Business Studies XII - Nature and Significance of Management PDF

Production Team Published at Delhi Bureau of Text Books, 25/2, Institutional Area, Pankha Road, New Delhi-58 by Rajesh Kumar, Secretary, Delhi Bureau of Text Books and Printed at: Arihant Offcet, New Delhi-110043 CHAPTER 1 NATURE AND SIGNIFICANCE OF MANAGEMENT Class XII : Business Studies 1 Management is an art of getting things done with and through others. Management can be defined as, the process of getting things done with the aim of achieving organizational goals effectively and efficiently. Basis of Difference Effectiveness Efficiency 1. Meaning It refers to completing It refers to completing the job on time, no matter the job in the cost- whatever the cost. effective manner. 2. Objective To achieve end result To conduct cost-benefit on time. analysis. 3. Main Consideration Time Cost Q.1 Rama Clothes ltd.’s target is to produce 20,000 shirts per month at a cost of Rs.500/- per shirt. The production manager achieved this target at a cost of Rs.450/- per shirt. Do you think the manager is effective and efficient? Ans. Yes, he completed the work on time and at a lower cost. Characteristics of Management: 1. Goal oriented Process:It is a goal oriented process, which is undertaken to achieve already specified and desired objectives by proper utilization of available resources. 2. Pervasive: Management is universal in nature. It is used in all types of organisations whether economic, social or political irrespective of its size, nature and location and at every level. 2 Class XII : Business Studies 3. Multidimensional:It is multidimensional as it involves managementof work, people and operations. Every organisation is established for doing some work like school provides education, a factory produces goods etc. The management has to ensure the participation, of its people in the realisation of the organisation goal. Also management needs to conduct the various operations such as production, sale, purchase etc. 4. Continuous:Management is not a process which can be performed once and for all, but it is a continuous process. Functions of management like planning, organising, staffing, directing and controlling continuously need to be done. 5. Group Activity: It is a group activity since it involves managing and coordinating activities of different people as a team to attain the desired objectives. 6. Dynamic function:It is a dynamic function since it has to adapt itself according to need, time and situation of the changing environment. In order to be successful, an organisation must change itself and its goals. For example, McDonalds made major changes in its ‘Menu’ to survive in the Indian market. 7. Intangible Force:Management is such a force that cannot be seen, only its presence can be felt. When the goals of an organisation are being realised in accordance with its plans, we can say that the management of the organisation is good. Q.2 An educational institution as well as a business organization both need to be managed. Which characteristic of management is highlighted here? (Pervasive) Q.3 “In an organization, the employees are happy and satisfied, there is no chaos and the effect of management is noticeable.” Which characteristic of management is highlighted by this statement? (Intangible Force) Q.4 In order to be successful an organisation must change its goals according to the needs of environment. Which characteristic of management is highlighted here? (Dynamic) Class XII : Business Studies 3 Q.5 Management is multi-dimensional. Give any 2 dimensions of it. (Work, People and operations (any two) Objectives of Management Objectives can be classified into organistional objectives, social objectives and personal or individual objectives. Management has to achieve these objectives in an effective and efficient manner. 1. Organisational/Ecomonic objectives: Organisation should utilise human and material resurces to the maximum possible advantage. The Economic organisational objectives of business are survial, Profit & growth.  Survial– An organisation can survive when it earns enough revenue to cover costs.  Profit– After achieving the objective of survival, organisation should move towards earning profit for covering costs & risks of business.  Growth– Besides earning profits a business must grow in the long run in order to remain in the industry. A business can grow by increasing sales volume, no of employes, product & capital investment. 2. Social objectives: It involves fulfilling obligations towards society. This includes.  Creating employment opportunities for society.  Providing/Producing good quality products & services.  Protecting environment. 3. Personal objectives: Personal objectives are concerned with satisfying needs of the employes such as:  Giving competitive salary and perks to employees.  Giving recognition to employees.  Satisfying diverse needs of employess. Q.6 One of the objectives of management is to consistently create economic value for various constituents of the society. Give two examples of this objective. Ans. Social objectives of management. 4 Class XII : Business Studies (i) Using environment friendly method of production. (ii) Giving employment opportunities to disadvantaged sections of the society. Q.7. Sana Ltd. is a company producing Fans.The company’s profits are enough for the survival and growth. The management of the company believes that a satisfied employee creates a satisfied customer, who in turn creates profits that lead to satisfied shareholders. So, it pays competitive salaries and perks to all its employees. All the employees are happy working in the organisation because of personal growth and development. The company has a strong sense of social responsibility. It has set up an Engineering College in which one-third of the students are girls to whom the company gives 50% scholarship. Is the management of Sana Ltd. fulfilling its objectives? Justify your answer by giving reasons. Ans. Yes, the management of Sana Ltd. is fulfilling all the objectives- organisational objectives, social objectives and personal objectives (For reasons students can quote the lines). Importance of Management 1. Achieving Group Goals:Management creates team work and coordination in the group. Managers give common direction to individual efforts in achieving the overall goals of the organization. 2. Increases Efficiency:Management increases efficiency by using resources in the best possible manner to reduce cost and increase productivity. 3. Creates Dynamic organization:Management helps the employees to overcome their resistance to change and adapt as per changing situation to ensure its survival and growth. 4. Achieving personal objectives:Management helps the individuals achieve their personal goals while working towards organisational objectives. 5. Development of Society:Management helps in the development of society by producing good quality products, creating employment opportunities and Class XII : Business Studies 5 adopting new technology. Management as an Art Art refers to skillful and personal application of existing knowledge to achieve desired results. It can be acquired through study, observation and experience. The features of art are as follows: 1. Existence of theoretical knowledge: In every art, systematic and organized study material should be available compulsorily to acquire theoretical knowledge. 2. Personalised application:The use of basic knowledge differs from person to person and thus, art is a very personalised concept. 3. Based on practice and creativity: Art involves the creative practice of existing theoretical knowledge. In management also a huge volume of literature and books are available on different aspects of management. Every manager has his own unique style of managing things and people. He uses his creativity in applying management techniques and his skills improve with regular application. Since all the features of art are present in management so it can be called an Art. Management as a Science Science is a systematised body of knowledge that is based on general truths which can be tested anywhere and anytime. The features of Science are as follows: 1. Systematized body of knowledge:Science has a systematized body of knowledge based on principles and experiments. 2. Principles based on experiments and observation:Scientific principles are developed through experiments and observation. 3. Universal validity:Scientific principles have universal validity and application. Management has systematic body of knowledge and its principles are developed over a period of time based on repeated experiments & observations but since they deal with humans, their outcomes cannot be accurately predicted. Also they cannot be called Universally valid because 6 Class XII : Business Studies they have to be modified according to a given situation. Conclusion: -As the principles of management are not as exact as the principles of pure science, so it may be called-an inexact science. The prominence of human factor in the management makes it a Social Science. Management as Profession Profession means an occupation for which specialized knowledge and skills are required and entry is restricted. The main features of profession are as follows: 1. Well-defined body of Knowledge:All the professions are based on well- defined body of knowledge. 2. Restricted Entry:The entry in every profession is restricted through examination or through some minimum educational qualification. 3. Professional Associations:All professions are affiliated to a professional association which regulates entry and frames code of conduct relating to the profession. 4. Ethical Code of Conduct:All professions are bound by a code of conduct which guides the behaviour of its members. 