TIE are seeking to bridge the gap (by working at
creating a TIE India Angel Forum), this is India's third challenge: creating a
global support network of "angels" willing to support young businesses.
 Enable networking and exchange:
o Entrepreneurs learn from experience-theirs and that of others.
o Much of the success of Indians in Silicon Valley is attributed to the experience,
sharing, and support TIE members have extended to young
 Department of Electronics and Communication
Engineering

Module5
Projects Management, Design and Network
Analysis

Prof. Amogha B,
Dept. of EC&E,
JIT, Davangere.
PROJECT
Project is a one-shot, time-tested, goal directed, major undertaking, requiring the commitment of varied skills
and resources.

A project is a combination of human and non-human resources pulled together in a temporary organization to
achieve a specific purpose

A project has a single set of objectives the project is completed when those objectives are met.

A project is setting up a plant and it is completes if the operation of the plant is started.

SEARCH OF BUSINESS IDEAS

INTRODUCTION

Industry is widely recognized not only as one of the important means in socio-economic and achieving
industrial self sufficiency.

It also accelerates the development in the field of agriculture, transport, trade, services and other potential
sectors.

In mid- twenty the industrialization is the magical world which makes the economical growth.

Persons interested in becoming entrepreneurs must have the ability to generate a large number of ideas so that
atleast one of idea has the potential for a business opportunity.

CHOOSING AN IDEA
Choosing the good idea is the basic reason for successful entrepreneurs.

The idea must to good for both market and entrepreneurs

The main thing is the project should be manageable by the head of the companies without depending on others (
can be employee or another company)

While starting the business being the entrepreneurs don’t stick to only one idea. Plan for the five or ten parallel
plan until one successfully begins its production

Disadvantage of choosing a idea

1. Random receiving of information from what we read and from people we talk due to this there will be
number of back-burner ideas which gives an immune interest to find the information about which we
found.
2. Pursuing the single idea for starting business can make themselves to tie in a corner ex: bottle neck by
the person due to his activities.
3. It’s hard to change our opinion for new idea if we have strong beliefs on previous idea.

Choosing the idea is quite difficult and according to the plan the entrepreneur should build his capabilities in
finalizing the idea.

In the idea generation stage the information or suggestions for the new products are obtained from
 › Possible sources such as internet or through visit to industrial area or working place

› Customers, competitors: by observing about the product rate we can posses a opinion from them

› R&D: making an marketing survey and get to know about the demands of the products.

› Distributors these persons know well about the loss and profit for the product where we can get
the best suggestions

SOURCES FOR IDEAS

There are many sources which help us to generate new ideas some of them are listed below

1. Good understanding of economics and the economy, economics means the where and how to generate
the loan amount, economy means the market to sell the products.
2. Observe the change in the needs of the local people and produce the goods as per it.
3. Adjust the market based on the emerging trends in the society ex: young people prefer fast food hence
fast food shop runs nicely.
4. To get the best business ideas one has to travel around the world or read the books.

WAYS OF FINDING IDEAS

The ways are

 Sources for idea

 Creativity
 Brainstorm (Dream up)
 Observing market ( market survey)

Sources for Idea

 Good understanding of economics (finances) and the economy(market, country)

 Changing needs of the people in locality ex: chats during rainy season.

 Emerging trends in society ex: company outlets for ice-cream polar bear, Baskin Robbins

 Extensive travelling and wide range of readings ex: if starting a whole sale business he/her need she
spend time in other states how they get for lesser cost (for understanding Lenskart, BSC exclusive)

Creativity

 Creativity present inside the person is the requirement to open a small business.
 Problem is the opportunity for the entrepreneurs
 How fast the entrepreneurs tackle problem and finds a solution will survive in the market rest goes
down

Rules of creativity

 Think out of the box(think sideways) ex see if I tell to write about jump clip.
 Every problem has more than one solution
  Uncritical atmosphere gives more ideas
 Creativity is fun

Brainstorm

 It is a process of detaching analysis of ideas from actual development of idea(informal ways often gives
more ideas)
 Ways of getting informal ideas
 Discuss with group than a single
 Don’t criticize during generating phase
 Weird and silly ideas can lead to success ones ex: arranging a sky dive event
 Don’t involve experts in idea generation group
 Don’t take time to explain the ideas
 Listing the ideas on paper which helps in sorting the best solution for problem.

Observing Market

 Estimate the future market demands by seeing earlier orders and product sales.
 Significance
 Meeting a large of buyers from different countries under single roof.
 Assessing the market trend ex: demand and type of products required.
 Assessing the attitude of competitors.
 Comparing the price and quality of similar products.
 Establishing personal contact with dealers/importers/customers

Fresh Ideas

 Instead of spending more cash on top people to hire for advertisement

 Use cheaper platform such as youtube, social media

SELECTION OF PRODUCT
The entrepreneur identifies the particular product by hoping to have a successful marketing with high profit
hence selection of right product leads to successful entrepreneurs.

