Engineering Management Notes (EGCH4140) Chapter 1 PDF

Engineering Management Notes (EGCH4140) Chapter 1 Course Lecturer: Shiyas Abdulkarim  MIIE 4142 Industrial Management Course Des...

Engineering Management Notes (EGCH4140) Chapter 1 Course Lecturer: Shiyas Abdulkarim  MIIE 4142 Industrial Management Course Description EGCH4140 ENGINEERING MANAGEMENT 3 Credit Hours Prerequisites: NONE Goal This course aims to deals with the techniques related to managing engineering activities. Enable engineers transition into management; engineering managerial functions; motivation of individual and group behavior; productivity assessment/improvement. Provide knowledge on managing the quality function and communications. Objectives Course Learning Outcomes 1. Outline the fundamentals and 1. Demonstrate the concepts of managerial functions like planning, directing, evolution of management in controlling and have some basic knowledge on international aspect of engineering industries. management 2. Describe the functions and 2. Develop planning processes in the organization. principles of management. 3. Explain the functions of organization. 3. Discuss application of 4. Discuss the ability to directing, leadership and communicate effectively management principles in an organization. 5. Analyze the issues and formulate best control methods. 4. Build effective communication 6. Evaluate various quality assurance concepts and their integration into a and analyze its barrier in the comprehensive quality management system. organization 7. Perceive ethical and professional responsibilities in engineering situations 5. Elaborate the system and and make informed judgments, which emphasize the impact of engineering process of effective controlling in solutions in global, economic, environmental, and societal contexts. the organization. 1  MIIE 4142 Industrial Management Chapter 1: Management-Introduction Objectives covered 1.Outline the fundamentals and evolution of management in engineering industries. 2. Describe the functions and principles of management Outcomes covered 1. Demonstrate the concepts of managerial functions like planning, directing, controlling and have some basic knowledge on international aspect of management By the end of this chapter, you should be able to 1. Understand basic concept of industrial management. 2. Conceive how mangers function in industrial environment 3. Discuss the different types of Business Ownership 4. Analyse the Functions of key management executives 5. Understand the industrial revolutions. Tell who managers are and where they work Describe what managers do-the functions of managers and their roles Identify the different levels of managers and their functions Explain why it is important to study management References: 1. Stephen P Robbins & Mary Coulter (2011) , Management, (11th edn), Prentice Hall 2. David Boddy (2008) , Management An introduction,(4th edn) , University of Glasgow 2  MIIE 4142 Industrial Management 1.1 Introduction Born in the late nineteenth century, engineering management is a dynamic profession whose growth has been increased by the challenges and demands of manufacturing, and service organizations throughout the twentieth century. It is also a profession whose future depends not only on the ability of its practitioners to react to and facilitate operational and organizational change but, more important, on their ability to anticipate, and therefore lead, the change process itself. The historical events that led to the birth of industrial engineering provide significant insights into many of the principles that dominated its practice and development throughout the first half of the twentieth century. While these principles continue to impact the profession, many of the conceptual and technological developments that currently shape and will continue to mould the practice of the profession originated in the second half of the twentieth century. The objective of this chapter is to define the terms managers and organisation, study their characteristics, study about the different levels of managers and their function, discuss the various functions of management and to learn the different management roles. In consecutive chapters we will briefly summarize the evolution of industrial management and the different management theories thereby laying out the concepts of engineering management and in so doing assist in identifying those common elements that define the purpose and objectives of the profession. 1.1.1 Industrial Revolution Industrial revolution is defined as the major changes and transition in manufacturing and industrial process with new innovative technologies. It is a series of innovations in manufacturing processes that transformed rural, agrarian based societies into industrialised and urban ones. Industrial revolutions initiated an outpouring of continuous scientific and technological innovation and continuous improvement in the method of production. Industry 1.0-First Industrial revolution (1760-1840): The first industrial revolution with machine labour gradually replacing hand labour originated in Britain in the late 1700s and then spread to Europe and the United States of America. A large number of the technological advancements were made during the Industrial Revolution. Britain's cold environment made it the perfect place to raise sheep, giving the country a long history of producing textiles like wool, linen, and cotton. The textile business was in every way a "cottage industry" before the industrial 3  MIIE 4142 Industrial Management revolution because the labour was done by lone spinners and weavers in smaller workshops and residences. Weaving cloth and spinning yarn became considerably easier and faster with the invention of technologies like the spinning jenny, and power loom, while also requiring less labour from humans. Agriculture and handicrafts-based economies were transformed by the Industrial Revolution into economies based on large-scale manufacturing, mechanized production, and the factory system. Existing