5. Service Motive:The main aim of a profession is to serve its clients. Conclusion:-Management does not fulfil all the features of a profession and thus it is not a full-fledged profession because anybody can proclaim to be a manager; prescribed compulsory educational degree or license is not required. Besides there are not any formal ethical codes which are required to be observed. Q.8 Give one feature of Profession (a) satisfied by management (b) not satisfied by the management. Ans. (a) Well defined body of knowledge. (b) Restricted entry Levels of Management: Top, Middle and Operational Levels “Levels of management” means different categories of managers, the lowest to the highest on the basis of their relative responsibilities, authority and status. Class XII : Business Studies 7 Top Level Consists of Chairperson, Chief Executive Officer, Chief Operating Officer President, Vice President or equivalent and their team. Chief task is to integrate and to coordinate the various activities of the business, framing policies, formulating organisational goals & strategies bearing the responsibility for the impact of activities of the business on society. Middle Level Consists of Divisional or Departmental heads, Plant Superintendents and Operation Managers etc. Main tasks are to interpret the policies of the top management, to ensure the availability of resources to implement policies, to coordinate all activities, ensure availability of necessary personnel & assign duties and responsibilities to them. Lower Level/Supervisory Level Consists of Foremen and Supervisor etc. Main task is to ensure actual implementation of the policies as per directions, bring workers’ grievances before the management & maintain discipline among the workers, maintain the quality of output and minimise wastage 8 Class XII : Business Studies Q.9 At which level of management, are the managers responsible for the welfare and survival of the organization? (Top level) Q.10 Managers at the top level spend more time doing this function of Management. Name it. (Planning) Q.11 Rakesh is working as Regional Manager in ABC Ltd. Name the level at which he is working. (Middle Level) Q.12 Name the level at which the managers are responsible for implementing and controlling the plans and maintaining the quality of output (Supervisory level). Functions of Management / Elements of Management (1) Planning implies setting goals and objectives in advance and developing a way of achieving them. (2) Organising is to assign duties, grouping tasks, establishing authority and allocating resources required to carry out a specific plan. (3) Staffing is finding the right people for the right job by following a series of steps and includes training and development. (4) Directing is leading, influencing and motivating employees to perform the tasks assigned to them. It includes four activities: - Supervision, Communication, Leadership and Motivation. (5) Controlling is monitoring the organizational performance towards the attainment of the organizational goals. Q.13 Identify the functions of the management: — a) Motivating employees and giving instructions to them to perform the tasks assigned to them. b) Recruitment and selection of the personnel. c) Finding out deficiencies in implementation of plans. d) Preparing a blueprint for future e) Process of defining and grouping activity of an enterprise to establish authority relationship. Ans. (a) Directing; (b) Staffing; (c) Controlling (d) Planning (e) Organising. Class XII : Business Studies 9 Co-ordination Coordination is to synchronise the various activities of an organisation. In the context of business unit, the meaning of coordination is to balance its various activities (purchase, sales, production, finance, personnel etc.) so that objective of business can be easily achieved. Lack of coordination results in overlapping, duplication, delay and chaos. Characteristics of Coordination 1. Coordination integrates group efforts: It integrates diverse business activities into purposeful group activity ensuring that all people work in one direction to achieve organizational goals. 2. Coordination ensures unity of action: It directs the activities of different departments and employees towards achievement of common goals and brings unity in individual efforts. 3. Coordination is a continuous process: It is not a specific activity matter, it is required at all levels, in all departments till the organization continues its operations. 4. Coordination is all pervasive function: It is universal in nature. It synchronizes the activities of all levels and departments as they are interdependent to maintain organizational balance. 5. Coordination is the responsibility of all managers: It is equally important at all the Three-Top, Middle and Lower levels of management. Thus it is the responsibility of all managers that they make efforts to establish coordination. 6. Coordination is a deliberate function: Coordination is never established by itself rather it is a conscious effort on the part of every manager. Cooperation is voluntary effort of employees to help one another. Effective coordination cannot be achieved without cooperation of group members. Coordination is the Essence of Management. Coordination is not a separate function of management. It is the force that binds all the functions & thus, called the essence of management. It is needed in all management functions: 10 Class XII : Business Studies Planning – Coordination between the master plan and departmental plan. Organising – required between authority, responsibility and accountability Staffing – Achieve balance between job requirement and qualities of personnel Directing – Required between supervision, motivation and leadership. Controlling – Ensure actual result conform to expected results. Needed at all levels of management Top level – needs coordination to integrate activities of the organisation for accomplishing the organisational goals. Middle level– Coordination of the efforts of different sections and sub-sections Lower level – Coordination in the activities of workers to ensure work progresses as per plans NEED FOR COORDINATION The reasons that bring out the importance or the necessity for coordination are: Growth in the size of the organisation results in the increase in varied quality of manpower too with varied individual aspirations. Coordination seeks to match the individual goals with the organisational goals. Functional Differentiation arising out of departmentalisation and division brings forth a motive for achievement of individual objectives, in isolation from other objectives leading to departmental clashes. Coordination seeks to iron out these variations. Specialisation can give rise to feeling of superiority and prioritising of their zone or activities. Coordination seeks to sequence and integrate all the specialist of activities into a wholesome effort. Q.14 Name the process that synchronises the activities of different departments.(Coordination) Q.15 “Co-ordination is responsibility of all the managers”. Explain. (Managers perform it all levels to ensure that work proceed according to plans). Class XII : Business Studies 11 Key Terms to crack case studies  It believes that a satisfied employee creates a satisfied customer — management.  A process of designing and maintaining an environment in which people work together — management.  It unites the efforts of individuals towards goals — management.  A force that cannot be seen but noticeable where targets are met and employees are happy — management.  Coordination : removes chaos between various departments. – implies team work and integrates efforts of all individuals, departments and specialists. – is a part of all functions of management like a thread in a garland. – Synchronises the efforts of individuals, acts as the binding force between departments, unifies diverse interests into group effort. – force that binds all functions of management. Multiple Choice Questions 1. The following is not an objective of management (a) Earning profits (b) Creating employment (c) Satisfying diverse needs of employees (d) Planning and controlling 2. Growth of a business can be measured by. (a) Increase in sales volumes (b) Increase in number of product produced (c) Increase in capital investment (d) All of the above. 3. Cordination is (a) Function of management (b) An objective of management (c) The essence of management (d) None of the above 12 Class XII : Business Studies 4. Which of the following is not a characteristic of science. (a) Systematised body of knowledge (b) Based on experimentation and observation (c) Universal validity (d) Ethical code of coduct. 5. To oversee the efforts of the workforce is the function of: (a) Operational or supervisory management (b) Top level management (c) Middle level management (d) None of the above 6. Out of the given statements, select those which indicate characteristics of Management: (a) Management is a goal oriented process (b) Management creates a Dynamic organisation (c) Management is all pervasive (d) Management increases efficiency (e) Management is a Dynamic function Choose the correct combination out of the following: (a) A, B and C only (b) A, B, C and D only (c) A, C and E only (d) A, C, D and E only 7. Arrange the following functions of management in a correct sequence. (a) Organising (b) Directing (c) Planning (d) Staffing (e) Controlling Class XII : Business Studies 13 Choose the correct sequence. (a) A, B, C, D, E (b) B, A, C, E, D (c) E, A, D, C, B (d) C, A, D, B, E 8. Identify the point of significace of management illustrated by the following pic- ture. (a) Management helps in achieving group goals (b) Management helps in achieving personal objectives (c) Management helps in development of society (d) Management increases efficiency Fill in the blanks (1) Management has three dimensions _____, _____ & _____. (2) _____ level managers are responsible for the welfare & survival of the organisation. (3) _____ is the force that binds all the functions of management. (4) Management as a process relates to _____ of management. (5) _____ is an intangible force which creates productive relationships among resources. 14 Class XII : Business Studies True/False (Give reason in support of your answer). (1) Management is an intangible force. (2) Management is a science like physics or chemistry. (3) Managers at lower levels spend more time in planning and organising than top level managers. (4) Management is both art and science. (5) Co-ordination is the responsibility of all the managers. Ans. 1. d 2. d 3. c 4. d 5. a 6. c 7. d 8. a Fill in the the blanks 1. Management of work, people and operations 2. Top 3. coordination 4. functions 5. Management True/False 1. True because it cannot be seen but felt. 2. False because it is not a pure science but behavioural science. 