Right product means which it makes the profit in the market in the future days.

The factors or reasons for selecting the right product are as follows

1. The entrepreneurs choose the banned products from import, so if the product are listed under
banned thing they show favor to import those products as market for those are high (as they are
less in number) and often they reject to import the unbanned products
Ex (Just to understand): restricted items some IoT chips, sensors etc, unrestricted items resistors,
LED etc
2. The entrepreneurs or his parents nor his fellow members will posses some experience in
manufacturing and marketing products hence based on the experience they gained, selects the
product for business which gives more profit margin on other side if entrepreneur doesn’t posses
experience they don’t have favor for buying it.
 3. The selection of product will be based on the degree of profitability this is the basic rule in any
marketing field. The product which makes the profit are found by collecting the information in
banks, financial institutes or through market itself. Hence the selection of product is depends
upon the information collected about it regarding the profitability.
4. There are many schemes provided by the government to provide the financial support for
producing which serves as a substitute product or even essential product. Hence during these
cases for enjoying these kinds of incentives, policy, financial support entrepreneurs choose these
particular products for production. Ex: (Just for understanding PSLV launch vehicle)
5. By the government certain product’s production is resisted to manufacture exclusively(only) by
SSI, this also makes the advantage for the entrepreneurs to choose these kinds of products as
competition is less.
6. The scope of the product in the market is also a another reason to choose the product if the
product quality is of export one then any entrepreneur comes forward to make a choose of it to
have a successful in business lines. Ex: (Just for understanding buying ITC products to sell
instead of local books)
7. For producing some products there should be proper licensed from the authenticated office/
industry, to make a legal document or licensing from government it has more cost hence
entrepreneurs often produce own products or un-licensed products.
8. For some specific products production there is a concession based on the production area or
locality such as production in rural or back areas these can also be a reason for choosing the
product.
9. If the product belongs to an anciliary units and serves as a major component for parent industry,
it provides a ready demand, hence selection of this type of product makes a easy marketings.

Last but not least the selection of products can be depended on the manufacturing is by using machines or not,
raw materials should be of imported quality or not, needs the human power with skilled or unskilled or it needs
a foreign collaboration or not.

The study of the project idea is the very first step in the feasibility analysis. These studies are performed mainly
to understand the logic of project. The ultimate aim to determine the characteristics of the project. The project
idea posses a problem and at the end of the report the person finds the solution for it.

THE ADOPTION PROCESS

The adoption of an innovation demands the change in the management. The adoption is a process which
changes the buyer’s attitudes and perception

The steps listed here are used while attracting the customers to buy a new car

1. Awareness
2. Interest
3. Evaluation
4. Trial
5. Adoption

Awareness
 A person learns about a new idea, product, practice and technology, generally he/she comes to know about
these through advertisement.

The person posses an limited knowledge about special qualities, usefulness, performance and so on.

Regarding an innovation the people really know that they are existed nothing more than it.

Interest

 The person cultivate interest to innovate his interested products, idea etc.
 He/she tries to collect more and information about the new product, its performance and utility
 The person starts listening to information with more interest ex: internet, TVs, Radios, reading ADs etc
 To learn more about the product, performance etc they start consulting others like salesperson, peer
friends, opinion leaders etc

Evaluation

 The accumulated information and other evidences collected are assessed to find the worth of innovation
 He/she makes a detailed analysis about innovation and decides whether it is worth building (following)
it.
 In one word can formulate that a person conducts an mental trial of new product.

Trial

 During this stage the person is ready to take his ideas into real existence
 Personal assistance is necessary to put the innovation for using it.
 Ex: Producing the prototypes for their design

Adoption

 This is the last stage to decide whether to buy the product or not.
 The person adopts the new ideas, product but if the post-experience ( experience after purchasing new
items) is good then he/she places an order further.

PRODUCT INNOVATION
The attitude of the innovation marketer is expressed in a word called as “Innovate or die” and these kinds of
attitude are essential.

Drucker told that there is a equal importance for both innovative attitude and marketing concept and said
that a purpose to create a customer, any business enterprise must have only two basic function marketing
and innovation.

Already well established industries had a important role for innovation in their market and market
penetration plans.

Innovation alone serves two aspects growth and survival where as customer’s response posses only a
survival.
 The evaluation of the project is the one of the part in the project management, in order to efficiently
managing of new products there is a need for perfect organizing with proper controlling.