industries become more productive and efficient as a result of new equipment, power sources, and organizational techniques Industry 2.0 (1870-1970): started around 1870 and the main characteristics were assembly line and mass production, oil and electricity, efficient electrical machines and the subsequent reduction in the labour force requirement. The development of assembly lines and the generation of electricity in the 19th century marked the start of the Second Industrial Revolution. The mass processing idea was adopted by Henry Ford (1863–1947) from the slaughterhouse in Chicago. These concepts were used by Henry Ford in the creation of automobiles in his FORD motor company, greatly improving the process. Unlike before, when the entire car was erected in front of a single platform, automobiles are now produced in partial steps on the conveyor belt, which is 4  MIIE 4142 Industrial Management substantially faster and less expensive. The metal and chemical sectors have all been impacted by technological advancements in manufacturing. Industry 3.0 (1970-2010): In the 1970s the third industrial revolution began with partial automation using memory-programmable controls and computers. Following the introduction of these developments, we are now in a position to optimize the entire development process-without human assistance. Examples of this are robots running program sequences without human interference. So the introduction of electronics and computers in the industry made the industrial system to become more efficient and helped in large scale production. A number of operations traditionally carried out manually, including planning and monitoring, have been centralized for engineering, electronics and IT. The term Advanced Manufacturing Technology (AMT) originated with the spread of these innovations in the 1980s, referring to a range of technologies such as computer-based integrated manufacturing (CIM), computer-aided design (CAD), computer-aided manufacturing (CAM), Flexible processing mechanisms (FMS) etc. Industry 4.0 (2011-present) Industry 4.0 was first officially announced during the world economic forum held during the year 2015. It refers to the creation of a Cyber- Physical system that means the convergence of physical, digital and virtual environment to make a smart factory. Industry 4.0 is a new phase in the industrial revolution that introduce intelligent networking of machines and process for industry with the help of information and communication technology. It connects physical world with digital world. Cyber-Physical System (CPS) Industry 4.0 can be viewed as a Cyber-Physical System formed by the advancements and rate of development in communication and computation. In order to link physical objects with virtual models, sensors are put in every physical component of any production system. Cyber-Physical Systems (CPS) must be guaranteed to perform steadily and have a specific bearing when used with artificial intelligence (AI) because they are more prevalent in society and occur during interactions with people. The Internet of Things (IoT), which can be integrated to create the Internet of Services (IoS), was also built on the CPS platform. As a result, businesses will find it simpler to create international networks that link manufacturing, machinery, and warehousing systems. The Key technologies of Industry 4.0 is briefly explained below. 1. Internet of Things (IoT): IoT can provide advanced connectivity of systems, services, physical objects, enables object-to-object communication and data sharing 5  MIIE 4142 Industrial Management Ref: https://www.pdsol.com/news/what-is-industry-4-0/ 2. Big Data and Analytics: Big data analytics is the process of systematic processing and analyzing enormous and complex data sets—also referred to as big data—in order to derive insightful information. Big data is used to do analysis using digital technology. Big data analytics is advantageous for predictive manufacturing in Industry 4.0 and is a key path for the advancement of industrial technology through the rapid growth of the Internet. Due to the enormous volume of information that is produced and obtained daily, conventional processing and analysis techniques are unable to keep up. When current methods are improved to handle huge data, many other applications would be able to obtain new benefits. 3. Augmented Reality: Augmented Reality (AR) has begun to be considered as one of the most promising business that technological companies should heavily invest in. This technology can bring huge support for maintenance works in business due to reduced time needed for maintenance works and reduction of potential errors in maintenance works. It can predict with high accuracy and allows the frequency of maintenance to be kept at low numbers by utilizing predictive maintenance to prevent any unplanned reactive 6  MIIE 4142 Industrial Management maintenance. This will reduce costs associated with doing too much preventive maintenance. 4. Autonomous Robots: Modern robots are more flexible, have more sophisticated features, and are simpler to control in many different industries. Robots will soon actively work with people and interact with one another under the direction of handlers. In comparison to the robots currently employed in the manufacturing industry, these ones will be more affordable and smart. 5. Additive Manufacturing (3D Printing): Additive manufacturing (AM) is defined by ASTM as “The process of joining materials to make objects from 3D model data, usually layer by layer, as opposed to subtractive manufacturing methodologies, such as traditional machining”. AM uses wires or powders as feedstock, build the material layer by layer from a 3D CAD data, locally melting it using a high energy density heat source (such as laser or electron beam) followed by cooling it to produce a required shape. 