3. False top level managers spend more time on planning & controlling. 4. True it combines the features of both. 5. True it is performed by managers at all levels. Class XII : Business Studies 15 QUESTIONS FOR PRACTICE Q.1 “Planning, Organising, Staffing, Directing and Controlling” is the sequence of functions in a process. Name it. (Management) (1) Q.2 Production Manager of Kavya Ltd. tries to produce goods with minimum cost. Name the concept which is being focussed by management. (Efficiency) (1) Q.3 In order to be successful, an organization must change it according to the needs of the environment, which characteristic of management is highlighted in the statement? (Dynamic) (1) Q.4 Which force binds all other functions of management? (Coordination) (1) Q.5 Radhika Ltd. uses environment friendly methods of production. Identify the objective it is trying to achieve. (social objectives) (1) Q.6 Your uncle is serving as a foreman in a factory. At what level of management is he working? (Lower Level) (1) Q.7 Why is it said that “management is a goal oriented process”? (Because it helps in achieving organisational goals by unity of efforts. (1) Q.8 Identify the nature of management when it is practiced as personalised application of existing knowledge to achieve desired results. (Management is an art) (1) Q.9 “Success of an organisation largely depends upon its management” Explain any five reasons to fortify the above statement. (Any five points of importance) (1) Q.10 The General manager- GM of ‘RadhaswamiKidswear Limited’, Mr. Sahil Radhaswami, has divided all the employees of his company into three levels (Top Level, Middle level and Lower Level). At the Top Level the General Manager and Board of Directors themselves work. The Middle Level work is looked after by the four Departmental managers like the Production Manager, Purchase manager, Sales Manager and Finance Manager. 16 Class XII : Business Studies The Lower Level is constituted of one supervisor of each of the four departments. These Supervisors look after the daily activities of their subordinates. They also maintained the flow of inputs in the production process to transform it to desired output. Often, it is observed that the managers of all Levels remain busy sometimes with the planning of their respective departments and sometimes with the comparison of the desired and actual results. Similarly, sometimes they are busy with the Recruitment, Selection and Training of the employees and sometimes with their motivation. Mr. Sahil knows it very well that the job of management cannot be done by a single person alone, but when all join hands to work together the meaning of management is realised. That is why he makes all his efforts to ensure coordination in the activities of all his employees. All the employees are working with the team spirit. In the above paragraph features of management have been described. Identify them by quoting the relevant lines and explain them. ((i) Continuous process (ii) Group activities (iii) pervasive (iv) Intangible force (v) Multi-dimensional. (5) Question based on Analysis, Evalution and Crreation Class XII : Business Studies 17  Figgy, a food delivery start up was started in 2015. It turned out to be a success with its Figgy app. Its delivery boys collected food from different restaurent and provided it at the door step of the customer. Soon it started its service in Hyderabad, Chennai, Banglore and Mumbai too. During the covid pandemic, everything had to be stopped. To handle the situation and to survive management initiated the concept of ‘zero contact deliveries’. It also introduced pickup / drop service to get groceries and other essentials. It also maintained its obligation towards its delivery staff by not removing them from their jobs and also maintaining its quality services for its customers. Q1. “Soon it started its services in Hyderabad...................Mumbai too” Identify the objective of management is discussed above (a) Profit (b) Survival (c) Growh (d) None of these Q2. “To Handle the situation............................deliveries” Identify the objective the of management referred above (a) Profit (b) Survival (c) Growh (d) Social objectives Q3. “It also maintained its............................for its customers” Identify the objec tive of management discussed above (a) Profit (b) Survival (c) Growh (d) Social objective Q4. “During the covid............................contact deliveries” Identify the importance of management discussed above (a) Developement of society (b) Increase effeciency (c) Create Dynamic organistion (d) Achieving personal ojectives Q5. Practicing managers in India have formed All India Management Association 18 Class XII : Business Studies where they have laid down a code of conduct to regulate the actives of are these members. There is however no compulsion for, all managers to be its members while all lawyers practicing in India have to be registred under Bar Council of India. Based on this information do you think that management is a Profession. Give reasons to justify you answer (3) Q6. “Principles of management are based on cause and effect relationship as in the case of principles of science. Do you agree with the statement? Also explain whether other features of management have all the characteristics of Science. Q7. There are various theories of management as propounded by many Thinkers, which prescribe certain Universal principles. A good manager works through a combination of practice, creativity, imagination, initiative and innovation. Iden- tify the nature of management discussed above. Also explain two other char- acteristics. Class XII : Business Studies 19 CHAPTER - 2 PRINCIPLES OF MANAGEMENT 20 Class XII : Business Studies Concept of Principles of Management Principles of Management are the broad and general guidelines for managerial decision making, behaviour and action. The management principles are derived from observation, analysis, experimental studies and personal experiences of the managers. Nature of Principles of Management The nature of principles of management can be described in the following points: 1. Universal applicability i.e. they can be applied in all types of organizations, business as well as non-business, small as well as large enterprises. 2. General Guidelines:They are general guidelines to action and decision making however they do not provide readymade solutions as the business environment is ever changing or dynamic. 3. Formed by practice and experimentation:They are developed after thorough research work on the basis of experiences of managers. 4. Flexible: They can be adapted and modified by the practicing managers as per the demands of the situations as they are manmade principles. 5. Mainly Behavioural:Since the principles aim at influencing complex human behaviour they are behavioural in nature. 6. Cause and Effect relationship:They intend to establish cause & effect relationship so that they can be used in similar situations. 7. Contingent:Their applicability depends upon the prevailing situation at a particular point of time. According to Terry, “Management principles are ‘capsules’ of selected management wisdom to be used carefully and discretely”. Class XII : Business Studies 21 Significance of the Principles of Management The significance of principles of management can be derived from their utility which can be understood from the following points: 1. Providing managers with useful insights into reality:Management principles guide managers to take right decision at right time by improving their knowledge, ability and understanding of various managerial situations and circumstances. 2. Optimum utilization of resources and effective administration: Management principles facilitate optimum use of resources by coordinating the physical, financial and human resources. They also help in better administration by discouraging personal prejudices and adopting an objective approach. 3. Scientific decisions: Decisions based on management principles tend to be more realistic, balanced and free from personal bias. 4. Meeting the changing environmental requirements: Management principles provide an effective and dynamic leadership and help the organization to implement the changes. 5. Fulfilling social responsibility: Principles of management not only help in achieving organizational goals but also guide managers in performing social responsibilities. Example: “Equity” and “Fair” remuneration. 6. Management training, education and research: Management principles are helpful in identifying the areas in which existing and future managers should be trained. They also provide the basis for future research. Q.1 How are management principles derived? (Formed by practice and experimentation) Q.2 “The principles of management are different from principles of science”. How? (Principles of management are flexible but principles of science are rigid). Q.3 Give reasons, why principles of management are not rigid prescriptions? (Hint: As they are directly concerned with human behaviour which is always uncertain) 22 Class XII : Business Studies Q.4 How are Principles of management helpful for managers in fulfilling their social responsibility? (By interpreting principles in their newer and contemporary meaning with change in time) Q.5 What is the role of principles of management for managers? (They serve as guide to decision making). Fayol’s Principles of Management About Henry Fayol: Henry Fayol (1841-1925) got degree in Mining Engineering and joined French Mining Company in 1860 as an Engineer. He rose to the position of Managing Director in 1988. When the company was on the verge of bankruptcy. He accepted the challenge and by using rich and broad administrative experience, he turned the fortune of the company. For his contributions, he is well known as the “Father of General Management”. Principles of Management developed by Fayol 1. Division of work: Work is divided in small tasks/job and each work is done by a trained specialist which leads to greater efficiency, specialisation, increased productivity and reduction of unnecessary wastage and movements. 