Chapter 1

ESSENTIALS OF MANAGEMENT

Learning Objectives
To understand the role of organizations in modern societies To appreciate the importance of management for organizations To understand difference between efficiency and effectiveness To comprehend generic functions of management To learn about different managerial roles To appreciate different types of managerial skills and their importance at different levels of organization

Role of Organizations in Modern Societies

In Modern times it is appropriate that TermMarket Economy be replaced by term Organizational Economy- Herbert Simon Positive association between prosperity of an Economy and Role of Companies- Sumantra Ghoshal Companies engender Value-Creation through Resource Combination and Exchange that markets alone can not do Companies have Distinct capability to Share, Transfer, Synthesize and Create Knowledge over Markets

Efficiency and Effectiveness

Efficiency refers to Doing Things Right Effectiveness refers to Doing the Right Thing- Peter Drucker Efficiency is concerned with getting most output out of scarce resources (Capital, Human Resource, Raw Material etc.) Effectiveness is achieved by setting right organizational goals. No amount of efficiency can make up for lack of effectiveness.

MANAGEMENT" Variously Understood

Specific Organ Of an Organization that has the responsibility to deliver results consistently Process that drives an Organization towards its Performance People who have authority to Plan, Organize, Lead and Control different Organizational activities Applied Discipline Profession or a career

Generic Functions of Management

Managerial Jobs are characterized by Variety, Fragmentation, Brevity and Oral communication with several people. First written about by Henri Fayol and later elaborated by Lyndall Urwick, Classical Management functions are: PLANNING ORGANIZING LEADING CONTROLLING

Management Functions

PLANNING
Setting Objectives Formulating Strategies Policies Procedures Methods

Steps Involved in Planning

Situational Analysis

Desired Goals, Objectives and Result from System

Goal and Plan Evaluation

Establish Goals and Plans

Chalk out Strategies to Reach Goals and Implementation

Acknowledge Completion and Celebrate Success

ORGANIZING
An Intentional Structure of Roles Organizational Structure Responsibility & Authority achieving objectives Departmensation Span of Control Line & Staff Relationships

for

LEADING
Leadership Skills Motivation Team Work Communication Negotiation Conflict Resolution

CONTROLLING
Anticipate, Monitor & Respond to changing Environment.
Measurement of Actual Performance Comparison against the Standard Managerial Action to correct Deviation

Traditional Financial Controls are based on

LIQUIDITY ACTIVITY PROFITABILITY LEVERAGE BALANCE SCORECARD

Managerial Roles
INTERPERSONAL Figurehead Leader INFORMATIONAL Monitor Disseminator Spokesperson DECISION Entrepreneur Disturbance Handler Resource Allocator Negotiator

Management Skills
TECHNICAL SKILLS CONCEPTUAL SKILLS HUMAN SKILLS Managers at Top Level need Conceptual Skills the most and First-Line Managers Technical Skills the most

Chapter 2

EVOLUTION OF MANAGEMENT THEORY

Learning Objectives
To understand the historical evolution of management discipline. To comprehend different schools of management thought. To critically appreciate the modern day relevance of difference schools of management thought. To know contributions of pioneers of management thought. To become aware of contemporary approaches to management. To get acquainted with Eastern Management thought.

Major Schools Of Management Theory

CLASSICAL SCHOOL BEHAVIORAL SCHOOL QUANTITATIVE SCHOOL SYSTEMS SCHOOL CONTINGENCY SCHOOL CONTEMPORARY /EASTERN APPROACHES

CLASSICAL SCHOOL
Scientific Management:- Application of Scientific Method to optimize productivity
FREDERICK W.TAYLOR [1856-1915] HENRY GANTT [1861-1919] FRANK [1868-1924]& LILLIAN GILBRETH [1878-1972] HUGO MUNSTERBERG [1863-1916]

Administrative Management:- Emphasizes Role of the manager and the functions of Management.
HENRI FAYOL [1841-1925] HENRI MINZBERG

Bureaucratic Management:- Focuses on Ideal Form of Organization.

MAX WEBER [1864-1920] PETER DRUCKER

BEHAVIOURAL SCHOOL
Human Relations:- Dealt with human aspects of
Organizations
ELTON MAYO [1880-1949] & OTHERS MARY PARKER FOLLETT CHESTER BERNARD [1886-1961] Human Resources:-Motivation and Leadership techniques ABRAHM MASLOW,KURT LEWIN & OTHERS

focus etc.

Behavioural Science:-Personality, Attitude, Groups, Values focus etc.

DOUGLAS McGREGOR FREDERICK HERZBERG CHRIS ARGYRIS RENAIS LIKERT

QUANTITATIVE SCHOOL

Management Science &MIS:- Uses Mathematical and Statistical approaches to solve management problems GEORGE DANTZIG Etc. DSS &ERP SYSTEMS Production and Operations Management:-Focuses upon operation and control of production process that transforms resources into finished goods and services. JURAN W.EDWARDS DEMING

SYSTEMS SCHOOL
Views Organizations as an interrelated and interdependent set of subsystems functioning as a whole open system interacting with the Environment
LUDWIG VON BERTALANFFY JAMES ROSENZWEIG KENNETH BOULDING

CONTINGENCY SCHOOL
Emphasizes the fit between organizational processes and the characteristics of the situation
PAUL LAWRENCE JAY LORSCH FRED FIEDLER JOAN WOODWARD

CONTEMPORARY APPROACHES
Total Quality Management :-Managing the entire organization to deliver quality goods/services to the customer
JOSEPH JURAN/W. EDWARDS DEMING/PHIL CROSBY

Learning Organization:-All employees involved in the growth & learning of organization as it deals with the changing environment
PETER SENGE

Excellence Approach:- Attributes of Excellence empirically derived.

PETERS & WATERMANS

Chaos Theory:- Views Organizations as complex adaptive systems

OTHER APPROACHES
Indian Management Approach:Emphasizes value-based and management of mind as well as an attitude of detachment to the outcome but focused concentration on the work in hand. Japanese Management Approach:Emphasizes Participative style of Management continuous improvement.

and

CHAPTER 3

MANAGEMENT BUSINESS ENVIRONMENT AND SOCIETY

Learning Objectives
To learn and appreciate the significance of business environment and society in management. To understand difference between old and emerging economies. To learn application of Michael Porter model in diagnosing the competitive business environment. To learn the significance of corporate social responsibility in todays business environment To understand importance of social audit

 To learn the difference between business ethics and ethics in business. To learn about steps involved in ethical decision making. To learn about what is meant by corporate governance and its relevance ethical standards

Introduction
Managerial actions as reflected in the organizational performance is the outcome of synchronization of internal systems to respond effectively to the external environment. Organizations for their success in todays fast changing environment have to keep adjusting, adopting, and adapting by developing inbuilt response mechanisms Need to understand importance and relevance of organizational environment for strategic management as also for social concern and value-based management.

Macro Environment Affecting Organization

SOCIAL CULTURAL

LEGAL TECHNOLOGICAL
ORGANIZATION

COMPETITIVE

POLITICAL

DEMOGRAPHIC

ECONOMIC

Trends Affecting Emerging Economies

Old Economies
Dominance of agriculture and Manufacturing Local and national markets Customer behaviour loyalty highly Competitive forces tolerable intense Regulated economic regime Emphasis on physical assets

Emerging Economies
Dominance of service sector Global markets Customer behaviour fluid Competitive forces Deregulated regime Emphasis on human assets

Michael Porters Model Competitive Diagnosis

Threat of new entrants Power of suppliers

Rival firms and rivalry amongst them Power of customers

Above factors need to be appropriately diagnosed by the managers to identify their competitive advantages and disadvantages, so as to chalk out strategies that can enable them to achieve their corporate goals and objectives by responding effectively to various environmental forces.

Corporate Social Responsibility (CSR)

CSR focuses on need for seriously considering the impact of the companys actions on society CSR basically refers to the obligation toward the society voluntarily assumed by business. The philosophy of business as highlighted by Keith Davis and Robert Blomstrom (1975) states Social responsibility is the obligation of decision makers to take actions which protect and improve the welfare of society as a whole along with their own interests This implies that business has to be viewed more than a money-making proposition and it provides a great opportunity to serve society. Business entity has also to focus their efforts on protecting welfare of the society by creating positive benefits for society. Corporate Social Responsiveness means the extent to which companys policies and programmes are geared to the social environment. The responsiveness focuses on actions that results in ways and means of firms responses to social concerns as against responsibility that focuses more on need and should for corporate sustained growth.

Corporate Social Responsibility (CSR) at Different Levels

CSR Obligation toward Society Voluntarily Assumed by Business

Voluantry Responsibilities Ethical Responsibilities Legal Responsibilities Economic Responsibilities

Advantages of CSR
The organizations that integrate CSR as part and parcel of their philosophy of growth, derive various advantages such as improved financial performance, cost reduction, enhanced brand image and reputation, increased customer satisfaction, enhanced productivity, quality, increased market share, more engaged investors, environmental sustainability, and above all competitive edge in the market.

Social Audit
Mandatory as Required by Government Social Audit
Pollution Check Employment Standards Labour Amenities to be provided as per factory Act, Minimum Wages to be Provided

Voluntary Social Programs undertaken by companies

Rural Development Education Health

Ethics Different View Points

Various Views on Ethics
Ethics

Utilitarain View

Rights View

Justice View

Utilitarian View: The utilitarian view focuses on welfare of the greatest number of people, implying thereby the greatest good for the greatest number as a criterion for weighing and evaluating decisions. Rights View: The protection of individual's rights is the main concern as per rights view. Justice View: The justice view is grounded in the idea that rules of organizational or societal existence must be imposed equitably to all. The focus is making a decision that is objective without prejudice to emotions and fair to everyone involved.

Ethical Decision Making

Define the problem and issue clearly and explicitly Jot down the values relevant to the situation for the issue under consideration from the short and long term perspective Analyze the issue vis--vis conflicting values and choose an alternative that takes care of most crucial values Implement the decision

Chapter 4

PLANNING A TOOL FOR EFFECTIVE MANAGEMENT

Learning Objectives
To understand the importance of planning To know what plan and planning mean To learn about steps involved in planning To learn about different types and levels of planning To understand SWOT analysis as a tool for business strategies development To understand the use of BCG matrix in categorization of businesses To understand concept of MBO and its relevance to planning

Planning and its Various Facets

Planning refers to a systematic approach towards making decisions about goals and objectives and the associated activities that need to be carried out along with various resource requirements
What is Planning?
Planning Systematic approach of making decision about goals and objectives and associated activities

A C T I V I T I E S

Goals & Objectives Plans Policies Procedures Rules Strategy Task Resources Program Budget

Goals and Objectives

Goals refer to specific objectives that an organization aspires to accomplish in total, or in some combination, in order to achieve some larger purpose, i.e., the mission of an organization Objectives are clear and verifiable yardsticks against which performance can be measured. The accomplishment of various functional and departmental objectives lead to the achievement of goals.