6. Cloud Computing (CC): Cloud computing is a relatively new system logic that provides a huge space of storage for the user. A small amount of money allows enterprises or individuals to access these resources. Over time, the performance of technologies keeps on improving, however, the functionality of machine data will continue to be stored into the cloud storage system, allowing production systems to be more data-driven. Company limitations can be minimized since more data sharing will occur across sites for production- related undertakings in the industrial revolution. 7. Simulation: Simulation modelling is a way of running a real or virtual process or a system to find out or guess the output of the modelled system or process. Simulations are done by using real-time data to represent the real world in a simulation model, which include humans, products and machines. Therefore, operators are able to optimize the machine settings in a virtual simulated situation before implementing in the physical world. This decreases machine setup times and improves quality. Latest revolutions in the simulation modelling paradigm enable modelling of manufacturing systems and other systems through the virtual factory concept. Furthermore, advanced artificial intelligence on process control, including autonomous adjustments to the operation systems can also be done through simulations. 8. Horizontal and vertical integration: In the fields of production and automation engineering and IT, horizontal integration refers to the integration of the various systems 7  MIIE 4142 Industrial Management used in the different stages of the manufacturing and business planning processes that involve an exchange of materials, energy and information both within a company (e.g. inbound logistics, production, outbound logistics, marketing) and between several different companies. In the fields of production and automation engineering and IT, vertical integration refers to the integration of the various components and systems across the different hierarchical levels (production management, manufacturing and execution up to corporate-strategic planning levels) in order to connect to an end-to-end solution. 9. Cybersecurity: Cybersecurity has an important role in nearly every industry because many sectors rely on cybersecurity to protect sensitive data like finance, research and development, marketing information etc. So the industries should invest in the cybersecurity tools to safeguard their data. 1.2 Concept of Engineering Management Professionals cannot just sustain only with best engineering skills and knowledge, since any operational issues require application of management techniques. Any engineer by profession is also a manager, as engineers also qualify in the classical test of managerial roles, interpersonal roles, and informational roles and decisional role. Engineering management, as a branch of engineering facilitates creation of management systems and integrates the same with people and their activities to productively utilize the resources. The subject emphasizes studying the performance of machines and so also the people. Engineering management, therefore, is the structured approach to manage the operational activities of an organization. 1.3 Managers and organization Who are managers and where do they work? Managers work in organisation which is a deliberate arrangement of people brought together to accomplish a specific purpose. An organisation is a social arrangement for achieving controlled performance towards goals that create value. We live in a world of managed organisations. In every day we experience many of them like domestic arrangement various kinds (family or flatmates), large public organisations (police or government), small business (shops or newspaper agent), a voluntary group (a club where we attended a meeting), big companies (PDO or Oman air) etc. They have an effect on us and we make some judgement about our interaction with them like whether the company is working smoothly, they are making good profit, the program was arranged in a nice 8  MIIE 4142 Industrial Management way or it was surrounded by chaos, the service was good or poor etc. The work of management is to build organisations which work, in the sense that they use resources to create value. Value is added to resources when they are transformed into goods or services that are worth more than their original cost plus the cost of transformation. Commercial organisation create material value, not-for- profit organisation create value through educating people, counselling the troubled or caring for the sick. Every organisation has some common characteristics which are 1. Specific goals/Distinct Purpose: Every organisation has certain goals or objectives. For a business organisation the main objective is profit. Sometimes for government organisation profit is not the objective. For example for the police the objective is to reduce crime or traffic accidents. For this college which is non-profit institution run by government, the objective is to give education, raise the young generation, help them to have god careers to build and grow the country etc. 2. People: Organisations are built by people. It is a collection of people who work together as a team to achieve pre specified objectives. 3. Structure: Every Organisation has a structure. The structure provides an appropriate framework for authority and responsibility relationship between various positions. Fig 1.1 Characteristics of organisation [Ref: Stephen P Robbins & Mary Coulter (2011) , Management, (11th edn), Prentice Hall ] 1.3.1 How are managers different from non-managerial employees? Non managerial employees are people who work directly on a job or task and have no responsibility for overseeing the work of others. Examples are associates and team members. Managers are individuals in organisations who direct the activities of others. A manager is someone who gets things done with the aid of people and other resources. If somebody is 9  MIIE 4142 Industrial Management responsible for other’s work, they are the managers. A manager’s job is not about personal achievement—it’s about helping others do their work. That may mean coordinating the work of a departmental group, or it might mean supervising a single person. It could involve coordinating the work activities of a team with people from different departments or even people outside the organization, such as temporary employees or individuals who work for the organization’s suppliers. 