2. Authority and Responsibility: Authority means power to take decisions and responsibility means obligation to complete the job assigned on time. Authority and responsibility should go hand in hand. Mere responsibility without authority, makes an executive less interested in discharging his duties. Similarly giving authority without assigning responsibility makes him arrogant and there is fear of misuse of power. 3. Discipline: It is the obedience to organizational rules by the subordinates. Discipline requires good supervisors at all levels, clear and fair agreements and judicious application of penalties. 4. Unity of Command: It implies that every worker should receive orders and instructions from one superior only, otherwise it will create confusion, conflict, disturbance and overlapping of activities. S u pe rio r Su p eri or 1 S up er ior 2 S u pe rio r 3 SuSbo u pe rd rio in ate r SSub upoerrdiiorna2te U n it y o f C o mm a n d M u lt ip licit y o f C o mm a n d Class XII : Business Studies 23 Q.6 The production manager of Bharat Ltd., instructs a salesman to go slow in selling the products whereas the marketing manager is insisting on fast selling to achieve the target. Which principle of management is being violated in this case. Write one of the consequences of violation of this principle. (Unity of command, Reduces the efficiency) 5. Unity of Direction: Each group of activities having the same objective must have one head and one plan. This ensures unity of action and coordination. for e.g. if a company is producing motor cycle as well as cars then it should have separate divisions for them. Difference between Unity of Command and Unity of Direction B a s is U n ity o f C o m m a n d U ni ty o f D ire c tio n (1 ) M e a n in g O n e s u b o rd in a te sh o u ld E a c h g ro u p o f re c e iv e o rd e rs a ct ivitie s fro m & sh o u ld b e h a vin g s a m e re s p o n s ib le to o n ly o b je ctive , m u st o n e su p e rio r. h a ve o n e h e a d. (2 ) A im P re ve n ts d u a l s u b o rd in a tio n. P re v e n ts o v e rla p p in g o f a c tiv itie s. (3 ) Im p lica tio n s A ffe c ts a n in d ivid u a l A f fe cts th e e n tire e m p lo ye e. o rg a n iza tio n. 6 Subordination of Individual Interest to General Interest: The interest of an organization should take priority over the interest of any one individual employee. Forex’ a manager cancels his pleasure trip to attend an important meeting in the company. 7. Remuneration of Employees: Remuneration of employees should be just and equitable so as to give maximum satisfaction to both the employees and organisation. The employees should be paid fair wages/salaries which would give at least a reasonable standard of living. At the same time, it should be within the paying capacity of the company. 8. Centralisation and Decentralisation: Centralisation means concentration of decisions making authority in few hands at top level. Decentralisation means evenly distribution of power at every level of management. Both should be balanced as no organisation can be completely centralised or completely decentralised. 24 Class XII : Business Studies Small organisations can have centralisation where owner has complete authority over the business and no decision making power is given to the subordinates. In large organisations top management takes only strategic/ important decisions and operational authority is given to middle and lower level managers. The panchayat system in our country is a good example of decentralisation where the government being the big organisation gives the decision taking rights to its subordinates i.e., village Panchayat. 9. Scalar Chain: The formal lines of authority between superiors and subordinates from the highest to the lowest ranks is known as scalar chain. This chain should not be violated but in emergency employees at same level can contact through Gang Plank by informing their immediate superiors. In case of emergency a worker can even contact CEO directly. A B E C F D G Gang Plank 10. Order: According to the principle of order, a right person should be placed at the right job and a right material should be placed at the right place. According to Fayol, every enterprise should have two different orders – material order for physical resources and social order for human resources. In fact, order indicate ‘a place for everything (everyone) and everything (everyone) at its right place’. 11. Equity:The working environment of any organization should be free from all forms of discrimination (religion, language, caste, gender, belief or nationality) and principles of justice and fair play should be followed. No worker should be unduly favoured or punished. 12. Stability of Personnel:According to this principle, employees once selected, should be kept at their post/position for a minimum fixed tenure. They should be given reasonable time to show results. Class XII : Business Studies 25 13. Initiative:Workers should be encouraged to develop and carry out their plan for improvements. Initiative means taking the first step with self-motivation. It is thinking out and executing the plan. 14. Espirit De Corps:Management should promote team spirit, unity and harm ony am ong employees. T his encourag es m utual trust and belongingness, which results in minimum need for using penalties. Q.7 Rakesh and Rahim are employed in the same company. They are working at same position and performing similar functions. But Rakesh is getting more salary than Rahim. Which principle of management is being violated? (Equity) Q.8 In an organization employees are transferred frequently; which principle of management is being over looked. (Stability of personnel) Q.9 Name and explain the principle of management according to which a manager should replace ‘I’ with ‘we’ in all his conversations with workers? (Espirit De Corps.) Q.10 State one positive effect of the Principle- “Unity of Command.” (The efficiency of subordinate’s increases) Q.11 Why did Fayol introduce Gang Plank in the principle of scalar chain? (to contact with the employees of equal rank in case of emergency). Q.12 Nikita and Salman completed their MBA and started working in a multinational company at the same level. Both are working hard and are happy with their employer. Salman had the habit of backbiting any wrong reporting about his colleagues to impress his boss. All the employees in the organization knew about it. At the time of performance appraisal, the performance of Nikita was judged better than Salman. Even then, their boss, Mohammad Sharif decided to promote Salman stating that being a female, Nikita will not be able to handle the complications of higher post. (i) Identify and explain the principle of management that was overlooked by this multinational company. (Hint. (i) Equity. 26 Class XII : Business Studies Taylor’s Scientific Management Fredrick Winslow Taylor (1856-1915) was a person who within a very short duration (1878-1884) rose from ranks of an ordinary apprentice to chief engineer in Midvale Steel Company, U.S.A. Taylor conducted a number of experiments and came to conclusion that workers were producing much less than the targeted standard task. Also, both the parties - Management and workers are hostile towards each other. He gave a number of suggestions to solve this problem and correctly propounded the theory of Scientific Management to emphasize the use of scientific approach in managing an enterprise instead of hit and trial method. For his contributions, he is well known as the “Father of the Scientific Management”. SCIENTIFIC MANAGEMENT Meaning: Conduct of business activities according to standardised tools, methods and trained personal so as to have increased output through effective and optimum utilisation of resources. Hence it stresses that there is always one best way of doing things. According to F.W. Taylor, “Scientific management is the act of knowing exactly what you want men to do and then seeing to it that they do it in the best and the cheapest way. Scientific Management attempts to eliminate wastes to ensure maximum production at minimum cost. Principles of Scientific Management 1. Science, not rule of Thumb: There should be scientific study and analysis of each element of job rather than using intuition, experience or adopting old rule of thumb approach on a hit and miss method. Encourage “thinking before doing” and determining standard output. Scientific approach make the work much simpler/easier and it can be performed quicker. 2. Harmony, not discord: Class XII : Business Studies 27 There should be complete harmony and proper understanding between management and workers in achieving the organisation goals. For this he emphasised mental revolution i.e., a complete change in mental outlook and attitude of workers and management towards one another from competition to cooperation. The management should create pleasant working conditions and workers should work with full loyalty. Instead of fighting over distribution of profits, they must focus attention on increasing it. 3. Cooperation not individualism: Taylor emphasised on the importance of cooperative group efforts between the management and workers in achieving the organisation’s goal and not individualism. Both should realise that they need each other. Any ideas given by wokers for reducing cost and increasing production should be rewarded. 4. Development of workers to their greatest efficiency and prosperity: The management should scientifically select the workers; assign job as per their physical, mental and intellectual capabilities; and train them as per the job requirement to increase their efficiency. Q.13 Which principle of scientific management suggests the introduction of scientific investigation and analysis of management practices?(Science not rule of thumb) Q.14 Which principle of scientific management suggest that management should share its gains with workers and workers should be willing to embrace the change for good of the company (Harmony not discord) Techniques of Scientific Management Taylor gave the following techniques for implementing the principles of scientific management. A. Functional Foremanship Supervision is to be divided into several specialized functions and each function to be entrusted to a special foreman. 