Plans and Policies

Plans are the actions or means that a manager proposes to use for achieving pre- determined goals. A plan indicates what the management wants to achieve. It specifies the steps that are to be taken towards the achievement of goals. Policies refer to a broad statement and/or a set of guidelines that direct decision-making. It is a plan of action adopted by an individual or an organization. They define the framework within which managers are expected to make decisions leading to the achievement of objectives.

Procedures, Rules and Strategies

Procedures are plans that set out the required methods and processes to handle future activities. Rules refer to principles or conditions that govern behavior. They define specific required actions and inactions in given circumstances . Strategies are an elaborate and systematic plan of action. These are the methods or processes required in total, or in some combination, to achieve the goals.

Objectives and Tasks

Objectives are specific targets that must be accomplished in total, or in some combination so as to achieve the predetermined goals in the plan A piece of work that is undertaken to contribute towards the achievement of objectives is called task

Resources, Programmes , and Budget

Resources include the people, materials, machines, technologies, money, etc. required to implement the strategies or processes A program is a combination of goals, policies, procedures, rules, and set of activities to be undertaken, resources to be deployed and other interrelated actions required to be undertaken for accomplishment of a purpose. Budget is a statement of expected provisions or results expressed in numerical terms. It can be for inputs as well as outputs

Steps Involved in Planning

Situational Analysis

Desired Goals, Objectives and Result from System

Goal and Plan Evaluation

Establish Goals and Plans

Chalk out Strategies to Reach Goals and Implementation

Acknowledge Completion and Celebrate Success

Types of Planning

Types of Planning

Short-term Planning

Medium-term Planning

Long-term Planning

Levels of Planning
Levels of Planning

Strategic

Tactical

Operational

Strategic planning is undertaken at the top-level of the management. It deals with decision making about the organizations long-term goals and strategies . Tactical planning deals primarily with the specific goals and plans pertaining to functional areas production, marketing, human resources management, etc. It deals with major actions pertaining to implementation phase of the planning process. Operational planning deals with specific systems, procedures, and processes required to implement the tactical plan at the level of the operational or frontline manager.

What is SWOT Analysis?

SWOT Analysis

External

Internal

Opportunities

Threats

Strengths

Weaknesses

Develop Business Strategies

Opportunities and threats are diagnosed by undertaking an external environmental analysis. Strengths and weaknesses are essentially internal to the organization and pertain to its resources. These relate to resources human and nonhuman, physical, processes, programs, and organization in key areas.

Developing Business Strategy

SWOT analysis helps in identification of possible strategies based on the following criteria: Build and develop on strengths Resolve and overcome weaknesses Exploit and avail opportunities Avoid or minimize the effect of threats BCG (Boston Consulting Group) has developed a tool that enables the mapping of all the organizations businesses based on the criteria of market growth and relative competitive position vis--vis competitors.

BCG MatrixA Tool for Mapping Businesses of Organization

STARS
Market Growth

QUESTION MARKS

CASH COWS

DOGS

Relative Competitive Position

Stars are the businesses having high growth as well as a strong competitive position. Dogs have low growth and weak-competitive position businesses. Cash Cow businesses have low growth but are having strong competitive position . Question Marks are the businesses that have high growth but weak competitive position

Management By Objectives (MBO)

MBO is a

management system that is goal driven and success-oriented

MBO is defined as an integrated managerial system that is systematically and consciously directed towards achievement of organizational and individual objectives

Employees Get Adequate and Strong Input to be Clear about their Objectives, Time Lines for Completion Synchronizing Goals and Subordinate objectives throughout the Organization

Tracks Performance to Provide a Feedback for Taking Timely Corrective Measures Enhances Organizational Performance

Salient Features of MBO

Cascading of Organizational Goals and Objectives Specific Objectives Driven

Salient Features of MBO

Participative Decision Making Process Explicit Time Period Deadlines

Performance Evaluation and Feedback

Benefits of MBO
Ensuring personal commitment to organizational goals Provides goal and role clarity in the organization and in turn helps in devising organizational structure conducive for improving efficiency and effectiveness Ensures result oriented planning Development of effective control mechanism leading to timely corrective actions Less supervision of subordinates and increased motivational level as a result of each employees clear definition of responsibilities Employees accountability increases Improved managerial effectiveness and efficiency results in greater satisfaction level to the employees

Disadvantages of MBO
Failure to teach the philosophy of MBO across the organization Lack of guidelines to goal setters Difficulty in setting verifiable objectives Over emphasis on short term achievements at the cost of long term growth and development Lack of flexibility to attune changes with changing environmental forces Over emphasis on quantitative goals, even where it may not be applicable It turns out to be paper passing buck, especially in organizations where in well set mechanism to monitor and evaluate the performance does get laid down It is a time consuming process to imbibe the philosophy of MBO in the organization

Chapter 5

ORGANIZATIONAL STRUCTURE

Learning Objectives
To understand what is meant by organizational structure. To comprehend different dimensions of organizational structure. To understand difference between job specialization and differentiation To understand what is meant by formalization To understand difference between centralization and decentralization. To understand the use of different bases for departmentation. To understand the effect of size, environment and technology on organizational structure. To learn about Mintzbergs typology of organizational configurations.

DIMENSIONS OF ORGANIZATIONAL STRUCTURE

Job Specialization Behaviour Formalization Centralization

JOB SPECIALIZATION
Division Of Labour Job Specialization in horizontal and vertical dimensions Job Enlargement Job Enrichment When to go for job Enlargement? When to go for Job Enrichment?

BEHAVIOUR FORMALIZATION
By Positions [Job Description]. By Work-Flow [Process Descriptions]. By Specifying Rules [Regulations, Policy Manuals, Code and Conduct Rules etc.]

CENTRALIZATION
Vertical Decentralization. Horizontal Decentralization Selective Decentralization. Parallel Decentralization.

DEPARTMENTALIZATION Based on..

Number Function Product-line Territory Customers Processes Matrix Cross-functional team Virtual Network

SPAN OF MANAGEMENT
Tall Structure Vs. Flat Structure. Chain of Command. Line and Staff Relationships.

SITUATIONAL FACTORS AFFECTING STRUCTURE

SIZE ENVIRONMENT
STATIC VS. DYNAMIC SIMPLE VS. COMPLEX

TECHNOLOGY
BATCH PRODUCTION MASS PRODUCTION PROCESS PRODUCTION

MINTZBERGS TYPOLOGY
Key Parts Of an Organization: Operating Core Strategic Apex Middle Line Techno-structure Support Staff

MINTZBERGS TYPOLOGY.
Coordinating Mechanisms: Direct Supervision Mutual Adjustment Work-Process Standardization Outputs Standardization Skills or Knowledge Standardization

MINTZBERGS TYPOLOGY.
Simple Structure Machine Bureaucracy Professional Bureaucracy Divisionalized Form Adhocracy

Chapter 6 ORGANISATIONAL EFFECTIVENESS

Learning Objectives
What is meant by organizational effectiveness Organizational culture and its implications to organizational effectiveness Factors that build and nurture favourable organizational culture Different organization life cycle stages Measuring organizational effectiveness. What does it take to become a high performance organization? Characteristics of effective organizations

Organizational Effectiveness
Organizational effectiveness is defined as the ability of an organization to maximize its performance within a competitive external environment . An organization is a consciously coordinated entity with an identifiable boundary that functions on a relatively continuous basis to achieve a common goal or set of goals. An organizational structure defines how roles are defined, tasks are allocated, relationships are reported, and the formal coordination and interaction pattern that the organization would follow

Organizational Effectiveness and Culture

Culture is a set of norms, values, and assumptions that are available to the staff, and it is thus inseparable from action and process . Schein states that organizational culture develops in response to two major challenges that every organization confronts; external adaptation and survival and internal integration. organizational culture is defined as the overall attitude of the people within an organization. It contributes a great deal to the achievement of its objectives and in improving its effectiveness.

Organization Life Cycle Stages

Organization Life Cycle Stages Entrepren eurial Stage

Collectivity Stage

Formalization and Control Stage

Elaboration of Structure Stage

Decline Stage

Entrepreneurial Stage The organization is in its nascent stage. Although its goals are ambiguous, they have a high level of creativity. Collectivity Stage Innovations continue in this stage and the organizations mission is clarified. Communication is informal and its employees are highly committed to the organizations objectives and goals. Formalization and Control Stage In this stage the organizational structure stabilizes and formal rules and procedures put in place. However, innovation is given a back seat while efficiency and stability is emphasized upon. Elaboration of Structure Stage: Products and services are diversified at this level. The structure becomes more complex. Decision-making gets decentralized. Decline Stage: This is the stage when management looks for ways to hold the markets and look for new opportunities. Organizational effectiveness demands to come out with new ideas to exploit existing or emerging opportunities.

Model for organizational effectiveness measurement criteria

Organisational Organizational Effectiveness Where the Organiszati on is? Where the Organization Would like to be

Corporate Goals: Quantitative Qualitative

Individuals and the Groups Performance Viewed and Evaluated vis--vis a Predetermined Criteria

Individuals and Groups at Different Tiers have to Plan and Execute a Sequence of Actions and Activities.

Parameters for Hugh Performance Organizations

Parameters Values and goals Leadership behaviour Decision-making Management processes Talent Measure and incentives Customer focus Frontline support Performance culture Capacity to change Yardsticks Clear vision Cohesive leadership Crisp decision Value adding processes Deep talent Meritocracy Consistent high quality Fit High performance Continuous evaluation

Characteristics of Effective Organizations

Providing sustained leadership Driving effective decisions Focusing people on performance Aligning the front line Driving a high-performance culture

CHAPTER 7

BUSINESS ECONOMIC FUNDAMENTALS

Learning Objectives
The meaning of economics The purpose of studying economics Types of economic theories Demand and supply concepts and their relevance to the understanding economic behaviour How market mechanism operates Concepts of elasticity, factors affecting elasticity, and their implications to economic decision-making

What is Economics?
Economics (derived from the Greek words (okos), house, and (nemo), rules hence, household management) is the social science that studies the allocation of scarce resources. This involves analysing the production, distribution, trade, and consumption of goods and services. Economics studies choice, decision-making, and optimum allocation of limited resources to fulfil unlimited human needs and wants. Economics involves analysing the production, distribution, trade, and consumption of goods and services with a view to suggest optimum allocation of resources.

Why study Economics?

Economics needs to be studied as it provides a logical way of diagnosis, analysis, and solution to a variety of problems that arise within an organization

Classification of Economic Theories

Economics - is the study of choice and decision-making in a world with limited resources to fulfill unlimited wants

Positive and Normative Economics

Micro-economics and Macro-economics

Descriptive Economics, Economic Theory, and Applied Economics

 Positive economics deals with causal relationships and attempts to find out the causes that lead to a given effect or the vice versa. Normative economics is prescriptive in nature and has more to do with values. Microeconomics deals with individual behaviour of a householder, consumer, businessperson, producer, etc Macroeconomics considers the economy as a whole and deals with aggregate variables such as aggregate demand and supply for money, capital, and commodities.