1.4 Managers levels Fig 1.2 Levels of managers In traditionally structured organizations (which are often pictured as a pyramid because more employees are at lower organizational levels than at upper organizational levels), managers can be classified as first-line, middle, or top. (See figure 1.2) At the lowest level of management, first-line managers manage the work of nonmanagerial employees who typically are involved with producing the organization’s products or servicing the organization’s customers. First-line managers may be called foreman, supervisors or even shift managers, district managers, department managers, or office managers. Middle managers manage the work of first-line managers and can be found between the lowest and top levels of the organization. They may have titles such as regional manager, project leader, store manager, or division manager. At the upper levels of the organization are the top managers, who are responsible for making organization-wide decisions and establishing the plans and goals that affect the entire organization. These individuals typically have titles such as executive vice president, president, managing director, chief operating officer, or chief executive officer. 10  MIIE 4142 Industrial Management Not all organizations get work done with a traditional pyramidal form, however some organizations, for example, are more loosely configured with work being done by ever-changing teams of employees who move from one project to another as work demands arise. The main functions of the different levels of management are listed down 1.4.1 Functions of top managers are a) Setting objectives. b) Framing policies. c) Designing/modifying organizational framework. d) Guiding decisions on expansion/contraction of activities. e) Administrating control through the organization (e.g. budgeting, accounting devices, etc.) f) Satisfying financial needs of the organization. 1.4.2 Functions of middle managers are a) Setting up of different departments. b) Framing operating policies and rules. c) Selection of staff for lower levels of managers. d) Conducting training of employees. e) Building up contended and efficient staff. f) Co-ordination between different departments of the organization. g) Building up company team spirit among employees. 1.4.3 Functions of first line managers are - a) Issuing orders and instructions to the workers regarding work. b) Arranging for the necessary equipment, materials, tools etc., for the workers. c) Ensuring proper maintenance of company's tools and machinery. d) Providing on-the-job training to the workers. e) Solving problems of workers which includes upward communication of problems not solved at his/her level. f) Maintaining discipline among the workers and building in them right attitude to work. g) Providing finishing touch to the plans and policy of the top management. h) Maintaining good human relations. 11  MIIE 4142 Industrial Management 1.5 Define Management ‘Management is the process of getting things done effectively and efficiently, with and through people’ Efficiency refers to getting the most output from the least amount of inputs. Because managers deal with scarce inputs—including resources such as people, money, and equipment— they’re concerned with the efficient use of those resources. It’s often referred to as “doing things right”—that is, not wasting resources. It’s not enough, however, just to be efficient. Management is also concerned with being effective, completing activities so that organizational goals are attained. Effectiveness is often described as “doing the right things”—that is, doing those work activities that will help the organization reach its goals. Efficiency is concerned with the means of getting things done; effectiveness is concerned with the ends, or attainment of organizational goals (see fig 1.3). In successful organizations, high efficiency and high effectiveness typically go hand in hand. Poor management (which leads to poor performance) usually involves being inefficient and ineffective or being effective, but inefficient. Fig 1.3 Efficiency and Effectiveness in Management 12  MIIE 4142 Industrial Management Another comprehensive definition of management in an engineering point of view is given below. Management is the process of effective and efficient transformation of the input resources like men, material, money, machines etc to the required output like goods and services which satisfies the customer needs using a set of management functions like planning, organizing, leading and controlling. Now let us discuss the different functions of management as listed in the above definition. 1.6 Management Functions: What do managers do? According to the functions approach, managers perform certain activities or functions as they efficiently and effectively coordinate the work of others. What are these functions? Henri Fayol, a French businessman, first proposed in the early part of the twentieth century that all managers perform five functions: planning, organizing, commanding, coordinating, and controlling. Today, these functions have been condensed to four: planning, organizing, leading, and controlling (see Fig 1.4). Fig 1.4: Four Functions of Management 1.6.1 Planning If you have no destination in mind, then any road will do. However, if you have some particular place to go, you’ve got to plan the best way to get there. Because organizations exist to achieve some particular purpose, someone must define that purpose and the means for its achievement. Managers are that someone. 