Project development is the common word used for searching newer products, innovations as well as
improving the existing products.

OBTAINING OF PRODUCTS

PRODUCT PLANNING AND DEVELOPMENT STRATEGY

In order to increase the sales the business people uses an four alternate ways

1. Market penetration
2. Market development
3. Product development
4. Product Diversification
Market penetration ( from figure existing product in existed market)
 This implies that the expansion of the existing products in the existing markets by selling more to
present customers or attract a new customers to the existing market.
 In order to sell the present products in the existing market they make use of aggressive marketing
techniques
 Customers from rivals or potential buyers are also attracted to purchase the products and also increase
the usage rate by the existing customers.
 Temporary price cut to raise the marketing rate ex: big billion day in flipkart or amazon , festival offers,
end of sale.

Market development
 A present product is introduced to a new market or segment market segment is called as market
development.
 It is the creation of the new markets by discovering the new applications for the existing goods ex:
software company produces applications for Financial field and introduces a new applications in
education field. Ex: buses for both passengers and goods ( VRL, SRE) and whats app they added
sending documents, video call, audio calling.
 The firm offers its existing products to the newer markets. This is an alternative to expand the market
opportunity, prolong product life cycles, profitability and survival.

Product Development
 As shown in figure this occurs when a company introduces new products into market in which it is
established very well
 It is like introduction of a new product for the present market ex: introducing the new synthetic die to
the fabric industries, updates for the mobile and laptops.
 The firm may decide to create a new products for existing market, the established firms has large
number of satisfied customer hence introducing the newer products can get the more profit due to the
loyalty.
 The firm by offering new or improved products to present markets can satisfy the present customers
better and stand assured of their loyalty.

Diversification
 This is the mechanism happens when the firm decides to enter to the whole new product with zero
market and product knowledge.
 For entirely new market firm make a brave move with positive belief of getting success.
 The innovation market is essential for the first time launch of the products and only these kinds of
attitudes can enter the diversification. Ex: Sony (Sony made mobile first and entered to new market
cameras, audio systems etc.), Micromax( mobile, television ), Jio( mobile network, mobile handsets, lyk
television, broadband)
 They totally posses an unfamiliar market and unfamiliar product, factors influence while product
introduction are as follows
o Marketability: how to tackle the market to increase the sales rate ex: providing cash back offers
o Durability: the quality of the product should be good such that the product should work fine for
considerably period of time
o Productive ability:
 o Growth potential: Should have a note on the development of the product.
 Another diversity example is Philips ex: light bulbs, radio lamps, television tubes, radio sets, tape-
recorders and a other applications.

Note : 1. Market penetration: penetrating the current market for higher usage rate is a conservative choice

2. Diversification by entering a new market with brand new product is the most radial choice. It is the most
difficult strategy as the firm has no market expertise and no product knowledge. Many firms fail in their
diversification strategies.

PRODUCT PLANNING AND DEVELOPMENT PROCESS

There are seven steps in planning and development for the introduction of new products are

1. New product ideas

2. Idea screening
3. Concept Development and Testing
4. Business analysis
5. Product Development Programme
6. Test Marketing
7. Commercialization

New Product Ideas

  We visualize the detailed features of the model product
 Ideas may be contributed by scientists professional designers, rivalsm customers, sales force, top
management, dealers etc
 In order to launch or manufacture a new product usually the company people posses sixty ideas.

Idea Screening

 We have to evaluate all ideas and inventions.

 Poor or bad ideas are dropped and the elimination process only a profitable ideas are selected.
 The selected projects are investigated further and select best out of it.

Concept Development and Testing

 All ideas that survive the process of screening will be studied in detail
 They will developed into mature product concepts.
 We will have a precise description of the ideas and features of the proposed product.
 We can incorporate consumer preference into our agenda for concept development and testing product
ideas
 Concept testing the company choose the best among the alternative product concepts.
 The feedback are invited by the customers regarding the in-convenience happen to them in detail written
description.
 If any benefits are present they can mention the same in feedbacks.

Business Analysis

 Once the best project is selected from the list it undergoes an critical scrutiny to test the market
potential, capital investment, rate of return etc
 Business analysis is a combination of market research, cost-benefit and assessment of competitions and
also posses demand, cost and profitability analysis.
 It also proves the economic prospects of new product.
 In the business point of view the analysis will provide the information about the product regarding the
value of it after launching and also determine the realistic profit range.

Product Development Programme

It consists of three steps for converting the paper idea (raw) into real world

 Prototype development : before execution of the project some dummy product are made ( sketch of
house using thermo cards)
 Testing of the model at the customer level.
 Label, branding and packing the product: Consumer testing is going to provide the ground for final
selection of the most promising model for mass production and distribution.