28 Class XII : Business Studies F ac to r y M an a g e r P la n n in g In c h a rg e P ro d u c t io n I n c h a r g e In s tr u c tio n R o u te T im e & c o st D isc ip lin a r ia n Speed G ang R e p a ir In s p e ct o r C a r d c le r k C le r k c le r k Bos s Bos s Bos s W o rk m a n Each worker will have to take orders from eight foreman in the related process of function of production. Stress on separating planning function from execution function. Planning Incharges : 1. Route Clerk to specify the exact sequence and route of production. 2. Instruction card clerk is responsible for drafting instructions for the workers. 3. Time and cost clerk to prepare time and cost sheet for the job. 4. Shop Disciplinarian to ensure discipline and enforcement of rules and regulations among the workers. Production Incharges: 1. Gang boss is responsible for keeping tools and machines ready for operation. 2. Speed boss is responsible for timely and accurate completion of job. 3. Repair boss to ensure proper working conditions of tools and machines. 4. Inspector to check quality of work. Q.15 Name the technique of scientific management which focuses on separation of planning and execution functions.(Functional Foremanship) Class XII : Business Studies 29 B. Standardisation and Simplification of work: Process of setting standards of every business activity to maximise output is called standardisation. Simplification is eliminating unnecessary varieties, sizes and grades of product manufactured in the organisation. C. Method study: Finding one best way of doing a job. Critical analysis is made for plant layout, product design, material handling and work processes using techniques like process chart, operations research etc. Q.16 In a Company, the Factory Manager appointed only one foreman for the work of production, planning, execution and supervision of workers. However, that foreman is not efficient in planning and execution. (1) Which technique of scientific management is being violated here? (Functional Foremanship.) (2) Write one consequence of this violation. D. Motion Study Making a thorough analysis of various motions being performed by a worker while doing a particular task. Identifying and determining the ideal productive movements. Eliminate the unproductive movements and equipments. E. Time study It is the technique used to determine the standard time taken by the workmen with reasonable skills and abilities to perform a particular task. Here the job is divided into series of elements and the time required to complete each element idealistically is recorded using a stop watch. 30 Class XII : Business Studies F. Fatigue study Determines the amount and frequency of rest intervals required in completing a task. G. Differential Piece Wage System Evolve a system wherein the efficient and inefficient workers are paid at different rates. (as financial incentives act as motivators) First a standard task is established with the aid of time and motion study, then two rates are established. Higher, when standard output is produced and lower, when the standard is not met. For example: Standard task is 10 units. Rates are: Rs 50 per unit for producing 10 units or more and Rs 40 per unit for producing less than 10 units Worker A produces 11 Units; he gets Rs 550 (11 units’ x 50 per unit) Worker B produces 09 units; he gets Rs 360 (9 units’ x 40 per unit) This difference of Rs 190 will motivate B to perform better. H. Mental Revolution It involves a complete change in mental outlook and attitude of workers and management towards one another from competition to cooperation. The management should create pleasant working conditions & workers should work with devotion and loyalty. Instead of fighting over distribution of profits, they must focus attention on increasing it. Q.17 Which technique of scientific management aims at elimination of superfluous varieties sizes and dimensions of the product. (Simplification of work) Q.18 Name the technique of Taylor which is one of the strongest motivator for a worker to reach standard performance. (Differential piece wage system) Q.19 Explain the technique of scientific management that is extension of “Principle of Division of work” and specialisation? (Functional foremanship) Class XII : Business Studies 31 Fayol versus Taylor TAYLOR V/S FAYOL Basis Henry Fayol F.W Taylor 1. Basis of formation Personal Experience Observation 2. Focus Improvement in the Concentration on improving overall administration the productivity 3. Applicability Universally applicable Applicable only to specialised situations 4. Perspective Top level management Lower level-shop floor level 5. Personality Practitioner and Scientist and known as father known as the father of scientific management of General management 6. Human element More importance given More importance attached to to human element; e.g. increasing the production Principle of equity, than to the human element stability of tenure 7. Emphasis Greater emphasis on Emphasis on principles and tools and standardi- theory of general sation of work i.e. administration i.e. Scientific General Theory of Management Administration 8. Unity of Command Staunch proponent that Did not feel that it is important orders should be as under functional received from one boss. foremanship a worker received orders from eight specialists. 32 Class XII : Business Studies SOME IMPORTANT POINTS TO REMEMBER Science not Rule of Thumb means discarding old methods of doing work which were based on hunch or old practices and developing new techniques based on experimentation. Mental revolution means drastic change in the thinking. Change is required on three fronts : a) In attitude towards each other (management and workers) b) Towards work c) Towards division of profit Managers should realize the importance of workers. Revision of principles : a) An employee breaks ‘No Smoking’ rule (violation of principle of discipline) b) Management not giving increments and promotions to workers as per agreement (violation of principle of discipline) c) Management sharing gains with workers (harmony, not discord) d) Sales manager welcoming suggestions of salesman (Initiative) e) The purchase manager purchases raw material from the company owned by his son at a rate more than the market price (violation of subordination of individual interest to general interest) f) Frequent transfers (violation of stability of tenure) g) In case of an accident, first aid box could not be found in its place (violation of principle of order) h) Making arrangements for training and career development of workers (development of each person to his/her greatest efficiency and prosperity) Class XII : Business Studies 33 Multiple choice questions 1. Identify the principle of management followed in the following pictorial repre- sentation. (a) Cooperation, Not individualism (b) Harmony, not discord (c) Discipline (d) Remuneration. 2. The applicability of principles of management depends upon the prevailing situ- ation at a particular point of time. Identify the feature of principles of manage- ment, highlighted from the statement: (a) General guidelines (b) Contingent (c) Flexible (d) All of these. 3. The following pictorial presentation highlights violation of one of the principles of management. Identify the principle not followed in the given picture. (a) Initiative (b) Subordination of individual interest to general interest (c) Equity (d) Cooperation not individualism 34 Class XII : Business Studies 4. In a company there are four departments finance, marketing, production and human resource development. Identify the principle of management used in this company (a) scalar chain (b) Discipline (c) Unity of command (d) Division of work 5. Identify the principle of general management depicted in this pictorial representation. (a) Orders (b) Unity of direction (c) Unity of command (d) Espirit De corps 6. Professional courses such as BBA also teach principles of management as a part of their curriculum at the beginner’s level. Identify the significance of prin- ciples of management highlighted from this statement. (a) Management training, education and research (b) Providing managers with useful insight into reality (c) Effective administration (d) Meeting changing environment requirements. 7. Select the principles of management given by Henri fayol. (a) Discipline (b) Harmony not discord (c) Unity of command (d) Espirit de corps (e) Functional foremanship Choose the correct combination out of the following: (1) A, B, C and D only (2) A, C, D and E only Class XII : Business Studies 35 (3) A, B and D only (4) A, C and D only 8. Read the following statements. Statement I : The principles of management are not flexible instead they are pure like the principles of science. Statement II : The principles of management are general guidelines the donot provide readimade solutions to problems. Select the correct alternative out of the given below alternatives. (a) Statement I is correct and statement II is wrong (b) Statement II is correct and statement I is wrong (c) Both statements are correct (d) Both statements are wrong II. Fill in the blanks: 1. 2. 