13  MIIE 4142 Industrial Management Planning is thinking before doing. Following are the characteristics of planning, Set goals. Establish strategies for achieving those goals. Forecasting company's future needs of capacity, materials, tools, supplies and personnel. Develop plans to integrate and coordinate activities. Determines different course of action. Selects and implements the best course of action under the given circumstances. Planning concerns every level of management. Top management generally is more concerned with long range (3 years and beyond) corporate and strategic plans. Middle management is mainly concerned with medium range (1-3 years) and departmental and functional plans. And Lower management is usually concerned with short term and operational (day to day) plans 1.6.2 Organizing Managers are responsible for arranging and structuring work to accomplish the organization’s goals. We call this function organizing. When managers organize, they determine What tasks are to be done? Who is to do them? How the tasks are to be grouped? Who reports to whom? Where decisions are to be made? Organizing is the next phase to planning. Planning establishes objectives and draws a plan of the activities and organizing puts the plan into action. 14  MIIE 4142 Industrial Management The steps of Organizing are ❖ Identification and classification of various activities necessary for achievement of objectives (Task identification) ❖ Separation and grouping of activities (Formation of departments) ❖ Assigning people to those activities and providing physical factors of environment (Resource allocation) ❖ Delegation of authority to each individual charged with execution of each respective activity (Delegation of authority) ❖ Fixation of horizontal and vertical relationships between various positions. (Designing Organisation Structure) The effects of good organizing are Smooth functioning of the organization, Effective channels of communication. Greater utilization of resources, Clarity of responsibility and authority, Reduced inter and intra departmental problems, Effective decision making 1.6.3 Leading Every organization has people, and a manager’s job is to work with and through people to accomplish goals. This is the leading function. When managers lead they motivate subordinates help resolve work group conflicts influence individuals or teams as they work select the most effective communication channel deal in any way with employee behavior issues Leading includes two sub functions. Directing and Coordinating 1.6.3.1 Directing Actual activity takes place when a manager issues instructions to subordinates as to what and when is to be done and guides/oversees to insure that is done. The function of doing this is called directing. Directing is the process by which actual performance of the subordinates is guided towards attainment of the goals of the organization. 15  MIIE 4142 Industrial Management Directing involves ❖ Giving instructions to the subordinate to do their jobs. ❖ Guiding and helping subordinates in performing the job. ❖ Supervising subordinates to ensure that job is carried out as per established plan. ❖ Motivating them (subordinates) for better performance. 1.6.3.2 Co-ordination Co-ordination is integrating or synchronizing the work performed by various individuals for attainment of company's objectives. Co-ordination involves - ❖ Setting procedures and systems that co-ordinate the activities (e.g. production meetings) ❖ Reviewing jointly status of the activities with the departments involved, ❖ Regulating communications to convey decisions taken at the review meetings wherever required. Success of co-ordination depends on effectiveness of administrative controls (procedures and systems in the organization), dynamism of the leadership and quality of informal relationships within the organization 1.6.4 Controlling The final management function is controlling. After goals and plans are set (planning), tasks and structural arrangements put in place (organizing), and people hired, trained, and motivated (leading), there has to be some evaluation of whether things are going as planned. To ensure that goals are being met and that work is being done as it should be, managers must Monitor and evaluate performance. Actual performance must be compared with the set goals. If those goals aren’t being achieved, it’s the manager’s job to get work back on track. This process of monitoring, comparing, and correcting is the controlling function. Some examples of the controls are: quality control, cost control, material control, production control etc. 16  MIIE 4142 Industrial Management 1.7 What are Management Roles? Henry Mintzberg, a well-known management researcher, studied actual managers at work. In his first comprehensive study, Mintzberg concluded that what managers do can best be described by looking at the managerial roles they engage in at work. The term managerial role refers to specific actions or behaviors expected of and exhibited by a manager. There are 10 management roles which are grouped around interpersonal relationship, the transfer of information, and decision making. The interpersonal roles are ones that involve people (subordinates and persons outside the organization) and other duties that are ceremonial and symbolic in nature. The three interpersonal roles include figurehead, leader, and liaison. The informational roles involve collecting, receiving, and disseminating information. The three informational roles include monitor, disseminator, and spokesperson. Finally, the decisional roles entail making decisions or choices. The four decisional roles include entrepreneur, disturbance handler, resource allocator, and negotiator. At higher levels of the organization, the roles of disseminator, figurehead, negotiator, liaison, and spokesperson are more important; while the leader role (as Mintzberg defined it) is more important for lower-level managers than it is for either middle or top-level managers. 