 Descriptive economics refers to the collection of all the relevant facts related to an event and aligning them coherently with emerging implications . Economic theory or analysis helps simplifying explanation of features of an economic systems Applied economics operates within the framework of analysis provided by economic theory. It attempts to test the economic theories to ensure whether or not these theories appear to be supported by statistical evidence about the real world.

Demand
Demand for a product is defined as the various quantities of it per unit of a time; daily, weekly, or monthly that consumers are willing and able to purchase at alternative prices, keeping all other things affecting demand as constant. The law of demand states that the relationship between a goods price and its quantity demanded is negative

Demand can be expressed as:

XD = f ( Px, N, T, Y, Pn, R, E, )

Where: X = Quantity of goods or services Px = Price of X: N = Number of consumers under consideration. T = Taste and preferences of consumers: Y = Consumers income and distribution: Pn = Price of related goods: R = Range of products available to consumers E = Expectations of consumers:
Demand refers to a demand schedule that lists the different quantities of the commodity that consumers are willing and able to take at alternative prices, keeping all other factors affecting the demand as constant , i.e., ceteris paribus

Change in Demand
A change in the demand or a shift of the entire demand curve is caused by a change in any of the other factors other than the price of the product under consideration affecting the demand. When demand increases, the quantity demanded by consumers increases at every price. When demand decreases, the quantity demanded by consumers falls at every price.

Supply
The concept of supply is defined as various quantities of a product that the seller places in the market per unit of time at alternative prices, keeping all other factors affecting supply as constant.

Supply can be expressed XS = f ( Px, Pn, T, E, Pi)

Where: X = quantity of good or service Px = price of X N = Number of sellers under consideration T = Technology to produce the product E = Future expectations of the sellers Pi = is the price of inputs

Market Price
Conventional microeconomic analysis states that the price of a product or service and its output is determined at the intersection of supply and demand curves which is called the equilibrium price. Any price above the equilibrium will result in a situation where the quantity supplied exceeds the quantity demanded. Due to their inability to clear the market, producers may reduce prices. Any price below the equilibrium will see the quantity demanded exceed the quantity supplied, bidding the price upwards.

Price Elasticity of Demand

Price elasticity of demand measures the responsiveness of the quantity demanded as the price of the product or service undergoes changes, given the demand curve for the product or service . If the quantity demanded is not too responsive to the change in price, it would result in an increase in the total expenditure on the product for increase in price of the product and vice versa. If a product or service is highly responsive to change in price, it would result in a decrease in the total expenditure on the product for increase in its price and vice versa.

How to Measure Price Elasticity

Well-known British economist Alfred Marshall (1891), defined price elasticity of demand as the percentage of change in quantity taken divided by percentage change in price, when the price change is small. Percentage change in quantity demanded Price elasticity of Demand e = -----------------------------------------------Percentage change in the price of the product Numerically, the price elasticity is expressed as : p = (% Q)/(% P)

The elasticity of demand at a given point on the demand curve is referred to as point elasticity of demand. Arc elasticity of demand is computed between two points on the demand curve

Factors that Influence price elasticity of demand

Availability of close substitutes within the market Degree of Necessity or Luxury Proportion of income spent on a good Habit forming goods Permanent or temporary price change Time period under consideration

Cross Elasticity of Demand

Cross elasticity of demand measures the responsiveness of the quantity demanded of one good to changes in the price of another. Cross elasticity of demand for good X is expressed as: % Change in quantity demanded of good X = --------------------------------------% Change in price of another good Y Two goods which are substitutes will have a positive cross elasticity Two goods which are complementary to each other will have a negative cross elasticity

CHAPTER 8

PRINCIPLES OF PRODUCTION

Learning Objectives
The need for knowing principles of production To learn about production function To understand the concepts of production function To understand optimal resource allocation in production

Production Function
The production function is the physical relationship between a firms inputs of resources and the output of goods and services per unit of time, leaving prices aside. It gives maximum output that can be achieved by combining inputs into various combinations, for a given technology and prices of inputs. Production function is described as under: Q = f ( x,y,z) Where Q represents a firms output and x, y, z represent the inputs required to produce the given product.

Fixed and variable inputs

An input comprises goods or services that go into the process of production. Firms add value to imputs, through production or other processes, to obtain an output. A fixed input is one whose quantity remains fixed irrespective of level of production in the short run such as plant, building, and machinery. A variable input is one whose quantity varies with the level of production and, therefore, the quantities of variable input can be changed, such as labour and raw materials, is elastic in the short run.

Short run and long run

Short run refers to a period of time (time horizon) in which the supply of certain inputs is fixed or inelastic. The long run refers to a planning horizon in which all inputs can be readily varied for a desirable change in the output

Law of Variable Proportion vs Law of Fixed Proportion

The law of variable proportion is defined as the possibility under which varied levels of outputs can be achieved by combining various amounts of variable inputs together with a fixed input in the short run. The law of fixed proportion relates to the production system in which resources can be combined in only one unique way to get an output.

Returns to Scale
Constant returns to scale production functions are those in which changes in the quantity of all inputs used in the same proportion results in changes in the quantity of output by the same proportion. If all inputs are raised by a proportion k and output increases by a proportion greater than k, then it is referred to as increasing returns to scale production function. If all inputs are raised by a proportion k and output increases by less than k proportion, then it is referred to as decreasing returns to scale production function. For a production function Q = f (x, y) then it is said to be a homogenous function of degree k if k Q = f ( x, y). k = 1, it is a constant returns to scale production function k > 1, it is an increasing returns to scale production function k < 1, it is a decreasing returns to scale production function

Isoquants
Isoquants are locus of points with various combination of inputs that can produce a certain quantity of output per unit of time. The movement to the right gives rise to higher level of production. On a given isoquant map the marginal rate of technical substitution of B (labour) for A (capital) is given by the ratio of the marginal product of B to the marginal product of A. This measures the reduction in one input per unit increase in the other such that the level of output remains constant

Law of Diminishing Returns

As per law of diminishing returns, increase in the levels of one input while keeping other inputs fixed would eventually result in smaller and smaller increases in additional output

Total Product, Average Product, and Marginal Product under Short Run
In the short run, the production function gives the maximum amount of the total product (output) that can be obtained by combining different amounts of variable inputs with fixed amount of fixed inputs. Marginal product (MP) of a variable input is defined as the change in the total product for a unit change in the variable input in the production system. Average product (AP), with respect to the variable input, is defined as the output per unit of a variable input used, keeping a particular level of fixed input.

Optimal Resource Allocation in Production

Objective of Producer Producer would either like to minimize the cost of production for a given level of output or maximize the production for a given cost outlay. Mathematically, producer aim to maximize Q = f(x, y) for a given cost constraint as E = xpx + ypy where x and y are units of inputs and px and py are the prices of inputs respectively.

Z =

f(x, y) -

( xpx

+ ypy )

To maximize, we need to take partial derivative with respect to variables and put them equal to 0. dz/dx dz/dy dz/d = = = fx px = 0 fy py = 0 E xpx ypy = 0 = = .. 1 2 ..3 fy/py MPy/py

Dividing equation 1 by 2 we get: fx/fy = px/py or fx/px or MPx/px

Marginal Rate of Technical Substitution (MRTSxy) = px/py This means to optimize the production, the producer should operate at a point of input combination at which MRTSxy is equal to the input price ratio or MP per rupee worth of an input must be same for each input used in the production system. The second order condition for maximization of output is that d2y/dx2 > 0

CHAPTER 9 MARKETS

Learning Objectives
Markets and their relevance to business decisions. Different market structures and their implications to business decisions. The difference between normal and economic profits. The mechanism of pricing and output decisions in different markets pure monopoly, pure competition, oligopoly, and monopolistic competition

Classification of Markets
A market refers to a suitable arrangement in which the buyers and sellers could closely interact (physically or otherwise) to arrive at exchange decisions

Classification of Markets

Pure Monopoly

Oligopoly

Monopolistic competition

Pure Competition

Pure Competition
Characteristics of Pure Competition very large numbers of buyers and sellers; standardized product similar in all respects being produced by each firm; price takersfirms accept the price as given; free entry and exit for sellers; and perfect knowledge about the market.

Demand Curve and Influence of the Firm on Demand, Output, and Prices
Demand curve faced by the sellers is horizontal at the prevailing equilibrium price. It is said to be perfectly elastic, i.e., at the given price, sellers can sell all that they have to offer. However, at any price above the market equilibrium price, firms would not be in a position to sell any quantity. A perfectly competitive industry would be in equilibrium when each and every individual firm in the industry is in equilibrium, i.e., each firm is maximizing its profit by equating marginal revenue with marginal cost and the industry, as a whole, is in equilibrium, i.e., no firms are entering or leaving the market. Every entrepreneur in the industry earns normal profit profits that are sufficient to sustain the seller in the industry.

Pure Competition Firm and Market Demand Curves

Price Per Unit Price Per Unit D P S S1

d d1 P1

d d1

Q Per Unit of time, FIRM

Q Q1 Q Per Unit of Time, INDUSTRY

Pure Monopoly
Pure monopoly operates in a market when a single firm is the sole producer of a product for which there are no close substitutes. cross elasticity of demand for the monopolists product is either zero or negligible. Barriers to Entry

Demand Curve
The market demand curve itself would be a demand curve for the monopolist

Rs/unit

Price Per Unit

D P

A monopolist can increase sales by lowering the price. He can change its demand curve by using promotional tactics. A monopolist can effectively operate on price discrimination strategies D

Q Quantity Per Unit of Time

Oligopoly
Few sellers and the decision of one affects the other because of the sellers small size . In a pure oligopoly market, firms produce homogeneous products while in a differentiated oligopoly market, firms produce and sell differentiated products. Sellers in an oligopoly market usually turn to advertising to improve their sales. Some examples of oligopolies are banking industry, automotive manufacturers, gas companies, insurance companies, telecommunications companies, etc.

Demand Curve and Influence of the Firm on Demand, Output, and Prices
The demand for a firms products cannot be determined, if the firm is unable to predict the reactions of its competitors to the changes in its price and output decisions. An oligopolistic firm is in a position to influence its demand curve to some extent and, consequentially, its price and output. An oligopolist can shift its demand curve upwards with the help of advertising and other promotional efforts. Generally, the elasticity of demand would be elastic but it would depend on the rivals reactions to the price and output changes of the single seller.

Monopolistic Competition
Many sellers of a particular product that are differentiated in some way or the other. Each seller is too small to influence the decision of the other. Cross elasticities of demand are high as though differentiatedproducts are good substitutes to each other.

Demand Curve and Influence of the Firm on Demand, Output, and Prices
Relatively less elastic demand as compared to Pure Competition because of differentiated products. Each tries to create a niche for its products in the market. Firms may enjoy economic gains, i.e., profits over and above normal profits. Individual firms may be in a position to influence the demand and price of its product to some degree through advertising.