36 Class XII : Business Studies III. Match the following: 1. (i) Fatigue study (a) Aims to eliminate unnecessary movements in doing a job (ii) Motion study (b) Aims to differentiate between efficient and inefficient workers (iii) Differential piece wage system (c) Aims to determine rest intervals (iv) Time study (d) Aims to determine standards (a) (b) (c) (d) (i) – c (i) – a (i) – b (i) – d (ii) – a (ii) – c (ii) – c (ii) – b (iii) – b (iii) – d (iii) – d (iii) – a (iv) – d (iv) – b (iv) – a (iv) – c 2. (i) Equity (a) Encourage workers to develop and carry out their plans (ii) Stability of personnel (b) Judicious application of penalties (iii) Discipline (c) Securing loyalty and devotion of employees (iv) Initiative (d) Points out the danger and costs of unnecessarey labour turnover. (a) (b) (c) (d) (i) – b (i) – a (i) – d (i) – c (ii) – a (ii) – d (ii) – c (ii) – d (iii) – c (iii) – b (iii) – a (iii) – b (iv) – d (iv) – c (iv) – b (iv) – a 3. (i) Speed boss (a) Timely completion of job (ii) Gang boss (b) Proper working condition of machines and tools (iii) Repair boss (c) Check quality of work (iv) Inspector (d) Keep machines and tools ready for operation. Class XII : Business Studies 37 (a) (b) (c) (d) (i) – b (i) – a (i) – c (i) – a (ii) – a (ii) – d (ii) – b (ii) – c (iii) – c (iii) – b (iii) – a (iii) – d (iv) – d (iv) – c (iv) – d (iv) – b 4. State giving reasons, whether the statements are ‘True’ or ‘False’ (i) We should not have multiple bosses, as it will lead to divided responsibil- ity (ii) Simplification of work means process of setting standards for every busi- ness activity. (iii) Taylor’s principle of ‘science not rule of thumb’ stresses on scientific analysis of each part of work (iv) If authority exceeds responsibility, subordinate may misuse it. (v) Unity of direction prevents dual subordination. Answers I. Multiple choice questions (1) c (2) b (3) b (4) d (5) d (6) a (7) b (8) b II. Fill in the blanks” 1. (a) Science not rule of thumb (b) Co-operation not individiualism (c) Harmony not discard (d) Development of each and every person to his or her greatest efficiency 38 Class XII : Business Studies (e) F.W. Taylor 2. (a) Instruction card clerk (e) Speed boss (b) route clerk (f) Gang boss (c) Time and cost clerk (g) Repair boss (d) Disciplinarian (h) Inspector (i) Workman III. Match the following: (1) a (2) d (3) b IV. True/False (i) True – Suboordinate can escape accountability if this is not followed (ii) False – Standardisation refers to setting standards (iii) True – There should be scientific study and analysis of each element of a job (iv) True – If authority exceeds responsibility, subordinate may misuse. (v) False – Unity of command prevents dual subordination. Class XII : Business Studies 39 QUESTIONS FOR PRACTICE Q.1 Which principle of Henry Fayol does functional foremanship violate? (Unity of command) (1) Q.2 A sales person is asked to finalize a deal with customer. The marketing manager allows him to give a discount of up-to 10% but the Finance Manager allows him to give discount of upto 25%. Which principle is violated here? (Unity of command) (1) Q.3 Principles of Taylor and Fayol are mutually complementary. One believed that the management should the gain with the workers while the other suggested that employees compensation should depend upon the earning capacity of the company and should give them a reasonable standard of living. Identify and explain the principles of management by Tayol and Fayol referred to in para? (1) [Hint: Fayol – Remuneration, Taylor – Harmony not Discord (Mental Revolution)] Q.4 The production manager of an automobile company asked the foreman to achieve a target production of 200 scooters per day. But he did not give him the authority to requisition tool and materials from the stores department. Can the production manager blame the foreman if he is not able to achieve the desired target? Explain briefly the principle relating to the situation. (No, Production Manager can’t blame the Foreman. Principle-Authorit and Responsibility) Q.5 Which principle of scientific managment suggests that management should be open to constructive suggestions and workers should be taken into confidence before taking importance decisions. (Co-operation not individualism) 40 Class XII : Business Studies QUESTIONS BASED ON Analysis, Evaluation and Creation Q 1. Pentucky Fried Chicken, more commanly known by the initials PFC, is an international food restaurant chain that specializes in fried chicken. The com- pany has divided the total work into many parts all the employees perform a particular job repeatedly. The company has mainly three units, each is headed by a different individual and that individual controls and regulates the activities in his own way. The employees are not fulfilling their commitment with the company to work honestly for it, as they take leave without intimation. The employees of the company are not happy about the pay package provided by the company. Due to it, labour turnover in the company is on higher side. This situation reflects poor management in the company. 1. Identify the principle of management applied at PSC mentioned in quoted line The company has........................................................................... repeatedly (a) Authority and Responsibility (b) Discipline (c) Unity of command (d) Division of work 2. “The company has.........................................................................own way.” Identify Fayol’s principle highlighted in above quoted line (a) Unity of command (b) Unity of direction (c) Discipline (d) Division of work 3. “The employees............................................... without intimation Which principle is being violated here? (a) Unity of command (b) Division of work (c) Stability of tenure (d) Discipline 4. Which principle is being referred in these lines- “Due to it...................................... higher side” (a) Stability of tenure (b) Fair remuneration (c) Scalar chain (d) Equity Anwer 1(d), 2(b), 3(d), 4(a) Class XII : Business Studies 41 Q 2. Ramesh works in a bulb manufacturing company Each bulb which is manu- factured is of standard size and quality for the if there is any undeclared type of bulb manufacturer then its production is shut down. Last month when the com- pany came to know that 10 watt bulbs were no more preferred by customers their production was stopped Ramesh is job to purchase the filaments re- quired to make bulbs. This time when he purchased the filament he got the instructions from the seller that some special care needs to be taken in fixing the first batch of filaments inside the bulb. Ramesh knows this information should be given immediately to the production department before the assem- bling process stars. However he finds that his company's policies only allow him to give the message to his immediate boss who will further pass the mes- sage to his boss. This passing of message will continue till it reaches the desired persons in the department. 1. Each bulb..................................................................................... and quality Identify the technique of management mentioned in quoted line (a) Standardisation (d) method study (c) simplification (d) Motion study 2. Which principle of management is followed in the company as per following statement- “However he finds......................................................... to his boss”. (a) Unity of command (d) Discipline (c) Scalar chain (d) Order 3. Identify the technique of scientific management applied in the company as per following statement- Further if.............................................................. it is shut down. (a) Time study (b) Fatigue study (c) Standardization (d) simplification 3. Name the option which is now available to Ramesh as this in emergency situ- ation as for this statement Ramesh knows............................................... process starts 42 Class XII : Business Studies (a) Initiative (d) Order (c) Equity (d) Gang Plank (1 x 4 = 4) Answer 1. (a) 2. (b) 3. (d) 4. (d). Q 3. Which principle of management should be followed strictly for orderly flow of information in an organisation elaborate with table diagram figure. [Hint: principle of solar chain] (4) Q 4. Instructions card clerk draft instructions for the workers. If you would have been and instructions card clerk how would you have drafted an “Instructions card” for a workers in noodles factory. Draft and “Instruction card”. [Ans- any suitable iInstructions card for noodles factory workers] (4) SOME ADDITIONAL NEW QUESTIONS FOR PRACTICE Q 5. 1. Jojo enterprises is facing huge losses. The owner of the company is an MBA pass out even than many things in the organisation are happening which are indicator of lack of proper management in the company. First of all there is no specific sharing of work and any time any employee is asked to do anything. 2. There are no clear and fair agreement between the workers and the man- agement. These are also no strict rules and regulations binding on the con- duct of the workers. 3.The departmental heads who are the middle level managers in the company and hold key position always favour their relatives. This has led to feeling of resentment among the employees who are also demanding the special favours and threatening strike in the coming days. Identify the three principles of Fayol violated in the above case. (4) Q 6. Dokia Ltd. Is a world renowned retail chain store. The customers here are very much pleased with the products and services provided in the stores. The cus- tomer satisfaction and internal efficiency of this organisation is rated best in the industry. However these have been a few steps taken by the organisation this edge. This organisation has used a special type of software which inte- grates all the stores and brings uniformity in its bling and working pattern iden- tify principle of scientific management mansions here. Explain it (3) Class XII : Business Studies 43 Q 7. In a huge manufacturing company, there was a constant training programing running for the workers throughout the year. The workers were trained about the machines as the management realized that management is all about the relationship among workers and their proper handling of the machines. As the size of the organisation increased, the management decided to release their hold on day today activities of the organization. A more decentralized approach was adopted where the workers could decide about the machines and the amount of raw material required instead of traditional centralised approach as per the needs. The management knew that is the external environment is dy- namic. In order to meet the stiff competition they clarified to the workers that they can exercise their on prosperity as per situation. Explain the nature of principles of management highlighted in the above case by quoting lines. (6) Q 8. Amit is the production manager in Zerolac Paints Pvt. Ltd. The company is producing variety of paints. Various alternative methods are available which can result in minimization of cost and maximization of output. On visiting his factory he found that workers are in habit of keeping their tools here and there and then waste their time in finding them. Similarly no place was fixed for the