17  MIIE 4142 Industrial Management Category Role Activity Figurehead Perform ceremonial and symbolic duties, receive visitors Direct and motivate subordinate, train, advise and Interpersonal Leader influence Maintain information links in and beyond the Liaison organization Seek and receive information, scan reports, maintain Monitor interpersonal contacts Forward information to others, send memos, make phone Informational Disseminator calls, Spokesperson Represent the unit to outsiders in speeches and reports Initiate new projects, spot opportunities, identify areas of Entrepreneur business development Take corrective action during crisis, resolve conflicts Disturbance Handler amongst staff, adapt to changes Decisional Decide who gets resources, schedule, budget, set Resource allocator priorities. Represent unit during negotiations with unions, supplies, Negotiator and generally defend interest. Table1.1: Mintzberg’s Managerial Roles (Based on Mintzberg, Henry, The Nature of Managerial Work, 1st Edition, 1980 pp. 93-94) 1.8 What Type of Skills Managers need? Robert L. Katz proposed that managers need three critical skills in managing: 1. Technical 2. Human 3. Conceptual. Technical skills are the job specific knowledge and techniques needed to proficiently perform work tasks. These skills tend to be more important for first-line managers because they typically are managing employees who use tools and techniques to produce the organization’s products or service the organization’s customers. Often, employees with excellent technical skills get promoted to first-line manager. Human skills involve the ability to work well with other people both individually and in a group. Because all managers deal with people, these skills are equally important to all levels of management. Managers with good human skills get the best out of their people. They know how to communicate, motivate, lead, and inspire enthusiasm and trust. 18  MIIE 4142 Industrial Management Finally, conceptual skills are the skills managers use to think and to conceptualize about abstract and complex situations. Using these skills, managers see the organization as a whole, understand the relationships among various subunits, and visualize how the organization fits into its broader environment. These skills are most important to top managers. 1.9 Why Study Management? There are many reasons why we study management. 1. Universality of management: We can say with absolute certainty that management is needed in all types and sizes of organizations, at all organizational levels and in all organizational work areas, and in all organizations, no matter where they’re located. This is known as the universality of management. Fig 1.5 Universal need for management Source: (Management by Stephen P Robbins, Mary Coulter, 11th edn) 2. The Reality of Work: Another reason for studying management is the reality that for most of you, once you graduate from college and begin your career, you will either manage or be managed. We all benefit from efficiently and effectively run businesses. 3. Rewards and challenges of being a manager: Well managed organizations prosper even in challenging economic times. 19  MIIE 4142 Industrial Management 1.10: Factors that are reshaping and redefining the manager’s job. The changes impacting managers’ jobs include global economic and political uncertainties changing workplaces ethical issues, security threats changing technology Managers must be concerned with customer service because employee attitudes and behaviors play a big role in customer satisfaction. Managers must also be concerned with innovation because it is important for organizations to be competitive. And finally, managers must be concerned with sustainability as business goals are developed. Activity 1.2 Gather evidence about Mintzberg’s model Recall a time when you have been responsible for managing an activity Do the ten roles cover all of the roles you performed, or did you do things that are not included in his list? What were they? Give the examples of what you did under (say) five of the roles. Compare your results with other members of the course 20  MIIE 4142 Industrial Management 1.11 Forms of Organization: Following are the commonly used types of ownership for the business organizations. -Sole proprietorship -Partnership -LLC- Limited Liability Company -SAOC-Society Anonyme Omanaise Close -SAOG- Society Anonyme Omanaise Generale 1.11.1: Sole proprietorship A sole proprietorship is the oldest and the most common form of business. It is a one-man organization where a single individual owns, manages and controls the business. Characteristics: 1. Ownership: The business enterprise is owned by one single individual that is the individual has got legal title to the assets and properties of the business. The entire profit arising out of business goes to the sole proprietor. Similarly, he also bears the entire risk or loss of the firm. 2. Management: The owner of the enterprise is generally the manager of the business. He has got absolute right to plan for the business and execute them without any interference from anywhere. He is the sole decision maker. 3. Source of Capital: The entire capital of the business is provided by the owner. In addition to his own capital he may raise more funds from outside through borrowings from close relatives or friends, and through loans from banks or other financial institutions. 4. Legal Status: The proprietor and the business enterprise are one and the same in the eyes of law. There is no difference between the business assets and the private assets of the sole proprietor. The business ceases to exist in the absence of the owner. 5. Liability: The liability of the sole proprietor is unlimited. This means that, in case the sole proprietor fails to pay for the business obligations and debts arising out of business activities, his personal property can be used to meet those liabilities. 6. Stability: The stability and continuity of the firm depend upon the capacity, competence and the life span of the proprietor. 7. Legal Formalities: In the setting up, functioning and dissolution of a sole proprietorship business no legal formalities are necessary. However, a few legal restrictions may be there in 21  MIIE 4142 Industrial Management setting up a particular type of business. For example, to open a restaurant, the sole proprietor needs a license from the local municipality; to open a chemist shop, the individual must have a license from the government. 