CHAPTER 10

NATIONAL INCOME ACCOUNTING

Learning Objectives
The relevance of macroeconomics to business Production of output and payments to factors of production Gross Domestic Product (GDP) and its relevance to business entities Techniques used to measure GDP Problems associated with measurement of National Product The relationship between GNP, NNP and NI and DPI

Macroeconomics
Macroeconomics deals with the behaviour of economy as a whole such as booms and recessions, aggregate output of goods and services, growth in employment and output, inflation and deflation, balance of payment, balance of trade, exchange rates, etc. Macroeconomics essentially deals with interactions among goods and services, labour and capital markets of the economy and similar interactions amongst national economies that interact, with each other.

Concept of GDP
Gross Domestic Product (GDP), is the total market value of all final goods and services produced within a given period, by factors of production located within a country. Final goods and services refer to goods and services produced for final use. Intermediate goods are goods produced by one firm to be used as raw materials by another. Value added is the difference between the values of goods as they leave the stage of production and their cost when they entered that stage. For calculating the GDP, we can either sum up the value added at each stage of production, or we can consider final value of sales.

Measurement of GDP
Aggregate demand or output for the domestic goods and services is made up of four components namely consumption spending by households (C), investment spending by business and households (I), government consumption of goods and services and gross investment (G) and foreign demand for our net exports. Y = C + I + G + (E I)

Gross Investment Net Investment

Gross investment is defined as the total value of all newly produced capital goods such as plants, machinery, equipment, housing, building, and inventory in a given time period. Investments determine the long-term plan of growth that the economy will adopt. It is the demand for capital formation that gets affected by aggregate demand for goods and services, prevailing interest rates, taxation system and structure, and other monetary and fiscal considerations. Capital is subject to wear and tear with usage and time. It may also become completely obsolete on account of various factors. The rate of depreciation depends upon the type of capital and its useful life. The net investment is the difference between gross investment and depreciation.

National Product Problems of Measurement

Double counting - avoid adding the value of all intermediate goods. Second-hand goods already sold once should not be accounted in the national product accounts. Some outputs are not traded in the market and thus are not rightly reflected in the GDP. These include services of a housewife, vegetables, and fruits produced a kitchen garden, etc. Government services are not directly priced by the market and, therefore, it is not necessary that a rupee spent by the government is worth its value.

 Certain expenses that are added to GDP represent use of resources to contain or overcome social evils such as crime or risk to national economy. Quality of Life getting affected on account of environmental pollution and degradation and the improvement in the quality of products such as computers, whose quality and efficiency are improving while the prices are falling, resulting in lesser contribution in GDP for each additional unit produced. Economists have been trying to overcome these limitations to arrive at an adjusted GNP.

CHAPTER 11

GOALS AND FUNCTIONS OF FINANCE

Learning Objectives
The goals of a business entity The meaning and implications of profit maximization The role and function of finance and financial managers Value creation for shareholders Economic value added (EVA) Corporate social responsibility and business

Goal of the Company Value Creation for Shareholders

Goal of the company

Value creation for shareholders: By maximizing shareholders wealth by availing profitable business opportunities.

Requires effective and efficient: Investment decisions Financing decisions Dividend decisions

Market value of stock of the company Enhanced dividends

The fundamental purpose for the existence of a business entity is to create value for the shareholders Although there are many stakeholders in a business entity, its key stakeholders are the owners of the company

Profit Maximization & EPS

Profit maximization as well as maximization of EPS are not reasonable measures of a companys success as these fail to consider the following: Timings of returns. Availability of cash flows to stakeholders (stockholders inflows not only depend upon dividends arising from accounting profits but also on a large share of inflows dependent upon the market price of the stock) Uncertainty and risk (profits or EPS does not take care of future risk associated with investment as also expected future flows)

Maximizationof Shareholders Wealth

Financial mangers should focus on Key factors that influence the share price of the company. Maximization of profits and EPS are important, it is necessary to maximize the shareholders wealth by the maximization of market price per share. Measurement of the stockholders wealth by the share price of the stock is dependent upon the timing of returns, magnitude of returns, and other associated risks.

Economic Value Added (EVA)

Economic Value Added (EVA) is concept used to find out whether an existing or a proposed investment opportunity would positively contribute to the shareholders wealth. EVA = Net operating profit after taxes (NOPAT) (Capital Cost of capital) Investment opportunities having positive EVAs increase shareholders wealth, while those with negative EVAs reduce it

Social Responsibility
A good company not only has the maximization of the shareholders wealth as its corporate goal, but also adheres to its social responsibility of by taking care of interest of it all stakeholder. Responsible governing is part of a good corporate culture and is part and parcel of its ultimate goal of maximizing the shareholders wealth. A good business believes that corporate existence depends upon social responsibility.

Role of Finance and Financial Managers

Till the 1950s, the main role of financial managers continued to be fund-raising and management of the companys cost across various activities. It was in the 1950s that the concept of present value led to a change in the role and responsibilities of financial managers. Which included capital investment projects as also implications of time value of money to the financial decisions. 1990s, transformed the role of financial managers which included making financial decisions regarding acquisition, financing, and effective management of acquired assets to achieve overall goals pertaining to stockholders and stakeholders. Vital decisions pertain toinvestment decisions, financing decisions, and dividend/share repurchase decisions.

Financial Decisions
optimization of financing mix or capital structure. to generate profit changing the mix of money raised from time to time, retirement of high-cost debt by substituting it with low-cost debt, changing the short-term and long-term mix of funds deployed in the business, etc. to decide as to what proportion of the surplus should be used for repurchasing dividends/shares and what proportion should be redeployed within the business. To build good investor relations, so that company has their support whenever needed.

CHAPTER 12

FINANCIAL STATEMENTS

Learning Objectives
Financial statements and their utility The need and purpose of financial statements Different types of financial statements What constitutes a balance, profit and loss account, cash flow and fund flow statements The difference between cash flow and fund flow and their implications on business decisions The relevance and implication of note forming part of accounts and the auditors report to the shareholders.

What are Financial Statements?

A written record of the financial status of an individual, association, or business organization. A financial statement includes a balance sheet, income statement (or operating statement or profit and loss statement), and a statement of cash flows. Reports that summarize a firms accounting data and indicate its financial condition. The four basic financial statements are: the balance sheet, income statement, statement of retained earnings, and statement of changes in financial position.

Different types of Financial Statements

Financial Statements - Reports that summarize a firm's accounting data and indicate its financial condition

Balance Sheet

Income Statement or Profit and Loss Account

Statement of Cash Flows

Why do we need Financial Statements?

Financial Statements are needed to fulfil the objectives and interests of different stakeholders such as employees, managers, owners, shareholders, creditors, financial institutions and banks, venture capitalists, customers, government, and public. Some common questions posed by various stakeholders are: What is the financial position of the company at present? How does it compare with its past financial position and competitors? How has the business performed for the given time period in absolute and relative terms? Where do the funds come from into the system and where do they go?

Balance Sheet
Balance Sheet provides details about a companys assets, liabilities, and shareholders equity at a given point of time. Assets are those resources of a company, that have a value and are expected to provide additional benefits, in the form of higher cash inflows.

Assets can be classified into four categories:

Fixed Assets: Land, building, plant, machinery, etc. These assets are expected to produce benefits over a period of time. Investments: Financial securities and bonds owned by the firm Current assets, loans and advances: This includes inventories, debtors, cash and bank balance, loans and advances, and other current assets. These can be converted into cash within an operating cycle of the company or in the short run, i.e., within a period of one year. Miscellaneous Expenditure and Losses: Consists of preliminary expenses incurred during construction, development expenditure, and the debit balance of profit and loss account.

Liabilities
Liabilities are those amounts of money that a company owes to others

Liabilities may be classified into the following categories:

Share Capital: includes equity and preference capital, i.e., the stake of the owners in the company Reserves and surplus: includes retained earnings out of the profit earned by the business as well as shared premium money and capital subsidy, if any in the system. Secured Loans: Loans taken from banks and institutions or other sources having charge on the assets of the company. Unsecured Loans: Loans taken by the company without extending any charge on the assets of the company. Current liabilities and provisions: obligations like payments to be made to creditors, interest accrued and not due, bills payable, and provision for taxes, dividend, etc., that are expected to materialize within a year.

Balance Sheet Form - Abridged

Liabilities ------------------Share Capital Reserves and surplus Secured loans loans and advances Unsecured loans Current liabilities and provisions Current liabilities Provisions

Assets -----------------------Fixed Assets Investments Current Assets, Current assets Loans and advances Miscellaneous expenses and losses

Profit and loss account or income statements

It provides broad details of income and expenses of the company in a particular time period. It gives the net earnings or losses incurred in undertaking the business activity in a given time period, say a month, a quarter, half a year, or a year.

Profit & Loss Account Important Concepts

Net Sales Cost of Goods Sold Gross Profit Operating Expenses Gross salessales rejected by customerexcise It computes all the cost associated with the goods sold during the accounting period Net sales Cost of goods sold Expenses incurred in running the business during the accounting period consisting of administrative expenses, selling and distribution expenses, depreciation, etc. Depreciation takes into account the wear and tear on fixed assets, such as machinery, tools, and furniture, which are used over the long term? Companies spread the cost of these assets over the periods they are used.

Operating Profit

Gross profitoperating expenses. It represents the profit earned/loss incurred on account of normal business activities of the company and does not consider non-operating gains. Gains and losses on account of transactions that are not related to normal business of the company such as interest and dividend income, profit/loss on account of sale of fixed assets, investments, etc. Profit Before Interest and Taxes (PBIT) measures profit without considering interest and taxes and is arrived at by adding nonoperating profit or subtracting non-operating loss from the operating profit.

Non-operating gains/losses

Profit before Interest or taxes

Interest

Profit before tax Provision for taxes Profit after tax/ Net profit

Interest relates to the cost of borrowed funds (secured or unsecured) from banks, financial institutions, fixed deposits, from promoters, commercial papers, etc. PBIT interest expenses Current tax on taxable income as computed under Income Tax Act Profit before taxIncome tax provision

Prior period adjustments From net profit certain adjustments such as adding the profit brought forward, adding reserves written back and subtracting extra burden on account of earlier years taxes/expenses, etc., are done. These are called prior period adjustments. Amount available for appropriation Profit after tax plus prior period adjustments. From this provision is made for payments of dividends and the balance amount in the profit and loss account is carried forward to the balance sheet. -

Fund Flow and Cash Flow Statements

Cash flow statements show a companys inflows and outflows of cash cash flow statements are divided into three main parts. Each reviews the cash flow from specific types of activities: (1) operating activities, (2) investing activities, and (3) financing activities

Read the Notes to Accounts

Auditors remarks on the fiancial statements are covered in Note Forming part of Accounts and in the auditors report to the shareholders. Implications of Auditors remarks should be clearly analysed for the future operations and financial decisions

Auditors Remarks - Certain vital areas of concern to various Stakeholders

Prospects about realization of bad debts Status on certain international contracts and their implications, etc. Payment of income taxes and statutory dues Pension plans and other retirement programs Stock options Significant accounting policies and practices Details on contingent liabilities

Types of assets to be managed for creation of value

Business Organizations Create Value Through Assets

Tangible Assets

Intangible Assets Human Resources

Investments

Fixed Assets

Brands Current Assets

Goodwill

Human Resource Accounting importance and methods

Knowledge Economy

Human Resource Accounting Gaining Importance Need for measurement of Human resources value and worth

Cost Based Methods

Economic Value Based Methods

CHAPTER 13 FINANCIAL RATIO ANALYSIS

Learning Objectives
The application of ratio analysis to analyse financial statements Financial ratios and their utility Different types of ratios Using ratio analysis Different types of ratios and their implications on analysis of financial position of the company Evaluating the relative strengths and weaknesses of the company by using ratio analysis so that the various stakeholders of a company may make their financial decisions

Financial Ratios and their utilities

Financial ratio analysis computation and comparison of ratios based on the information about the companys performance in its financial statements. Utility of ratios varies from stakeholder to stakeholder. Each stakeholder views the ratio according to the issues that concerns him.