Test Marketing

The entire product marketing programme is tried out for the first time in a small number of well selected test
markets i.e. test cities or areas.
Test marketing is necessary to find out the viability of a full marketing program for national distribution

Customer reaction can be tested under normal market conditions.

Based on the market analysis the product can be altered or modified through error and trial method. It is also
used to find the ingredients of products in test market.

The test market can answer the questions such as the product is accurately packed, provided with brand of the
product, consumer have liked the product, have the promotion have reached the customer in a proper way.

Positive answers will boost the confidence of the entrepreneurs and negative response will help to improve the
products.

Commercialization

After getting the permission from the testing department about proper working of the products the company
proceeds to finalize the features of product.

After the product has started its production the marketing department can actively start there promotional
activities for mass distribution or retail(company outlet)

After the production happens successfully the product has taken its birth can proceeds in the project cycle.

CONCEPTS OF PROJECT AND CLASSIFICATION

MEANING OF THE PROJECT

 Economists and bankers have defined the project in many different forms
 ESCAFE defined as “the smallest unit of investment activity to be considered in the case of
programming”.
 Bankers defined as “An approval for a capital investment to develop facilities to provide goods and
services”
 Little and Mirless defined as “A project is an appraisal for investment with the definite aim of
producing a flow of output over a specific time”
 Gordon defined as “ the whole complex of activities involved in using resources to gain benefits”.
 In agricultural projects we think of an investment activity where we expend capital resources to create a
producing asset from which we expect to realize benefits over an extended period of time.
 A project should be understood in terms of economic benefits the Dr. Albert has said that the
“development project purposefulness, specific location, minimum size, introduction of something
qualitatively new and the expectation that a sequence of further development moves will be set in
motion. Development project are privileged particles of development process.
 Hence the project can be defined as scientifically evolved work plan devised to achieve a specific
objective with a specified period of time.
 The three attributes are course of action, specific objectives and definite time
 A project is a productive activity which can be analysed, appraised and monitored independently. A
multi-purpose river valley project is in a sense of gigantic scheme.
 There are some small projects which call for investments and analysis.
 Objective

Internal rate
Size
of return

Social
Scheme Organization
benefits

CHARACTERISTICS OF THE PROJECT

Various meaning are provided to projects the concept of project can be formulated using below four
characteristics

(a) Investment pattern

(b)Benefits or gains:

(c) Time limit; and

(d) Location.

The characteristic features of a project are:

1. Project has a mission or set of objectives

2. The project is one single entity

3. Project calls for team work

4. Project has a life cycle

5. Project is always unique — no two projects are similar

6. Project is always customer-specific

7. Project is a complex set of things

8. Project is exposed to risks and uncertainty

9. Project is a motivated organization

10. Project has to terminate at some time or the other

11. Project has learning component

12. Project process is flexible

13. Project is interrelated

In addition project strives to add value to the society:

1. Development project strives to accelerate the process of development

2. Projects thrive with community participation

3. Project involves varied analyses in its successful completion

4. Each activity in the project is crucial for its success

5. Project implementation calls for monitoring and control

6. Planning is core of a project

7. Project management coordinates all the activities from conception to completion of project.

In short, "the project is an economic activity with well-defined objectives and having a specific beginning and
end."

 It should be agreeable to planning, financing and implementation as a unit where both costs and returns
are well-planned project includes a correct consideration of alternatives, identification of key issues,
broad measurable. A participation, compactness and enforceability.
 It should be, neat, clear-cut and of course, specific. From the point of view of resource allocation, a
project can be considered as a proposal involving capital investment for the purpose of developing
facilities to provide goods and services.

The goods or services which the project seeks to provide differ widely

PROJECT LEVELS
 It posses three levels

› National Level:

 National investment plans are used

 Priorities among sectors are established

 Macroeconomic framework are used

› Sector Level

 Formulates the priorities of investment for each sectors

 Issues at sector levels are discussed

 › Project Level

 Individual projects were identified, prepared and implemented.

In conceptual the project can be described as the sequence of steps proceeding in logical order from the national
to project level.

PROJECT CLASSIFICATION
Classification of project can be understood by studying the project idea.

This helps in showing the essential features of the project through the graphical representation. The features can
be quantifiable (measurable) or non-quantifiable.

The measurements can be in sectors such as potential, capital or labor intensive whether they making for large
or small these graphical representations is easy

Wkt the project is the proposal for investment to create, expand and develop certain facilities in order to
increase production of goods.

Project includes the activities such as

1. Increased production of goods or services

2. Increase the capacity of the existing projects
3. Increasing the productivity of these goods or services

To perform the above activities we need to replace the older or worn-out machines with newer and upgraded
machine.