1.11.2 Partnership Meaning A partnership form of organisation is one where two or more persons are associated torun a business with a view to earn profit. Persons from similar background or persons of different ability and skills, may join to carry on a business. Each member of such a group is individually known as partner ‘and collectively the members are known as a partnership firm. Characteristics: 1. Number of Partners: A minimum of two persons are required to start a partnership business. The maximum membership limit is 10 in case of banking business and 20 in case of all other types of business. 2. Contractual Relationship: The relation between the partners of a partnership firm is created by contract. The partners enter into partnership through an agreement which may be verbal, written or implied. If the agreement is in writing it is known as a Partnership Deed. 3. Competence of Partners: Since individuals have to enter into a contract to become partners, they must be competent enough to do so. Thus, minors, lunatics and insolvent persons are not eligible to become partners. However, a minor can be admitted to the benefits of partnership i.e. he can have a share inthe profits. 4. Sharing of Profit and Loss: The partners can share profit in any ratio as agreed. In the absence of an agreement, they share it equally. 5. Unlimited Liability: The partners are liable jointly and severally for the debts and obligations of the firm. Creditors can lay claim on the personal properties of any individual partner or the partners jointly. The liability of a minor is, however, limited to the extent of his share in theprofits, in case of dissolution of a firm. 6. Principal-Agent Relationship: The business in a partnership firm may be carried on by all the partners or any one of them acting for all. This means that every partner is an agent when he is acting on behalf of others and he is a principal when others act on his behalf. It is, therefore, essential that there should be mutual trust and faith among the partners in the interest of the firm. 22  MIIE 4142 Industrial Management 7. Transfer of Interest: No partner can sell or transfer his interest in the firm to anyone without the consent of other partners. 8. Legal Status: A partnership firm is just a name for the business as a whole. The firm means partners and the partners mean the firm. Law does not recognize the firm as a separate entity distinct from the partners. 9. Voluntary Registration: Registration of partnership is not compulsory. But since registration entitles the firm to several benefits, it is considered desirable. For example, if it is registered, anypartner can file a case against other partners, or a firm can file a suit against outsiders in case ofdisputes, claims, disagreements, etc. 10. Dissolution of Partnership: Dissolution of partnership implies not only a complete closureor termination of partnership business, but it also includes any change in the existing agreement among the partners due to a change in the number of partners. 1.11.3 LLC- Limited Liability Company A Limited Liability Company (LLC) is the most popular form of business incorporation in Oman. Here, each partner is liable only to the extent of his share in the business. Under an LLC company in Oman, public subscription for raising capital is not permitted. The LLC structure suits a small operation with a limited number of promoters. It is a business structure that can combine the taxation rules of a partnership or sole proprietorship with the limited liability of a corporation. The owner’s personal assets are secured in the event of a lawsuit. The liability is limited only to the business assets, not to the owners’ personal assets. LLC has pass-through taxation, which means the LLC’s income is not taxed directly, instead, the LLC’s income is distributed to the owners and it is taxed as their personal income tax as per the country’s rules. Minimum capital requirement for an LLC ranges from RO 20,000 to RO 150,000, depending on whether foreign ownership is involved. 23  MIIE 4142 Industrial Management 1.11.4 Joint Stock Company: A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders It has a separate legal existence, and the liability of whose members is limited. The main characteristics of joint stock company are 1. Artificial Person: A Joint Stock Company is an artificial person in the sense that it is created by law and does not possess physical attributes of a natural person. However, it has a legal status. 2. Separate Legal Entity: Being an artificial person, a company has an existence independent of its members. It can own property, enter into contract and conduct any lawful business in its own name. It can sue and can be sued in the court of law. A shareholder cannot be held responsible for the acts of the company. 3. Common Seal: Every company has a common seal by which it is represented while dealing with outsiders. Any document with the common seal and duly signed by an officer of the company is binding on the company. 4. Perpetual Existence: A company once formed continues to exist as long as it fulfils the requirements of law. It is not affected by the death, lunacy, insolvency or retirement of any of its members. 5. Limited Liability: The liability of a member of a Joint Stock Company is limited by guarantee or the shares he owns. In other words, in case of payment of debts by the company, a shareholder is held liable only to the extent of his share. 6. Transferability of Shares: The members of a company are free to transfer the shares held by them to anyone else. 7. Formation: A company comes into existence only when it has been registered after completing the formalities prescribed under the Indian Companies Act 1956. A company is formed by the initiative of a group of persons known as promoters 8. Membership: A company having a minimum membership of two persons and maximum fifty is known as a Private Limited Company. But in case of a Public Limited Company, the minimum is seven and the maximum membership is unlimited. 