Types of Ratio Comparison

Ratio comparisons can be made in two wayscross-sectional and time series.
Types of ratio comparison Cross-Sectional Analysis: It compares the financial ratios of different comparable firms at a given point of time

Time Series Analysis: It compares ratios for a given company over a period of time

Using Ratio Analysis

Some points to be kept in mind while using ratios are: Over dependence on a single ratio is not desirable as far as conclusive interpretation of the performance of a company is concerned. Effect of seasonality needs to be segregated while making comparisons. To get the true financial analysis, ratios should be computed based on audited accounts data Definition used for arriving at the value of variables in the ratio should be identical in all respects. Implication of inflating on the business performance as also on the computed ratios should be duly taken care of while interpreting the ratios

Broad categories of Ratios

Liquidity Ratio: gives short-term financial position or solvency of the company Operational Ratio: deals with efficiency of resource and asset utilization in the operations of the company Profitability Ratio: indicates the margins realized by the company, i.e., various returns on sales and capital employed Leverage Ratio relates to the debt component used in the companys capital structure. Solvency Ratio: indicates the companys ability to generate cash flow for meeting its overall financial obligations

Liquidity Ratios
Liquidity ratios provide information about the companys ability to meet its short-term commitments with its total cash reserves. Current Ratio = Total Current Assets / Total Current Liabilities Quick Ratio = Cash + government securities + receivables / total current liabilities Current ratio is the ratio between current assets; those that the company owns and can be converted into cash within a short period, i.e., within a year and current liabilities that the company owes to others and are payable within a short time, say within a year. = (Current assets inventory) / Current liabilities Quick ratio differs from current ratio, as it excludes inventories and only considers mostly those liquid assets that can be easily converted into cash. Working capital = Total current assets - Total current liabilities

Operational Ratios
Operational ratios focus on the managements efficiency in running the business Inventory Turnover Ratio = Net sales / Average inventory at cost Or = Cost of goods sold / inventory Inventory turnover is normally reported in terms of number of days worth of inventory carried by company. Inventory period is worked out as = 365/ Inventory turnover

Average Collection Period average age of account receivables helps in evaluating a companys policies towards its debtors. = Accounts receivables/ Average sales per day = Accounts receivables/ (Annual sales / 365) Average Payment Period companys strength to get more favourable terms of payment from its creditors. = Accounts payable/ Average purchases per day = Accounts payable/ (Annual purchases/365) Total Asset Turnover Total asset turnover = Sales /total assets Higher the ratio, the greater the efficiency of asset utilization and better it is for the company.

Profitability Ratio Ratios give the margins to sales, on assets, and on owners investment. Comparison of the margin ratios with the average of the industry or the best performers indicates the performance of the company and the scope the management has to improve efficiency of resource generation, allocation, and value addition to the same. Gross margin ratio Gross profit = Gross profit / Net sales = Net sales - Cost of goods sold

Net Profit Margin Ratio = Net Profit (earnings available for common stockholders)/ Net Sales Return on total assets= Net profit (earnings available for common stockholders) / Total assets

Total Asset Turnover It indicates the efficiency with which companys assets are being used. Total asset turnover = Sales /total assets Profitability Ratio Profitability ratios give the margins to sales, on assets, and on owners investment. Comparison of the margin ratios with the average of the industry or the best performers indicates the performance of the company and the scope the management has to improve efficiency of resource generation, allocation, and value addition. Gross margin ratio = Gross profit / Net sales Gross profit = Net sales - Cost of goods sold

Net Profit Margin Ratio = Net Profit (earnings available for common stockholders)/ Net Sales

Return on Total Assets/Net Worth/Equity Return on total assets, also known as Return on Investment (ROI) measures the overall effectiveness of the management in generating profits. Return on total assets= Net profit (earnings available for common stockholders) / Total assets Net profit/ Sales (I)
Net profit/Total assets

Divide I by II

Return on Assets

Sales/Total Assets (II)

Return on equity

= Net profit (earnings available for common stockholders) / Common stock equity

Return on net worth = Net profit (earnings available for common stockholders)/ net worth

Leverage Ratio Leverage ratio, calculated by total liabilities divided by the net worth of the company indicates the extent to which the business is dependent on debt financing in relation to owners equity. Solvency Ratio The solvency ratios indicate the companys ability to generate cash flow for meeting its overall financial obligations. DebtEquity Ratio This ratio indicates the proportion of debt with respect to the equity, i.e., owners stake in the business. DebtEquity ratio = Debt/Common stock equity

Interest Cover Ratio This ratio measures a companys capacity to meet its interest commitments. The higher the value of the ratio, the better it is. Interest coverage ratio = Earnings before interest and taxes/Interest Debt Service Coverage ratio (DSCR) A companys capability to service its debt obligations is found through the computation of debt service coverage ratio (DSCR). Earnings before interest and taxes + Lease payments Fixed payment = --------------------------------------------------coverage ratio Interest + Lease payments + [(Principal payments + Preferred stock dividends) {1/ (1T)}]

Ratio Analysis enable the management to take corrective steps or realize its objectives and goals. What matters the most is interpretation of financial ratios, as certain information given in the financial statements is incomplete without really understanding the implications of notes to accounts and their effect on the financial ratio at a given time or in the future. Therefore, coupled with financial ratio analysis, practising financial analysts with their experience often develop their own measures for particular industries and even individual companies to evaluate their financial performance.

CHAPTER 14

OVERVIEW OF HUMAN RESOURCE MANAGEMENT

Learning Objectives
Human Resource Management (HRM) HRM in the current complex business environment The objectives of HRM functions More about HRM Steps in HR planning process Various facets with which HRM deals with

Human Resource Management

Deals with the staffing functions of the organization such as human resources planning, recruitment, training, career planning, compensation package, performance appraisal, etc. Deals with all aspects of human resources that enable effective use of the same to improve organizational effectiveness. Supporting activities such as training, recruitment, orientation, motivation of employees, and compensation related issues.

Functions of Human Resource Management

Human Resource Management (HRM) Enables the Most Effective and Efficient Contribution from Human Resources so as to Achieve Organizational and Individual Goals

Recruitment and Selection Human Resources Planning, Organizing, Directing and Controlling Training, Orientation and Induction Career Planning Performance Appraisal Placement Compensation Package Creating conducive Work Environment and Motivation of Employees

Objectives of the HRM Functions

Facilitating achievement of organizational goals Effective and efficient deployment of human skills, abilities, and knowledge Providing inspired, motivated, and trained employees Communicating HRM practices and policies to employees Providing scope for creativity and innovation to employees Enhancing job satisfaction to the employees Improving the quality of professional life in the organization Creating healthy work relations in the organization Operating on ethical policies Complying with statutory requirements To work towards corporate social responsibility (CSR) Managing change

HR Planning Process
HR managers have to synchronize their activities with the business plan of the organization to ensure that the right type and number of people are made available to different departments of an organization, in line with their contribution to the organizational goals. organization is expected to take steps for synchronizing human resources activities such as recruitment, selection, placement, training, recognition and reward system, performance appraisal, and labour relations with the organizational business plan. HRM has to review and evaluate its actions to ensure that the steps taken are producing the expected results as per business plan and the corrective measures that need to be taken, in case they are not. The evaluation of human resource activities focus on productivity, quality, quantity, innovation, and employee satisfaction levels.

Different Facets of HRM

Recruitment and retention of employees Planning for staff requirement Defining jobs, roles, and responsibilities Recruitment process

applications and resumes examinations, group discussions and interviews reference checks personality tests integrity tests ensure reliability and validity of various tests used

Contd..
Induction of new employees Outsourcing certain stages of production, functions, and services Creating and providing an environment conducive to growth Determining employees benefits and compensation package Training and development Career planning for different groups of employees Arranging training in-house or outside Leadership development Self-development

Contd..
Team training Diversity training Training need assessment Training evaluation Regulatory compliance to be ensured Personnel database management Framing and devising personnel policies Statutory compliances Employees rules and regulations and other related issues Ethical practices to be followed To ensure non-discriminatory treatment to employees

Arranging Conducive and Safe Working Environment

Developing employees assistance programmes Handling drug abuse situations in the workplace Ensuring safe working facilities Promoting welfare schemes for employees Retaining High Performance Employees Performance measurement and management Group performance management Enhancing personal productivity Rewarding employees and groups for their special achievements Timely promotions and career advancement prospects.

Who performs HRM activities?

HRM Activities

Planning and Policy Making HR Specialists

Implementation and Operationalization Operating Managers

HRM Importance & Significance

Of all the resources, the only one that is unpredictable is human resource. In the present information and knowledge age, companies need to devise effective HRM policies and practices to gain a distinctive advantage over their competitors. HRM planning, programming, review, and evaluation ensure that the right number and kind of people are made available at the right time to effectively implement the companys business plan. Challenge before HRM is to manage change by eliminating systems and practices that come in the way of effective implementation, have ethical leaders at different tiers of the organization, outsourcing functions, services, and production processes.

CHAPTER 15 JOB DESIGN

Learning Objectives
Job design Its significance to HRM professionals Job design related factors that affect work performance Changes that the job design perspective has undergone change over years Issues that job design addresses Different approaches to job design Implications of viewing an organization from socio-technical systems model point of view

What is job design?

It requires a stepwise diagnosis of a job to deal with the following issues Task to be performed; content How they are to be performed; method and mechanism How many actions are to be performed within the task; steps involved, In what order the actions have to be done ; sequencing, The knowledge skills and attitudes required to perform the task efficiently and effectively; optimum performance.

Job design also deals with the administrative issues such as:
Job rotation Job enlargement Job enrichment Job engineering Task/machine pacing Work breaks Working hours Working environment Working relationships

The growing importance of job design over the years

During the 70s, the challenge before HRM professionals dealing with job designs was to find out how organizations achieve results in the wake of loss of productive effort resulting from industrial actions and absenteeism, increased demand for employee participation, and imposition of various employee legislations. During the 80s a major change occurred in the working environment in the form of introduction of new technologies and a shift in the cost of production in favour of machines as against workforce leading to the change in job design perspective. During the 90s that a real challenge in terms of optimum job design and work organization arose to respond to the fast changing environmental conditions leading to a greater importance and adopting a new approach towards job design.