Projects can be classified as public, private and shared sectors. Public sectors are funded and controlled by state
government, shared sectors are controlled by state and central sectors.

Projects are classified as various ways

1. Quantifiable and Non quantifiable projects

› A person called Little made a this classification

› The main difference between both are quantifiable is measurable(can see), assessments of
benefits can be made

› Ex: Power generation, enhancing processing speed, mineral ore extraction

 Non-quantifiable ex: Making health policies, education and defense ( can’t be measured).

2. Sectoral Projects
 Planning commission of India has made this classification and classified based on sectors
(products generated)

 Agriculture and Allied sector

 Irrigation and Power sector

  Industry and Mining sector

 Transport and Communication Sector

 Social Service sector

 Other projects such as street development basic needs of humans are fulfilled.

3.Techno-Economic Projects
During some cases the projects can be classified based on the economic and technical characteristics there are
three categories which are as follows

 Factor intensity oriented classification: On the bases of this classification, projects may be
classified as capital intensive or labour intensive, this depends on the whether large scale
investment on plant and machinery or on developing human resource
 Causation oriented classification: These are classified based on demand and raw material
providing projects, these exactly depends on the availability of raw materials or skilled workers
on other hand the non-availability of raw materials and skilled workers.
 Margnitude oriented classification: The size of investment forms the bases for classification.
Projects can be classified as large, medium and small scale depending upon the investment on
project.
United nations and its specialized agencies are using the International Standard Industrial
Classification of all economic activities (ISIC) in collection and compilation of economic data.
Under the economic forms we posses ten divisions which are as follows
Division 0- Agriculture, forestry
Division 1- Mining and quarrying
Division 2- Manufacturing
Division 3- Construction
Division 4- Electricity, gas, water
Division 5- Sanitary services
Division 6- Commerce
Division 7- Transport, storage and communication
Division 8- Services and others
Division 9 – Activities are not described in a proper way.

4.Financial Institutions Classification

All India and State Financial Institutions classify the projects according to their age ar for which the project is being
taken up. They are as follows:

 New Projects
 Expansion Projects
 Modernisation Projects
 Diversification Projects.

The projects listed above are generally profit-oriented.

5.Services Projects
The services oriented projects are classified as under:
  Welfare Projects
 Service Projects
 Research and Development Projects
 Educational Projects
 Other classification of projects include:
 New projects
 Expansion projects
 Modernization projects
 Diversification projects
 Other projects related to the services to the customers.

ASPETS OF PROJECT
Aspects Concerned
Product/Service (i) Choice of a product/service
(ii) Technical characteristics of the
product/service
(iii) Uses of the product/service
Marketing (i) Consumer preferences
(ii) Nature of competition
(iii) Potential aggregate demand
(iv) Likely share of the project
(i) Location (ii) Scale of operation (iii) Manufacturing
Technical process (iv) Plant and machinery (v) Plant layout (vi)
Work schedule
Financial i) Outlay on fixed assets (ii) Current assets (iii) Working
capital (iv) Short and long-term finance (v) Bills etc.
(i) Utility to society (ii) Employment generation (iii)
Economic Ancillary development (iv) Scope for area development
(v) Social benefits
Financial viability (i) Costs and benefits (ii) Risk characteristics (iii)
Viability (iv) Internal rate of return (IRR)
Profitability (i) Revenues, earnings (ii) Costs (iii) Profits (iv) Break-
even level of operations
(i) Proforma balance sheet (ii) Sources and use of funds
Financial Projections
Socio-economic desirability (i) Social goals (ii) Desirability of the project from the
larger social angle (iii) Maximum Returns.

PROJECT CYCLE
 The project work has several stages which are collectively called as project work

 Every stage are logically connected in the cycle are interconnected to each other.

 Three stage

› Pre-investment Phase-
1st phase of project
 › Construction Phase- Developing and creation of assets

› Normalization phase- in this phase we develop the goods and service.

Fig : Project Cycle

PROJECT IDENTIFICATION

FEASIBILITY REPORT
 To start a SSI a permission from Director of Industries Service Institute (SISI).

 SISI guides the person for how to start, where to start.

 Based on the area they guide to select which manufacturing unit they can start.

 They suggest the financial institute by seeing the project report.

The SISI gives valuable information on various incentives available to the small scale industries from various
organization.

PROJECT FEASIBILITY ANALYSIS

 It includes market, technical, financial and social profitability analysis.

 Feasibility analysis are difficult but they suit to product where it identify strength and weakness of
project.

 Listing of objectives is the first step in report.