repair clerk and route clerk. The workers kept on searching them in time of need. He called a meeting of all the employees and informed them about this findings. He fixed place for each and every tool and person in the factory. He also gave directions regarding working hours, leave provisions and punish- ments in case of disobedience. Amit made use of two principles suggested by Fayol and some techniques suggested by Taylor to systematize his factory. Identify and explain them. (6) 44 Class XII : Business Studies CHAPTER - 3 BUSINESS ENVIRONMENT Business Environment Sum total of all individuals, institutions and other forces that may affect the performance of business enterprise but outside the control of business. Features Dimensions/External forces Significance Totality Economic Identifying opportunities and Specific and general forces Social getting first mover advantages Inter-relatedness Political Identify threats and early Coping with warning signals Dynamic nature Technological rapid changes Uncertainty Legal Assisting in planning Tapping useful resources Complexity and policy formation Relativity Helps in improving performance. BUSINESS ENVIRONMENT IN INDIA Economic Impact of Govt. Policy changes Managerial Response to changes Reforms on business and industry in Business Environment in India Increasing competition Mergers and acquisitions Liberalisation More demanding customers (Removing unnecessary Diversification control and restriction Rapidly changing technological Brand Building from industry) environment Necessity for change Customer oriented approach Privatisation (Reducing role of public Need for developing human Technological Developments sector disinvestment) resources Better labour relations Globalisation Market orientation (Integration of Changes in capital structure Loss of Budgetary economies of the world) Mergers and acquisitions support to public sector Class XII : Business Studies 45 Business environment means the sum total of the factors which influence the business and over which the business has no control. The study of business environment enables the managers to identify threats and opportunities. Features of Business Environment 1. Totality of external forces: Business environment is the sum total of all the forces/factors external to a business firm. 2. Specific and general forces: Business environment includes both specific and general forces. Specific forces influence business firm directly while general forces affect a business firm indirectly. Components of Business Environment Micro factors Internal/Specific External/General Macro factors Affects all Factors Factors Affects all business units Customers, Owners Economic, business units almost differently and investors Environment Social in the same way. e.g., Demand Suppliers, Creditors Environment Political e.g., General income. the product for Employees and trade Environment an employment and employmentlevel level union, Competitors Technological in the economy. Environment Legal Environment 3. Inter-relatedness:All the forces/factors of a business environment are closely interrelated. For example, increased awareness of health care has raised the demand for organic food and roasted snacks and in turn changed the life style of people. 4. Dynamic: Business environment is dynamic in nature which keeps on changing with time. It may be change in technology, fashion and tastes etc. 5. Uncertainty: Business environment is uncertain as it is difficult to predict the future environmental changes and their impact with full accuracy. 6. Complexity: Business environment is complex which is easy to understand in parts separately but it is difficult to understand in totality. 7. Relativity:Business environment is a relative concept whose impact differs from country to country, region to region and firm to firm. For example, demand 46 Class XII : Business Studies for ready to eat healthy food will be more in urban areas than in rural areas. Q.1 Business Environment includes both specific and general forces. List any two specific forces. (Any two- Investors, customers, owners, suppliers, creditors, employees, trade unions.) Q.2 Why is it said that business environment is dynamic in nature. (Because it keeps changing with time) IMPORTANCE OF BUSINESS ENVIRONMENT 1. Identification of opportunities to get first mover advantage: Understanding of business environment helps an organisation in identifying advantageous opportunities and getting their benefits prior to competitors, thus reaping the benefits of being a pioneer. 2. Identification of threats and early warning signals: Correct knowledge of business environment helps an organisation to identify those threats which may adversely affect its operations. For example, Bajaj Auto made considerable improvements in its two wheelers when Honda & other multinational companies entered the auto industry. 3. Tapping useful resources: Business environment makes available various resources such as capital, labour, machines, raw material etc. to a business firm. In order to know the availability of resources and making them available on time at economical price, knowledge of business environment is necessary. 4. Coping with Rapid changes: Continuous study/scanning of business environment helps in knowing the changes which are taking place and thus they can be faced effectively by developing suitable course of action. 5. Assistance in planning and policy formulation: Understanding and analysis of business environment helps an organisation in planning & policy formulation. For example, ITC Hotels planned new hotels in India after observing boom in tourism sector. 6. Helps in Improving performance: Correct analysis and continuous monitoring of business environment not only helps an organisation in improving Class XII : Business Studies 47 its performance but also continue to succeed in the market for longer time. DIMENSIONS/COMPONENTS OF BUSINESS ENVIRONMENT 1. Economic Environment: It represents the nature of an economy, its policy, systems and all those forces that have bearing on business activities like. Rate of interest, inflation rate, change in the income of people, monetary policy, price level etc. are some economic factors which could affect business firms. Examples : Decline in tax rates raises the disposable income of people leading to increase in demand for products. Rise in inflation increases the cost of raw material, machine, payment of wages and salaries. Demonetization implemented by RBI. Changes in economic and fiscal policies have encouraged NRI’s and foreign investors to invest in India. Make in India was launched for job creation and skill enhancement. RBI allowed commercial banks to reduce interest rates on loans to tackle recession. The banks offering loans at reasonable interest rates with minimum required formalities because of banking sector reforms. 2. Social Environment:It includes various social forces such as customs, beliefs, literacy rates, educational levels, lifestyle, values etc. Changes in social environment affect an organisation in the long run. Example: Now a days people are paying more attention towards their health, as a result of which demand for mineral water, Diet coke etc. has increased while demand of tobacco, fatty food products has decreased. Examples : Festivals like Diwali, Eid, Christmas, etc. lead to increase in demand for greeting cards, sweets, gifts etc. 48 Class XII : Business Studies Equal pay/pay scales to male and female workers for equal work. Demand for reservation in jobs for minority and women. ‘Beti Bachao, Beti Padhao’ movement started for encouraging education of girl child. Swachh Bharat Abhiyaan introduced for welfare of society. 3. Technological Environment:It implies using new and advanced ways/ techniques of production. A businessman must closely monitor the technological changes taking place in the industry as it helps in facing competition and improving quality of the product. For Example, Digital watches in place of traditional watches, booking of railway tickets on internet etc. Examples : Payments through e-wallets, Paytm etc. Change from fountain pens to ball pens. Dematerialization of securities. Cable TV adversely affected radio industry. Introduction of artificial intelligence, like Siri in iPhones. 4. Political Environment: It includes political conditions and factors related to government affairs and their impact on business. Political stability builds confidence among business community while political instability and bad law & order situation may bring uncertainty in business activities. Ideology of the political party, attitude of government towards business, type of g overnment-sing le party or coalition governm ent affects the business.Example: Bangalore and Hyderabad have become the most popular locations for IT due to supportive political climate. Examples : Crash in share prices due to change in Vajpayee government in 1999. PM’s frequent visit to foreign countries for promoting business relationships. Class XII : Business Studies 49 Hyderabad has become the IT hub due to political support. Compensation given by government for acquiring property for building infrastructure facilities, like metro construction. GST introduced and implemented in place of VAT. 5. Legal Environment:It constitutes the laws and legislations passed by the Government, administrative orders, court judgements, decisions of various commissions and agencies. Example: Advertisement of Alcoholic products is prohibited and it is compulsory to give statutory warning on advertisement of cigarettes. Examples : Supreme Court issuing orders to seal unauthorised shops and constructions. Law ensuring green dot for every vegetarian eatable products and red dot for non-vegetarian products. Supreme Court passing an order to close the iron factories around Taj Mahal to avoid air pollution affecting it. Q.3 Identify the type of dimension of business environment related to the following: (i) Banks reducing interest rate on housing loans. (ii) An increasing number of working women. (iii) Booking of air tickets through internet. (iv) Alcohol beverages are prohibited to be advertised on Doordarshan. (v) A stable government has built up confidence among the firms to invest in big project. [(i)economic, (ii)Social, (iii)Technological, (iv)Legal, (v) political] Economic Environment in India (Not to be covered for Session 2023-2024) As a part of economic reforms, the Government of India announced New Economic Policy in July 1991. This policy has sought to liberate industry from restrictions of licencing system (liberationsation), drastically reduce the Govt. controls to accelerate the role of private sector and to integrate India economy with world economics. It main purpose was to bring India out of economic crises and to accelerate its 50 Class XII : Business Studies economic growth. The main objective of New Industrial Policy was to promote Liberalization, Privatization and Globalization. 