Issues addressed by job design

Work overload Work under load Repetitiveness leading to drudgery and adverse effect on productivity Work and people isolation Multiple shifts Managing pending filling-up of vacancies excessive working hours lack of understanding of the whole job process

Common approaches to job design

Improving Performance Work Design (jJob Engineering)

Job Design Approaches

Focus on

Job Enlargement Job Rotation Satisfaction of Employees Job Enrichment

Job Enlargement Job enlargement for a particular task attempts to enhance the scope of the jobs to include a variety of tasks that need to be performed by the individual Job Rotation Job rotation moves employees from one task to another to add variety and reduce boredom by allowing them to perform a variety of tasks

Job Enrichment Job enrichment, as per Orsburn and Moran (2000), empower employees to assume greater responsibility and accountability for planning, organizing, performing, controlling, and evaluating their own work Work Design (job engineering) Work design allows employees to understand and appreciate the linkage between work methods, layout, and handling procedures as also the interaction between people and machines.

Socio-technical systems
The socio-technical systems model views organizations as organic wholes made up of people with various competencies and capabilities, i.e., the social system, that uses machines, tools, and techniques, i.e., the technical system, to produce goods and services that are valued by customers. This necessitates developing of social and technical systems in such a way that they become interdependent in a unified whole to fulfil the demands made on them by customers, suppliers, and other stakeholders in the external environment.

CHAPTER 16

RECRUITMENT AND SELECTION

Learning Objectives
Recruitment and selection as an HRM function The significance of recruitment and functional aspects for developing an effective recruitment process The different steps required for effective recruitment The importance of proper induction of employees and professional approach to induct new employees

Recruitment
Recruitment is a specialized task and effective recruitment is becoming more and more challenging in present environment. Major challenges to recruitment lies in recruiting a right person who would have a long-term relationship with the organization. Recruitment decisions should be made in the context of an overall staffing plan, which takes into account long-term operational needs, known retirements, and resignations vis--vis the growth plans of the company

Approaches to Recruitment
Internal Promotions and Transfers from Within the Organization

Recruitment External

Infusion of New talent Blood from Outside into the Organization

HRM Planning Inputs and Tasks

Retirements and resignations vis--vis the growth plans Identify need for fresh induction of human resources

HRM Planning

Recruitment Selection Placement

Long-term operational needs

Developing an Effective Recruitment Process

Identification and analysis of requirements; at organisational and job levels Inviting applications, processing applications, and taking steps for selection; internal and external markets Standardization of selection process within the broad framework of policies to reduce risk while filling vacancies Deploying reliable, valid, and cost effective methods of selection Taking care of legal constraints and contracts of employment Recruitment system should maintain and deliver quality service Recruitment process should be strategic and proactive

Steps Required for Effective Recruitment

Identifying the existence of a vacancy Identifying a pool of appropriate candidates The selection process Selection tests and interview techniques The criteria for recruiting candidates The job offer letter Induction of selected employees

Job Description
Job title Location of the job, i.e., department/group/division Grade of the post Whom an employee would be responsible Who all would be reporting to the person occupying a particular position Main purpose of the job Duties and responsibilities involved Special working conditions

Identifying a pool of appropriate candidates

People already known, including ex-employees and past applicants Direct advertising Employment agencies Consulting and hiring firms, along with advertisement Search consultants Using personal network for head hunting

The selection
Quality and quantity of results of the efforts made through alternative sources to attract more and better candidates depends mainly upon the good marketing practices followed to market the organization. Transparency in terms of providing more information, as sought by the prospective candidates, generate greater trust and interest in the organization. Simplicity and straightforwardness of the process lead people to think well of the organization. Flexible in approach towards interview timings and transparent as also quick in decisionmaking, attracts greater response from the candidates.

Selection Tests and Interview Techniques

Methods used should be reliable, valid, cost effective, and acceptable. Commonly used methods are application form, bio-data, structured/ unstructured interviews; one-to-one panel, references screening, conducting ability tests; paper based, practical, social, aptitude, intelligence, and personality tests; in groups or in assessment centres. An interviewer should necessarily have due qualities, competence, and knowledge to perform this task.

Difference between professional and non-professional approach to selection

Professionally Managed Communicate the decision on-the- spot or immediately after the interview, giving a rationale and reasoning for selection

Organizations

Nonprofessional

Take a long time to decide. Candidates Remain in dark for long or forever

The Job Offer Letter

Clearly indicate terms and conditions of the job. Collect acceptance of stipulated terms and conditions, that makes an offer letter a contract between the two parties. Candidate, before accepting an offer letter should feel free to seek any information or clarification that may help him/her in making a decision to join or otherwise.

Induction of new employees

Refers to the smooth entry of new employees into their jobs and organizational culture Professionally managed organizations have a detailed checklist to scientifically and systematically induct people into the organization In the absence of proper induction, people may make assumptions or ask the wrong person that may lead to getting incomplete or wrong information resulting in their getting dissatisfied and, in turn, quickly quitting the organization.

Retention of Employees A great challenge

Organizational culture and the relationship with bosses emanating from quality of supervision is a critical factor in reducing attrition rate

CHAPTER 17

TRAINING AND DEVELOPMENT

Learning Objectives
The relevance of training in a fast changing business environment Training, training and development, and learning and development The scope of training The steps involved in designing a good training programme The significance of systems approach to training The sources of data for training that need assessment Various methods of training and their relevance to training objectives The relevance of training evaluation, techniques, and approaches used to evaluate training

Training: A Definition
Training is A planned process to modify attitude, knowledge, or skill behaviour through learning experience to achieve effective performance in an activity or range of activities. Its purpose, in the work situation, is to develop the abilities of the individual and to satisfy the current and future needs of the organization. Training may be distinguished from development. Training usually refers to teaching lower-level employees how to perform their present jobs, while development involves teaching managers and professional employees broader skills needed for their present and future jobs. ( Bateman and Snell 2002)

Contd..
David Kolb (1984) has focused on experiential learning, i.e., experience as the source of learning and development. He emphasizes on how a learner can transform learning into an experience, and later, use it to perform his assigned duties. Each learner has his preferred method of learning which gets developed like any other facet of his personality

Kolbs Experiential Learning Model I

ACTIVIST Experience based action REFLECTOR

Plan hypotheses testing

Observe reflection

Think abstraction PRAGMATIST THEORIST

Training & Development vs Training & Learning

The field of Training and Development (T and D) deals with the design and delivery of workplace learning by imparting required changes in the knowledge, skills, and attitudes to improve job performance. Therefore, in some organizations the term Learning and Development is used instead of Training and Development, in order, to emphasize the importance of continuous learning for the individual and the organization.

HRM Linkages between training, learning, individual, and organizational development

Human Resource Management (HRM)

Training and development

Learning and development Career and development Individual and organizational development

Need for Training

In the advanced technology and information boom, human resources, knowledge, and skills are fast becoming obsolete . Competitive global environment . Greater importance of abilities to create, analyse, and transform information and to interact effectively with others. Learning has to be a life-long activity, considering the fast changes in economic, social, cultural, technological, legal, and political environment

Need and importance for continuous training and development

Fast Changes in Environment

Fast Obsolecense of Knowledge, Skill and Attitude

Economic Social Cultural Technological Legal Political

Continuous Training and Development

Updated Knowledge, Skills and Attitude Required for Improved Efficient and Effective Performance of Job role

Scope of Training
Improve the method and system of working Increase the work output of the trained employee Increase employee versatility Improve communication and cooperation among employees and with clients Lower absenteeism Motivate employees to give their best to the organization

Contd..
Equip employees to deal and handle new technology Help in overcoming resistance to change Increase employee satisfaction and lower grievances Reduce overtime Help superiors to delegate their responsibilities Let the trainee learn new skills at a very fast rate

Training cannot do the following:

Change the organizational structure or solve its concomitant problems Improve the selection process or become a substitute for it Solve problems, which are caused by organizational shortcomings like shortage of manpower, lack of delegation, conducive work environment, and shortage of tools and technology.

Steps to design a Good Training Programme

Organizational Analysis

Assess Corporate and Individual Goals

Employee Analysis

Convert into Specific Behavioural, Knowledge and Attitudinal Criteria

Training Needs Assessment

Depute Employees and Impart Training Training Evaluation Gaps in Performance

Systems Approach to Training

To realize the optimum benefits from investment made on training, the systems approach to training is imperative that emphasizes on three major steps namely: Assessment emanating from Key Performance Areas (KPAs) of jobs Development of Training Programmes Training Evaluation

Development of effective training programmes

Key Performance Areas (KPAs) Training needs assessment Design and development of training programmes Content development and pedagogy for training Nominate employees and impart training Training evaluation

Sources of data for training needs assessment

Organizational analysis Organizational Goals and Objectives through strategic plans, business plans, departmental/divisional Plans. Personnel inventories giving detailed profiles of people Skills inventories

Contd..
Efficiency indices Changes in machinery, equipment, and technology Changes in systems and procedures Changes in policies Mandate from top management and executives for training Exit interviews

Job/ Analysis

Contd..

Job description Job specification Performance standards Steps involved in performing the job Diagnosing jobs in consultation with departmental/divisional employees Operating problems involved in effectively performing the job Person Analysis

Contd..
Performance appraisal data Interviews with job performers and their supervisors Questionnaires Attitude surveys Assessment centers

Steps in Training
Prepare Tell Show Do Review

Training Methods
Informational Techniques Lecture Talk Discussion Audiovisuals Independent study Programmed Instructions

CHAPTER 18

MOTIVATION THE KEY TO PERFORMANCE

Learning Objectives
What is motivation Theories of motivation Motivating and demotivating factors How to motivate the self and employees

What is Motivation?
Motivation is a drive, an energizing force that directs and sustains a persons effort to achieve a given objective and goal . Motivation is need based and, therefore, can be defined as what one does not have that one wants, one works to achieve that which one needs

Maslow Hierarchy of Needs

Self-fulfillment Needs Esteem Needs

Affection Needs

Safety Needs

Physiological Needs

Theory X and theory Y Motivation

Douglas McGregor (1960) proposed two distinct views of human beings: Theory X that was labeled negative, and theory Y, that was labeled positive. Under theory X managers assume that the employee does not like work, and given a chance would avoid it; employees need to be coerced and controlled, or punished to achieve goals; they will avoid responsibilities and basically seek formal direction. Under theory Y managers believe that employees view work as something natural like play, rest, or relaxation; people are basically self-directed and self-controlled; an average person accepts and seeks responsibility; and above all the ability to innovate is widely distributed throughout the population and is not necessarily among those who hold managerial positions.