 Next step is pre-selection step and it covers the three areas

(i) A brief market description including the market area, methods of transportation, existing rates of
transport, channels of distribution, and general trade practices.
(ii) An analysis of past and present demand, determination of quantity value of consumption and
identification of the major consumers of the product.
 (iii) An analysis of past and present supply, broken down as source (whether imported or domestic), as
well as information to assist in determining the competitive position of the product, such as selling
prices, quality and marketing practices of competitors.
The technical analysis of a project feasibility study establishes whether the project is technically
feasible or not, and whether it offers basis for the estimation of costs. Moreover, it provides an opportunity
for a consideration of the effect of various technical alternatives on employment, ecology, infrastructure
demands, capital services, support of other industries, balance of payments, and other factors. A technical
analysis should review the techniques or processes to be applied and should incorporate:

(i) A description of the product, including specification relating to its physical, mechanical and
chemical properties, as well as the uses of the product.
(ii) A description of the selected manufacturing process, showing detailed flow charts and presenting
alternative processes which may have been considered and the justification for the adoption of
the selected process.
(iii)A determination of the plant size and production schedule, which includes the expected volume
for a given time period on the basis of start-up and technical factors.
(iv) Selection of machinery and equipment, including specifications, equipment to be purchases and its
origin, quotations from suppliers, delivery dates, terms of payment, and a comparative analysis
of alternatives in terms of cost, reliability performance, and spare parts availability.
(v) An identification of plant's location and an assessment of its desirability in terms of its distance
from raw material sources and markets. For a new project, this part may include a comparative study
of different sites, indicating the advantages and disadvantages of each.
(vi) A design of the plant layout and an estimate of the cost of the erection of the proposed buildings

and land improvements.

(vii) A study of the availability of raw materials and utilities including a description of physical and
chemical properties, quantities needed, current and prospective costs, terms of payment, location
of sources of supply, and continuity of supply.
(viii) An estimate of labour requirements, including a detailed break-down of direct and indirect labour
requirements, and the supervision required for the manufacture of the product.
(ix) A determination of the type and quantity of waste to be disposed of, together with a description of
the waste disposal method, its costs, and the necessary clearance from proper authorities.
(x) An estimate of the production cost of the product.

In the financial analysis of this feasibility study, the emphasis is on the preparation of financial statements, so
that the project may be evaluated in terms of the different measures of commercial profitability followed by
Magnitude of financing which requires market and also technical cost estimation.

The financial analysis should include

1. For project that involve new companies, statements of total project cost, initial capital requirements and
cash flow
2. For all projects, supporting schedules for financial projection, stating the assumption made as collection
period of sales, inventory levels, payment period of purchase and expenses.
3. For all projects, a financial analysis showing returns on investments, returns on equality, break even
volume and price analysis
 4. For all projects if necessary, a sensitivity analysis to identify items which have a substantial impact on
profit or possibly a risk analysis.

PROJECT FORMILATION
It is defined as taking a first look carefully and critically at a project ideas by an entrepreneurs to build up an all
round beneficial to project after carefully weighing its various components

It is formulated by the entrepreneur with the assistance of specialists. Hence project formulation is a process
where by the entrepreneur makes an objective and independent assessment of various aspects of an investment

STEPS IN PROJECT FORMULATION

 Project comprises a series of activity for achieving pre-determined goals.

 The objectives may be social, economic or a combination of both and they can be defined as follows