9. Management: Joint Stock Companies have democratic management and control. Even though the shareholders are the owners of the company, all of the them cannot participatein the management process. The company is managed by the elected representatives of shareholders 24  MIIE 4142 Industrial Management known as Directors. 10. Capital: A Joint Stock Company generally raises a large amount of capital through issue of shares. 1.11.4.1 SAOC - SAOC” stands for “Societe Anonyme Omanaise Close.” These companies are closely held joint stock companies. Three or more entities or individuals can form a joint stock company and issue stocks. The stocks are available for secondary market trading, but the liability of the company’s debts falls on stockholders. A company is considered SAOC in Oman if the minimum capital required is OMR 500,000 (approx. U.S. $1.3 million). SAOCs are closed joint stock companies; thus, the transfer of shares has to be subjected to other shareholders’ preemptive rights. SAOC company should have a minimum of 2 shareholders and a maximum limit of 50 shareholders. Shares can be transferred to these shareholders only. (Not open to public) 1.11.4.2 SAOG -SAOG” stands for “Societe Anonyme Omanaise Generale An SAOG is also a joint stock company, with the minimum capital required for this type of company is 2 million (approx. U.S. $5.2 million). In an SAOG, a minimum of 40 percent of the companies’ stocks are issued for public subscription. It is also called a general joint stock company. SAOGs are open joint stock companies which means the stocks can be sold and traded to third parties. SAOG companies should have a minimum of 7 shareholders and there is no maximum limit for the number of shareholders. Certain types of businesses in Oman are not permitted to take the form of an LLC and must adopt an SAOC or SAOG structure, such as insurance companies, banks, and investment funds. 25  MIIE 4142 Industrial Management 1.12: Important Managers in an Engineering organisation For smooth running and regular functioning of large size manufacturing organization, it is essential to distribute the administrative and managerial duties and other powers to different offices of various departments. Let us now look at some of the important functions of few key managers in a manufacturing organization. Board of Directors Managing Director Company Commercial Sales Works Personal Development Secretary Manager Manager Manager Manager Manager Managers in a manufacturing organisation 1.12.1: Functions of Board of Directors 1. Framing general administrative policies and financial policies. 2. Procurement of capital. 3. Arrangement regarding legal matters. 4. Management of earnings. 1.12.2: Functions of Managing Director 1. The person who translates the policies of the board into execution. 2. Responsible for administration, direction, coordination and control of the enterprise. 3. Should possess skill in finance and administration. 1.12.3: Functions of Company Secretary 1. Legal advisor to the company 2. Concerned with the secretarial work of the company like legal matters, issue and allotment of shares, agenda of company meetings etc. 26  MIIE 4142 Industrial Management 1.12.4: Functions of Commercial Manager 1. Cash administration. 2. Keeping financial records. 3. Record of sales and collection of debts. 4. Payments of purchases. 5. Records of payments of wages. 6. Helps in making decisions on financial matters. 1.12.5: Functions of Sales Manager 1. Sales inquiries, quotations, and orders. 2. Supervision of salesmen’s efforts. 3. Development of fresh markets. 4. Dealing with customer complaints. 5. Dealing with the packaging of the product. 1.12.6 Functions of Works Manager A works manager is also known as a factory manager or production manager and is in charge of the factory. He/she works with the help of the following officers. 1. Production Controller: He is concerned with plant layout, tool design, progress of work, loading of the machines etc. He is responsible for production, planning and control. 2. Production Superintendent: He is responsible for: a. Complete manufacturing of the product. b. Supervision and control of progress. 3. Maintenance Superintendent: He is the head of servicing section. Responsible for the maintenance of repair of all plants. 4. Purchase Officer: Responsible for the purchase of all materials and equipment and storage till the issue. Maintains proper record of purchases, issues and balances. 5. Storage in-charge: Responsible for the record of the raw materials, tools. Responsible for all incomings and outgoings. 27  MIIE 4142 Industrial Management 1.12.7: Functions of Personal Manager (HR Manager) They are mainly concerned with the conditions of employment in the factory. He should have an expert knowledge of factory legislation and regulation. Responsibilities are: 1. Appointments, promotions, transfers, disciplinary actions, training, etc. 2. Helping the top management for wage setting 3. Health and safety of workers. 4. Removing disputes and increasing morale. 5. General welfare of the employees. Activity 1.2 (Role play) Nokia mobile manufacturing unit was one of the leading profit-making unit. But because of many reasons they lost to its competitors. Let the students assume that they were working in Nokia in different managerial positions during its bad times. The CEO called for a brainstorming session to conduct an analysis on the issues of losses and to suggest feasible ways of improvement. Let three or four students form a group and take the role of each department like Production, Marketing, Finance, HR, Purchase, Research and development, Quality Control etc. First let the students prepare notes on their findings on the various reasons for losses and suggestions for the improvement and then conduct a group discussion presided over by CEO who is a student volunteer. 28