Job Satisfaction (Frederick Herzberg, et al, 1959)

Motivator

Job Satisfaction

Improved Productivity and Performance

Job Enlargement

Job Enrichment

David McClelland (1961)

Three important Needs affect both how we are motivated and how we attempt to motivate others. Need for achievement Need for affiliation Need for power
Need for Achievement Need for Affiliation Need for Power Fulfillment Acts As Motivator to Self Others Managerial Success

Factors that De-motivate People

Negatively Contributes to Affects Behaviour Individual Group Organizational Performance

Negative Criticism Humiliation in Public Rewarding Non-performance Lack of Clarity about Objectives and Goals Negative Attitude Discriminatory Treatment Frequent Transfers and Change in Job Roles Responsibility not Backed by Authority

Contd..
Experiential Techniques On-the-job training Role-play Case study or analysis Games and simulations Project Computer assisted Instruction Group dynamics Sensitivity Training Mentoring

Training Evaluation
Participants opinions and reactions Extent and degree of learning by the participants Change in the behaviour of participants To what extent have the proposed training goals and objectives been achieved Return on investment and cost-benefit analysis Benchmarking, that is comparing the data with data from companies that excel in those areas

CHAPTER 19

TEAM EFFECTIVENESS

Learning Objectives
The importance of team building in organizational effectiveness Inputs that design effective teams Rules of team development The principles of team building Ways of building co-operation Ways to improve team effectiveness

Team
A team is defined as a group of interdependent individuals who work together to accomplish a common goal or purpose. The critical prerequisites for building an effective team are interaction, mutual influence, interdependence, and a welldefined common goal.

Inputs to Design Effective Teams

Size of the team Team goals Composition of members skills, talents, and knowledge Roles task oriented, relationship oriented, self oriented Characteristics personalities, skills, abilities Diversity heterogeneous, homogeneous

Critical factor for designing and developing a team - Roles

A role may be defined as a set of behaviours and attitudes that characterizes an individual in a given situation. Task-oriented Roles: The team member plays the role of an initiator, informer, clarifier, summarizer, energizer, reality tester, consensus taker. Relationship-oriented: The team member takes on the responsibilities of a harmonizer, gatekeeper, encourager, compromiser, observer, commentator Self-oriented roles: The team member plays the negative role of an avoider, help seeker, aggressor, blocker, dominator

What makes a Good Team ?

Clear sense of itself as a group Interacts positively with outsiders Cultivates positive assumptions and beliefs Communicates clearly Clear approach to the teams work Members have a sense of mutual accountability

Rules for Team Development

Start modestly Be very clear about your goals and objectives Remember that the unknown is usually more threatening than the known Remember that development is basically selfregulated Be prepared to grab other opportunities that may arise as a result of your actions Ensure everyones agreement If required, be prepared to accept outside help Consult widely and genuinely Encourage open and frank discussions

Different types of teams

Types of Teams

Functional Cross- functional Problem- solving Virtual Advisory Self-managed

Principles of Team Building

Each team member contributes both a function and a team role A team needs an optimal balance between functional and team roles Team effectiveness depends on how the team members balance themselves within the team Some team members fit into certain team roles better than others, depending on their personalities and mental abilities A team can only deploy its technical resources to the best advantages when it has a suitable range and balance of team roles

Nine Steps for Building Good Team

Clearly defines the problem Looks for commonalities Respects all contributions Recognizes multiple interests Respects all individuals Looks towards solutions Move from WIIFM (Whats In It For Me) to WIIFU (Whats In It For Us) Focus on benefits Allow time to evaluate and make decisions

Barriers to Effective Team Functioning

Time trade-offs in decision-making problems of groupthink and pressure to conform potential for increased conflict over decision-making Lack of leadership Individual resistance to working in a team.

Team Building Skills

Building interpersonal relationship Interaction process analysis Roles Clarifying purpose Goal Measures

Contd..
Communication Participation Decision-making Problem-solving Team spirit factor Feedback rules Team effectiveness review

Ways to Improve Team Effectiveness

Provide team with a vision Establish clear and well-defined goals Define roles and their complementarities Attempt to build consensus Decide to perform key tasks via democratic process Encourage the voluntary sharing of work experience, professional expertise, and essential information

Contd..
Inculcate in team members the need to show respect for and courtesy towards each other Promote free discussion cross fertilization at planning stage Use brainstorming techniques to trigger creativity Provide organizational support Have a performance linked objective reward system

CHAPTER 20 COMMUNICATION

Learning Objectives
The importance of communication in improving personal and organizational effectiveness How communication enhances personal effectiveness Understanding communication process Barriers to effective communication The basic rules for ensuring effective communication Improving organizational effectiveness through communication

Effective Communication
Effective communication is important, not only for the success of an organization but also the individuals within it. Individuals who are able to communicate their ideas and thoughts effectively influence others and leave their mark.

Communication refers to a series of interrelated activities such as reading, listening, managing, interpreting information, serving clients, writing, speech making , and the use of symbolic gestures (Conger, 1991).

Communication and Personal Effectiveness

Effective communication refers to the meaningful transfer of ideas and thoughts from one party (sender) to another (receiver) through medium of exchange via monologue or a dialogue. Communication is not only an essential aspect of organizational changes, but effective communication is the foundation of modern organizations. Communication helps in projecting a positive image; it builds synergies that lead us to achieve goals, it helps others to estimate their true potential; and above all, it helps us in display our knowledge and facilitates feelings, so that we are prepared to absorb new and fresh ideas.

Communication Process
Distortions and Noise Sender

Encoding

Message Medium of Exchange

Decoding

Receiver

Contd..
Communication is said to be complete when it serves the intended purpose. It should have a balance between emotion and intelligence, speaking and listening, and above all should ensure that the audience grasps its content and purpose. Effective communication is creative and caters to its audiences needs.

Barriers to Effective Communication

A bad choice of words, unclear sentences, or phrases. Defensiveness, distorted perceptions, guilt, transference, distortions from the past. Body language, tone, and other non-verbal forms of communication. Receiver distortion comes in the way due to selective hearing, ignoring non-verbal cues. Assumptions that others see situations as you do and have similar knowledge level and feelings

Contd..
Perceptual differences Professional relationship between two individuals. Information may be misunderstood due to lack of understanding Use of an inappropriate medium Not caring for time relevance of information arrival and need for timely response accordingly Effective communication requires deciphering the basic values, motives, aspirations, and assumptions that operate across geographical areas. Thus, cultural differences if not resolved and understood may result in miscommunication

Rules of Effective Communication

Choose right words to convey your thoughts Speak from your knowledge and experience Dont make sure shot statements, unless confident Always intermittently confirm the meaning of the words from the receiver Dont begin sentences with everyone knows Avoid jargons and complex sentences

Contd..
Dont try to impress others with your vocabulary, you may miscommunicate Be an attentive listener Be calm and poised Make positive first impression Synchronize body language with verbal communication Modulate your content appropriately Use motivating statements and positive strokes wherever required Always give a concise summary

Organizational Communication
Organizational communication refers to the way organizations respond, adjust, and adapt themselves to changing environments, externally and internally. Communication channels to all stakeholders

Organizational structure Official channels Unofficial channels Communication devices / technology Communication cultures

Information loss in downward communication in an organization

Top level Managements (CMD & and ED) Understanding and Clarity (100 %) General Managers Understanding & and Clarity ( 63%) Assistant General Managers Understanding & and Clarity (56%) Regional Managers Understanding & and Clarity (40%) Information Loss BMs Under- standing Information Loss & and Clarity (30%) Employee Clarity (20%)

 Downward Communication - flow of information from higher to lower levels in the organizations hierarchy Upward Communication - flow of information from lower to higher levels in the organizations hierarchy. Horizontal Communication: The flow of information amongst people on the same hierarchical level

 Formal and informal Communication: formal communications are official and can move upward, downward, or horizontally for performing a specific task. However, informal communication is unofficial. Diagonal Communication: refers to communication between managers and workers located in different functional departments/divisions

Flow of information in borderless organizations

Interpersonal Upward Formal Informal Horizontal Inter-group Downward

Intrapersonal

Diagonal Inter-department

EXTERNAL Inter-organizational, organization, & environment

CHAPTER 21 CONFLICT MANAGEMENT

Learning Objectives
Conflict and its causes Types of conflict and their sources Identifying the root cause of conflict Managing conflict Managing conflict in organizations Creativity and managing conflict

What is Conflict?
Conflict refers to a process in which one party (person or group) perceives that its interests are being opposed or negatively affected by another party. Conflict implies a mismatch in the concerns of people involved in a particular event. Conflict is a state of disagreement resulting from individuals or groups that differ in attitudes, beliefs, values, objectives, and goals

Conflict mismatch between feelings and behaviour

CONFLICT ?
YOUR FEELINGS YOUR BEHAVIOUR MY FEELINGS MY BEHAVIOUR

MISMATCH

CONFLICT CLASH BETWEEN GOALS

Manifestation of Conflict Through Human Behaviour

The Interpersonal Gap
PARTY 1 FEELINGS INTENTIONS 93% NON VERBAL ATTITUDES THOUGHTS 7% VERBAL 93% NON VERBAL ATTITUDES THOUGHTS PUBLIC BEHAVIOR 7% VERBAL PARTY 2 FEELINGS INTENTIONS

Stages of Conflict
Latent Conflict manifests itself non-verbally mainly through actions and reactions to the situations. Perceived conflict normally results from partial availability of information that is likely to jeopardize the interest of one of the parties involved in the situation. Manifested Conflict is a phase wherein the conflict manifests itself verbally or materially. Felt conflict is the stage wherein one or the other involved parties undergo a stage of felt emotions including fear, mistrust and anger.

Varieties of Conflict
Goal conflict arises because of a mismatch between the expected and the actual outcomes of an event/action. Cognitive conflict arises because of confusion within an individual resulting from his own ideas and thoughts on a particular issue. Affective conflict arises becase of inconsistency in feelings and emotions within an individual or between individuals. Procedural Conflict arises when individuals and groups have differing opinions about the process to be used for responding to an issue.

Sources of Conflict
Diverse goals or objectives Different values and beliefs Status; incongruence, salary differences, education level Decision making; considerations, pressures Role pressure or clarification Differences in perception of the situation Group associations, status, or identity Race, ethnicity, or gender differences Personality clashes

Contd..
Competition for limited resources or competition to achieve similar goals Inadequate or poor communication Resource inadequacy; disagreements about who does what Leadership problems, including inconsistent leadership, lack of knowledge for avoiding conflict Disagreement on the process of doing things Personal, self, or group vested interests Power and influence Getting into win-lose situation Role ambiguity and lack of role clarity Communication; limited, lack of, under, or distorted

Identifying the root cause of conflict

Needs Perceptions Socio-cultural Backgrounds Power Values Feelings and emotions

Managing Conflict
Define conflict and get concerned about it when it is at latent or felt stage Identify the root causes behind conflict by diagnosis and analysis Work out an implementable and acceptable management strategy through negotiation

Conflict Management Strategies

C o n flic t M a n a g e m e n t S tra te g ie s
HIGH A C C O M M O D A T IV E O B L IG IN G OTHERS C O L L A B O R A T IN G

CONCERN FOR

C O M P R O M IS E

LOW

A V O ID IN G

A S S E R T IV E D O M IN A T IN G H IG H

LOW

CO N CERN FO R SELF

Negotiation
Negotiation is a systematic process in which two or more individuals or groups having common and/or conflicting goals, discuss alternate possible solutions involving specific terms for a possible agreement It involves three stages namely: Pre-negotiation Negotiation Post-negotiation

Managerial Actions to Manage Conflict

Review job descriptions and seek employees inputs Build relationships with all subordinates Receive regular written reports from various departments covering current issues, needs and expectations from management and future plans Conduct trainings on how to have effective interpersonal communication, management of conflict, etc. Standardize the procedures for routine tasks Hold regular meetings to communicate Use a suggestion scheme

Creativity to Manage Conflict

Resolving conflict, for those issues that have been dragging for a very long time, requires imagination and creativity. This requires Lateral thinking. Issues should be discussed openly with the stakeholders. Choose the right time to handle conflict. Do not react to unintentional remarks . Focus on the problem instead of the group(s) or individual(s) involved.