 General objectives

 Specific Objectives

 General Objectives: objects are meant in broader way ex: Open a R&D

 Operational Objectives: specific objective ex: open a biochemical R&D

SEQUENTIAL STAGES OF PROJECT FORMULAITON

 Steps are

 Feasibility analysis

 Techno-Economic Analysis

 Project design and network analysis

 Input Analysis

 Financial analysis

 Social cost benefit analysis

 Pre-investment analysis
  Feasibility Analysis: This is the very first stage in project formulation. At this stage, the project idea is
examined from the point of view of whether to go in for a detailed investment proposal or not. As
project idea is examined in the context of internal and external constraints three alternatives could be
considered. First, the project idea seems to be feasible, second, the project idea is not a feasible one and
third, unable to arrive at a conclusion for want of adequate data. If it is feasible, we proceed to the
second step, if not feasible, we abandon the idea and if sufficient data are not available, we make more
efforts to collect the required data and design development.
 Techno-Economic Analysis: In this step, estimation of project demand potential and choice of optimal
technology is made. As the project may produce goods or services, it is imperative to know the market for
such goods or services produced. Market analysis is also in-built in this step. The choice of technology
itself will be based on the demand potential and aid in project design. Techno-economic analysis gives the
project a unique individuality and sets the stage for detailed design development.
 Project Design and Network Analysis: This important step defines individual activities which
constitute the project and their inter-relationship with each other. The sequence of events of the project is
presented. A detailed work plan of the project is prepared with time allocation for each activity and
presented in a network drawing. Project design is the heart of the project entity. This paves the way for
detailed identification and qualification of the project inputs, an essential step in the development of the
financial and cost-benefit profile of the project.
 Input Analysis: The step assesses the input requirements during the construction of the project and also
during the operation of the project. In the earlier step, a project was divided into several activities. Now
it is better to see to the inputs required for each activity and sum it up to get at the total input requirements
on qualitative and quantitative terms. Inputs include materials, human resources. Input analysis also considers
the recurring as well as non-recurring resource requirements of the project and evaluate the feasibility of the
project from the point of view of the availability of resources
 Financial Analysis: This stage mainly involves estimating the project costs, estimating its operating
costs and Fund requirements. Financial analysis also helps in comparing various project proposals on
a common scale, there by decision making. Some of the analytical tools used in financial analysis
are discounted cash flow.
 Cost Benefit Analysis: the overall worth of a project is the main consideration here, while financial analysis
will go to justify a project from the profitability point of view, cost-benefit analysis will consider the project
from the national viability.
 Pre-investment Analysis: The project proposal gets a formal and final shape at this shape. All the results
obtained in the above steps are consolidated and various conclusions arrived to obtain an clear picture.

Project Evaluation
 Apart from looking from the financial viability of a project in terms of investment and benefits from
project it also necessary to estimate the impact of project to national Economy
 Two views are there socio-economic and cost benefit.
 Social cost benefit doesn’t only considers the investment propositions but it tries to make an economic
equilibrium.
 Cost benefits how the project helps the society to improve its present state
PROJECT DESIGN AND NETWORK ANALYSIS

IMPORTANCE OF NETWORK
The network analysis has the potential of unfolding the hidden problem, these kinds of problem are resolved
well in advance and it helps in future days i.e. as a future lesson.

 The whole project is sequential in nature.

 Events inside a project should be with different streams
 The whole project is made on one network i.e. every activity performed are known to manager.
 The time estimates may he made taking into view two discrete aspects: one projects in which previous
experience does not exist at all and time estimates would have to be based on probility and two, times
estimates may be deterministic, being based on previous experience of similar types of operations in
different other projects.
 Cost estimates would depend on the project time estimates and the changes in the prices of different
factors of production. In this specific context, provision of clause are not enough. This is apart from
efficiency variations both favourable and unfavourable depending on circumstances not quite at time
were made.
 The physical progress of projects, individuality and simultaneity of events, jobs framed out and
different areas of project work with adequate notice and application of correctives in proper time.

ORIGIN OF PERJ AND CPM

Incidentally, PERT, CPM and MOST are but three of some 40 different names given to network
analysis. It is believed and underlined that network is a logical extension of the old Grant Bar Chart.
PERT and CPM techniques were developed in the U.S. independently, while CPM came into focus
about 1957 as an offshoot of collaboration between Du Pont and Remington Rand. While different
distinctions are often ascribed to CPM and PERT, the basic distinction is perhaps that the emphasis of
CPM is essentially on the activities themselves, the costs associated with completion of each activity
and optimum plan for the project as a whole. PERT, which was developed about 1958 as a result of
collaboration between the Operational Research Division of the United States Navy and a firm of
business consultants, had for emphasis the events rather than the activities leading to events. Most of
the distinctions have, however, dissolved while both PERT and CPM underwent different measures
for attaining perfection through their application as tools.
PERT was applied to help solve problems of producing the Polaris Missile system to a very tight
schedule. Application of PERT has been based on probability estimates covering those pessimistic,
those optimistic and those considered normal. In unique types of projects like the Polaris Missile,
since previous experience in similar types of activities do not exist, probability calculations have
occupied a significant place. However, considering that all these techniques concerned with planning
and control of projects have network analysis as a common denominator, it is relevant to point out
that MOST emphasises more on building up of Gantt type charts covering each activity, event, time,
cost, projects farming out, employment of different classes of managers and workers, procurement of
materials, deployment of materials relating to the completion of the project. Unlike PERT and CPM
diagrams, MOST diagrams actually begin at the end of the project, working back towards the start of
the activities. Instead of 'beginning to end emphasis in PERT and CPM, in MOST the emphasis is on
'end to beginning.' One advantage of MOST diagrams is that it can be converted into PERT-CPM
type diagram depending on the requirements of management.

NETWORK DESIGN
 Network comprises a set of exponents connected with each other in a sequential manner till the end of
project.

 These plan for both large and small projects based on activities of it.

 Usually projects are broken down into smaller components later they are arranged in logical sequence.

NEED FOR NETWORK TECHNIQUE

 In project posses two activities job and activities

 These two can be taken concurrently and which can be taken after completion one activity.