1. Liberalisation: It means freeing of Indian Industry from all unnecessary government controls and restrictions. Abolishing licensing requirements; Freedom in deciding the scale of business; removals of restriction on movements of goods and service; reduction in tax rates; freedom in fixing prices; simplifying procedures; making it easier to attract foreign investment. 2. Privatization: Giving greater role to private sector in the nation building process and reduced role of public sector; Disinvestment in many Public Sector undertaking which would result in converting public sector undertakings to private sector hence diluting governemnt ownership by less than 51%., It aimed at improving efficiency and performance of government undertakings, reducing budgetary deficit & better utilization of national resources. 3. Globalization: It means integration of various economies of the world leading to the emergence of cohesive global economy. The measures taken by the Government include trade liberalization which includes import liberalization; Export Promotion through rationalization of tariff structure; Foreign exchange liberalization; increased interaction among global economies under the aegis (protection/support) of World Trade Organization. It resulted in addition of Export duty, Reduction of import. Q.4 State how business environment helps in coping with rapid change. (by knowing in advance & developing suitable course of action) Q.5 State any two reasons why managers should understand business environment (Any two points of importance; starting with it helps the managers....) Q.6 Can the effect of various factors of business environment on business be recognised separately? (No, as the factors are related to each other) IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND INDUSTRY (Not to be covered for Session 2023-2024) Class XII : Business Studies 51 1. Increasing Competition:Delicencing and entry of foreign firms in Indian market has increased the level of competition for Indian firms. It benefitted consumers by availability of large variety of goods at reasonable prices. 2. More Demanding Customers: Now customers are more aware and they keep maximum information of the market as the result of which, now market is customer/buyer oriented. Now products are produced keeping in mind the demands of the customers. 3. Rapidly Changing Technological Environment:Rapid Technological advancement has changed/improved the production process as a result of which maximum production is possible at minimum cost but it leads to tough challenges in front of small firms. 4. Necessity for Change:After New Industrial Policy, the market forces (demand & supply) are changing at a very fast rate. Change in the various components of business environment has made it necessary for the business firms to modify their policies & operations from time to time. 5. Need for Developing Human Resources:The changing market conditions require people with higher competence and greater commitment. Hence there is a need for developing human resources which could increase their effectiveness and efficiency. 6. Market Orientation:Earlier selling concept was famous in the market now its place is taken by the marketing concept. Today firms produce those goods & services which are required by the customers. Marketing research, educational advertising, after sales services have become more significant. 7. Reduction in budgetary Support to Public Sector:The budgetary support given by the government to the public sector is reducing thus the public sector has to survive and grow by utilising their own resources efficiently. Managerial response to changes in business environemnt (Not to be covered for Session 2023-2024) : The impact of changes in economic policy of government has made managers aware of various areas where they have to focus to keep their business environment help them to take decision regarding increasing competition, the demands of customers and their expectations (consumer is the king), rapidly changing technological environment, necessity to adapt to change and need for 52 Class XII : Business Studies developing human resources. 1. Mergers and Acquisitions: Many firms are merging to take technological and economic benefit of each other, Powerful business units are acquiring small firms to reduce competition among themselves. 2. Diversification: Firms are diversifying into wide range of new product lines to capture new market segments. 3. Brand Building: Aggresive marketing tools are exercised by firms to establish the identity of their brands in the minds of consumers. 4. Customer Oriented Approach: Niche marketing concept is used and needs of each and every consumers are adhered to. 5. Technological Developments: Firm s are updating them selves technologically to face competition. 6. Better Labour Relations: Relations with labour trade-unions are harmonious to bring team effect. 7. Changes in Capital Structure: Debt Component is more used now comparatively to take the benefit of trading on equity. QUESTIONS FOR PRACTICE Q.1 It is the process by which government control over the industry is being loosened. Give the term to which this statement is trying- to indicate. (Liberalisation) (1) Q.2 “The understanding of business environment enables the firm to identify opportunities.” What is meant by ‘opportunities’ here? (Possibility to start a new venture or launch a new product to earn more than competitors.) (1) Q.3 “It may be difficult to know the extent of the relative impact of the social, economic, political, technological or legal factors on change in demand of a product in the market.” Which feature of business environment is highlighted by this point? (Complex) (1) Class XII : Business Studies 53 DEMONETIZATION Concept Demonetization is the withdrawal of a particular currency from circulation. Demonetization refers to the process by which Govt. of a country withdraws some currency (some specific currency like notes of ` 500 and ` 1000 in India) from the circulation of economy. The demonetised notes cease to be accepted as legal currency for any kind of transaction. In India, it was introduced by the government on November 8, 2016, in which `1000 and ` 500 notes were no longer accepted as medium of exchange. A new `2000 note was introduced as a legal tender. It led to loss of liquidity in India for some time. Its aim was to : Curb corruption Reduce accumulation of black money, and Counterfeit the use of high denomination notes for illegal activities Features 1. Tax administration: People with black money had to declare their unaccounted wealth and pay taxes at a penalty rate. 2. Channelizing savings: Banks offered new deposit schemes in which people invested heavily. This led to increased liquidity in banks. 3. Cashless economy: It encouraged digital transactions or e-transactions, thus leading to cashless economy. 4. Elimination of terror funding: It will help in fighting against terror funding and smuggling by reducing the use of high value currency notes. Conclusion Though it created a temporary shortage of cash and rush at banks, but it will have a positive impact on GDP in the long run. 54 Class XII : Business Studies Multiple Choice Questions 1. Out of the following, select the combination of importance of Business Envi- ronment. (a) It helps in idenfifying opportunities and taking first mover advantages (b) It helps in tapping useful resournces (c) It helps in identifying threat and provides early warning signals (d) It consists of specific and general forces. (e) It is uncertain and complex. Choose the correct combination out of the following. (a) A, B and C only (b) A, B and D only (c) C, D and E only (d) B, C and D only 2. Identify the dimenstion of Business Environment indicated by the following picture. (a) Economic (b) Technological (c) Political (d) Social Class XII : Business Studies 55 3. What is indicated by the following picture relating to Business Environment. (a) Characteristics (b) Importance (c) Dimension (d) Dangers 4. Arrange the following statemetns related to demonetisation in a correct sequance. (a) ` 500 and ` 1000 notes were withdrwing from circulation. (b) People start replacing old notes with the new notes. (c) Demonetisation was announcoal on november 8, 2016 (d) Denonetisation helps in pronoting digital payments and creating loss-cash economy. Choose the correct sequence (a) A, B, C, D (b) A, C, B, D (c) C, A, B, D (d) C, D, A, B 5. India is good example of _________ economy. (a) Socialist (b) Mixed (c) Capitalist (d) Communist. 56 Class XII : Business Studies 6. Economic growth can be measured by _________. (a) CPI (b) CBI (c) GDP (d) MPC 7. Globalisation of markets has brought about economies of ________. (a) Scale of production (b) Distribution and marketing (c) Management (d) All Business operations 8. A valid definition of a business purpose is to ________. (a) Create a customer (b) Maximize profits (c) Serve the society (d) All of the above Fill in the Blanks 1. Business environment includes both ________ and ________ forces. 2. Business environment is _________ as it is difficult to predict the future envi- ronment changes and their impact with full accuracy. 3. Business environment is a _______ concept whose impact differ from country to country, region to region and firm to firm. 4. The Government of India announced New Economic Policy on _____ _______ for taking out the country out of economic difficulty and speeding up the devel-

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