CHAPTER 22

DYNAMICS OF LEADERSHIP

Learning Objectives
Leadership Theories of leadership Leadership traits The difference between leaders and non-leaders The difference between leaders and managers Different leadership styles

Leadership Defined
Leadership is all about influencing people to act, behave, and perform as desired by the leader. Good leaders survive in adverse conditions while bad leaders can lose even in favourable conditions.

Leadership Theories
Traits Theory: assumes that certain characteristics, mostly those of personality, when combined with an individual, bring forth a successful leadership. Behavioural model of leadership: focuses on what leaders do and how they do it. Situational Approach: successful leader adapts behaviour according to the situation; adaptability is the key.

Leadership Traits
Integrity Loyalty Commitment Energy Decisiveness Selflessness

Six prominent traits and qualities of leaders

Live by integrity, lead by example Develop a winning strategy Build a great team Inspire People around them Create a Flexible Organization Implement relevant systems

Difference between Leaders and Non-leaders

Leaders vs. Non-leaders
Leadership is about influencing people to act, behave and perform as desired by the leader. NON-LEADERS Invisible Gives Orders to Staff Expects Orders to be Carried Out Thinks of personal Rewards, Status Fair in Dealings to Top Intolerant to Open Disagreement Use Committees and Consultants for Decision Making Persistent When Own Stakes are Involved

LEADERS Coach Open Door Problem Solver Advice Giver Cheer Leader Fair in Dealings with Others Open to Disagreement Decisive, Humble, Persistent

Vrooms Leader Decision Styles

Degree of Freedom for Group Influence By Leader

0 Decide

3 Consult Individually

5 Consult Team

7 Facilitate

10 Delegate

Leadership Styles
Decide Style: leader makes the decision and either announces or sells the same to the subordinates . Consult individually Style: leader consults. However decision may or may not be the outcome of this consultation. Consult Team Style: leader places the problem before the group, however, the decision may or may not be the outcome of their suggestions. Facilitate Style: leader presenting the problem to the team acts as a facilitator, get the views of the team members and a concurrence to a decision. Delegate Style: leader empowers subordinates and allows the team to make decisions within the given limits.

CHAPTER 23

DECISION MAKING

Learning Objectives
Decision making Its relevance to managers Systematic and structured decision making Steps involved in decision making Tools and techniques for making decision The Six Thinking Hats

What is Decision Making?

Decision Making Decision making is the cognitive process of selecting a course of action from among multiple alternatives

Programmed Decisions are Repetitive and Routined

Non-programmed Decisions are one-shot occurrences and are usually less structured

Decision Making Uncertainty and Risk

If a decision maker has required information and is in a position to predict the consequences of the action, then the decision maker is said to operate under a condition of certainty. In case the decision maker has inadequate or insufficient information to know the consequences of his actions then he operates under uncertainty.

Systematic and Structured Decision Making

Systematic and structured decisionmaking requires recognition and analysis of important components of decisions: Context Objectives Options Criteria

Steps in Decision Making

Identify, diagnose, and precisely define the problem Workout alternative solutions Evaluate each alternative solution Choose the best alternative Implement the decision Evaluate the decision Review and learn the lessons for future

Tools and Techniques for Decision Making

Pareto Analysis Paired Comparison Analysis
TOOLS AND TECHNIQUES FOR DECISION MAKING

Choose Depending on the Problem Situation

Grid Analysis Decision Tree Plus/Minus/ Implications Force Field Analysis Six Thinking Hats Cost/Benefit Analysis

Chapter 24 EMOTIONAL INTELLIGENCE

Learning Objectives
To understand relevance of emotional intelligence and emotional competence to work performance To understand the meaning of emotional intelligence To understand relationship between emotional competence and emotional intelligence To understand emotional competence framework

EMOTIONS
Anyone can become angry that is easy. But to be angry with the right person, to the right degree, at the right time, for the right purpose, and in the right way is not that easy!

Emotional Competence
Goleman (1998) defines emotional competence as A learned capability based on emotional intelligence that results in outstanding performance at work.

Emotional Intelligence
To be adept at an emotional competence e.g. in customer service or conflict management necessitates an underlying ability in emotional intelligence fundamentals especially, social awareness and relationship management.

EMOTIONAL INTELLIGENCE [EI]

EI refers to the capacity for recognizing our own feelings and those of others, for motivating ourselves, and for managing emotions in us and in our relationships. EI describes abilities distinct from, but complementary to, academic intelligence or the purely cognitive capacities measured by IQ.

EQ VS EI
However, possession of social awareness or skill at managing relationships does not guarantee skills in handling a customer adeptly or resolving a conflict. Emotional intelligence merely relates to the potential but emotional competencies are learned abilities

EMPIRICAL EVIDENCE
A study of Harvard graduates in the fields of law, medicine, teaching, and business found that scores on entrance exams - a surrogate for IQ had zero or negative correlation with their eventual career success.

DANIEL GOLEMAN
Being intelligent and gaining expertise in one's line of work aren't enough to ensure success, says author Daniel Goleman. In addition, he says, people in business must be judged on "how well we handle ourselves and each other."

FIVE COMPETENCIES
"Emotional 'intelligence' determines our potential for learning the practical skills that are based on its five elements [or competencies]:viz. self-awareness, motivation, selfregulation, empathy, and adeptness in relationships,"

EMOTIONAL COMPETENCE FRAMEWORK

CHAPTER 25

STRESS MANAGEMENT

Learning Objectives
After studying this chapter, you will be able to understand: Stress Eustress and Distress The human stress response Stressors Stress and the organization Levels of stress Stress and individual behaviour Stress management Stress management at the individual level

Understanding stress
Stress is tension that is an outcome of anxiety and fear about a current event or a future one. Thus, the chief cause of stress is anxiety resulting in feeling of discomfort in mind that further leads to body ailments. In management, stress is defined as the human bodys response to the demands made on it.

Stress can be defined as: The non-specific response of the body to any demand put upon it. It is the bodys automatic response to challenge

Stress is not: An event or a circumstance but a response to it Necessarily bad, damaging, or unhealthy Always over stimulating or exciting Simply anxiety yet a vital signal that something is out of balance

The human body responds to stress according to:

Our thoughts Biochemical and physiological changes in the body Way our mind responds to situations

Eustress and Distress

EusStress
Stress Non-specific Response of the Body to any Demand put upon it High Motivation Stress Disappears on Fulfillment of Need SUCCESS

Sense of Helplessness, Feeling off Frustration

Disstress
NO SUCCESS

Manifestation of Stress
Three Stages of Stress

Stage III High Stress Arousal Pressure Stage of Strain Stage II: Continuance of Stress Stress Arousal Pressure Stage I: Beginning of Stress Mobilization of Energy

Stressors
Stressors refer to those events and situations that trigger stress. Some of common stressors are: Non-fulfilment of needs Not being invited as part of a group you want to belong to Not being cared for, recognized, respected, or valued Having a feeling incompetence compared to peers Neglected, not cared for, or denied what is due to you Monotony or boredom from assigned job role Not having freedom to take initiative Being over or closely supervised Inequity in rewards and work assignments

Levels of stress symptoms

Levels of Stress Symptoms
Fourth Level Ulcer, Stroke, Alcoholism, Drug Addiction, Psychosis Third Level More Headaches, Stomachaches, Diarrhea, Sweating, Insomania, Depression Second Level More irritability, Stuttering and& Staemmering, Difficulty in Concentrating, Restlessness, Lack of Appetite, Increased Smoking or Drinking First level Normal initial Response Palpitation, increased blood pressure, dilation of pupils, sweaty palms, reduced activity in stomach

Type A and Type B personalities responses to stress

Type A Individual Chronic struggle with the environment Hard driving over achiever Time urgency Hyper responsive Hostility Workaholics Type B Individual Balanced interplay with the environment Rational approach to achievement Relaxed Positive interpersonal relations Balance between work and other events

Checking Type A Behaviour

Restrain from being center of attention Try to take charge of your time Reflect and assess the cause of your hurry sickness. Understand and be clear that majority of your work and social life do not really require universal acclaim Broaden yourself theatre, reading, music, games, etc

Contd..
Try not to make unnecessary appointments and unachievable deadlines Protect your time by learning to say NO Do something that relaxes you Try to make yourself aware of your behaviour and its impact on others Do not be an idealist Take time off to develop social relationships

Stress management
Individual Level Planning for Stress Management Maintaining Good Physical Health Practice Relaxation Develop Psychological Support System Manage Your Time Physical/Psychological Withdrawal Accept the Fact that I am Not Always Right Develop a Positive Orientation Towards Life

Stress Management
The

Through

Change in the Way we View Events around Us

Contd..
Lack of growth opportunity Work overload , deadlines, or boredom at work Inadequate resources to effectively and efficiently perform the assigned work Conflict between personal and organizational values Excessive and conflicting demands at work Responsibilities not well defined. Ambiguity and confusion about what is expected Unpredictable behaviour on the part of the boss Unknown and completely unfamiliar work situations Being made scapegoat for group failures

Chapter 26

Creativity and Entrepreneurship

Learning Objectives
To understand meaning of Entrepreneurship To learn what is meant by creativity and its relevance to entrepreneurship To learn about the relationship between creativity and innovation and creativity and invention To learn about knowledge economy and relevance of creativity in knowledge economy To know about basic requirements to become successful entrepreneur

NEED FOR CREATIVITY

In todays competitive environment, companies Who understand how to manage creativity? How to organize for creative results? and Who willingly implement new ideas, will triumph.

BUSINESS CREATIVITY
Business creativity, is the entire process by which ideas are generated, developed, and transformed into value. It encompasses what people commonly mean by innovation and entrepreneurship. ---[ John Kao ] It includes both the art of giving birth to new ideas and discipline of shaping and developing those ideas to the stage of realized value.

Importance of Creativity in Knowledge Economy

In these times of Shifting competitive dynamics, Technological change Demographic shifts & Capricious consumer tastes, no business has a safe harbor unless it reinvents itself continuously.

Entrepreneurship and Creativity

Entrepreneurial management is defined as the pursuit of opportunity without regard to resources currently controlled. Essentially creativity is all about imagination, inspiration, ingenuity and initiative a mindset of unrestrained pursuit of potentialities - Howard H. Stevenson.

The Basic requirements a Successful Entrepreneur

Embrace Failure Reject money as a goal Find a way to win Be ready to sacrifice your personal life Be passionate about your vision