 Scheduling the time for achieving milestone based on priority.

 Ex: Can be Training of staffing, labour management, raw materials, delivery time, machines etc.

Disadvantage of network technique

 Bar charts becomes bulky for big companies.

 Bar charts won’t provide information about providing the priority to specific activity.

 In scheduling the effect of changes can’t be seen

 Bar chart just tells about the tolerance time for activity rather than a start or ending time of activity is not
specified.
 Milestone Chart

PERT is concerned with two concepts

1. Events: An event is a specific accomplishment that occurs at a recognizable point of time and does not
call for wither the need of time or resource.
2. Activities: an activity is the work required to complete a specific event.

STEPS IN PERJ
Establishment of objectives is the very first step in PERJ, there will be a major objectives to be accomplished,
linked by supporting objectives.

When these are identified they must be linked together so as to enable to planner to see the project in its true
perspective and also see the relationships between and among all steps.

The second step is to schedule work breakdown in great detail

The third step is maintaining both the technical and managerial persons should begin to work together.

The fourth step is that each person who participates in the application of PERT.

The steps involved in PERT analysis are as follows

 Development of project network

 Time estimation

 Determine critical path and activities

 Development of project schedule

 Calculating the time required to complete the project.

PERT deals with the problem of the uncertain activity time by the applications of statistical analysis to
determination of estimated time for each activity of project.
This technique is the tool for the manager to define and co-ordinate what must be performed to achieve the
objectives on time. It helps for decision maker but doesn’t help the managers.

PERT time is measure of time required to meet the tasks usually expressed in calendar of weeks, the project
should be completed in specified amount of time.

In order to complete the project with specified amount of time the below three techniques are used

1. Optimistic time: It is the shortest time possible if everything goes perfectly well with no complications,
the chance of this optimum actually occurring might be one in a hundred.
2. Pessimistic time: It is longest time, it includes time for unusual delays and the chance of its happening
might be only one in a hundred
3. Most likely time: It would be the best estimate of what normally would occur.

Advantaged of PERJ
 Techniques helps in achieving the effective utilization of the resources.

 Helps in management of the uncertainties in the project

 It focus on right action, at right time in organization

LIMITATIONS OF PERJ
 Time estimation for activities as every task are non-repetitive.

 Resources required aren’t listed in this method.

 Use of this technique for active control of a project requires frequent updating and revising the PERT
calculation and this proves quite a costly affair.

CRITICAL PATH METHOD -CPM

 Next to PERT the CPM is the best option for planning and controlling the projects

 Established in year 1956 at USA, in connection with the periodic overhauling and maintenance of a
chemical plant.

 First it has solved a drastic problem in chemical industries of USA

 The repair time i.e. reduced the shut down time, has reduced from 130 hours to 90 hours which saved 1
million dollar to company

 The CPM has two time-cost estimation for each activity

 One time estimation for normal situations

 Another one for crash situation

 CPM operates on the assumption that there is a precise known time that each activity in the project will
take.
ADVANTAGES OF CPM
 Helps in determining the time schedule

 Control of management is made easy

 Planning is made in a better way

 Provides a standard method for communication of project plans, schedule, time and cost performance

 It identifies the most critical elements and thus more attention can be paid to these activities

LIMITATIONS OF CPM
 It fails to make statistical analysis

 It assumes precise time is fixed to every project but it is not true in practical days.

 It is difficult to use CPM as a controlling device for the simple reason that one must repeat the entire
evaluation of the project each time when changes are introduced into the network.

 It may be remembered that CPM was initially developed as a static planning model and not a dynamic
controlling device.

DIFFERENCE BETWEEN THE CPM AND PERT

PERT
The origin of PERT is the field of military
Pert is an event oriented approach
It contains the three time estimates
There is allowance for uncertainty due to changes in
external world
It is probabilistic model with uncertainty in activity
duration
It does not demarcate between critical and non-critical
activities
It is especially suitable when high precision is required in
time estimates ex: defense projects
Time provided for all activities are averaged
The concept of crashing is not applied
It lays emphasis on reduction of the execution time of the
project without too much cost implications. It is time based.
CPM
This method used first in the industries
COM is the activity oriented system
In this method it posses only a single time estimate and the
emphasis in no cost
There are no allowance available for any of the uncertainty
happens
It is a deterministic model with well known activity time
based upon past experience
It marks critical activities
It is suitable when reasonable precision is required ex: civil
construction projects, industrial expansion schemes etc
No averaging of time is involved in this method.
The concept of crashing is applied
It lay emphasis on the greatest reduction in completion
time with the least increase in project cost. It is cost-based.
MODEL Question paper