AEE313: Entrepreneurship Development and business

Communication

UNIT – I

Chapter-1 Entrepreneurship Development

Concept of Entrepreneur

The word “Entrepreneur” is derived from the French verb „entrepredre’. It means „to
undertake’. In the early 16th century the Frenchmen who organized and led military
expeditions were referred as „Entrepreneurs’.

In the early 18th century French economist Richard Cantillon used the term entrepreneur to
business. Since that time the word entrepreneur means one who takes the risk of starting a
new organization or introducing a new idea, product or service to society.

According to J.B. Say, “An Entrepreneur is the economic agent who unites all means of
production, land of one, the labour of another and the capital of yet another and thus
produces a product. By selling the product in the market the pays rent of land, wages to
labour, interest on capital and what remains is his profit”. Thus an Entrepreneur is an
organizer who combines various factors of production to produce a socially viable product.

According to Joseph Schumepeter, “An entrepreneur in an advanced economy is an

individual who introduces something new in the economy, a method of production not yet
tested by experience in the branch of manufacture concerned, a product with which
consumers are not yet familiar, a new source of raw material or of new market and the like”.

According to the Oxford dictionary an entrepreneur is one who organises , operates and
assumes the risk in a business venture in an expectation Of making a profit. Therefore an
entrepreneur is a person Who gets things done , starts a venture on his or her own And is
able to create something that produces an outcome such as wealth. The entrepreneur
introduces something new into the economy , which may be a new product or process or
finds a new market for product or process already known.

Weber (1930), entrepreneurs are a product of the particular social conditions in which they
live, and it is the society which shapes the personality of individuals as entrepreneurs.

According to Cantillon “An entrepreneur is the agent who buys factors of production at
certain prices in order to combine them into a product with a view to selling it at uncertain
prices in future”. To conclude an entrepreneur is the person who bears risk, unites various
factors of production, to exploit the perceived opportunities in order to evoke demand,
create wealth and employment.

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The New Encyclopedia Britannica considers an entrepreneur as an individual who bears the
risk of operating a business in the face of uncertainty about the future conditions. However,
the concept and views regarding entrepreneurs have changed over the years and some of
them are given below:

 Adam Smith described entrepreneur as a person who only provides capital without
taking active part in the leading role in enterprise.
 Karl Marx regarded entrepreneur as a social parasite.
 Noah Webster defined entrepreneur as one who assumes the responsibility of the
risk and management of business.

In the present socio-economic context, an entrepreneur is one who detects and

evaluates a new situation in his environment and directs the making of such adjustments
in the economic systems, as he deems necessary. He conceives of an industrial enterprise
for the purpose, displays considerable initiative, grit and determination in bringing his
project to fruition.

Concept of Entrepreneurship

The concept of entrepreneurship has been visualised by different authors in various ways
some of them are according to Bahal 2008 entrepreneurship is a process of change
comprising the following 3 behavioural components
1. the identification evaluation And exploitation of an opportunity
2. the management of a new or transformed organization so as to facilitate production and
marketing of new goods and services
[Link] creation of value through successful exploitation Of new idea that is innovation

Cole 1949 stated that entrepreneurship comprises any purposeful activity that initiates
maintains or develops a profit oriented business in interaction with the internal situation Of
the business or with the economic , political and social circumstances surrounding the
business.

According to Rao and Mehta 1978 entrepreneurship can be described as a creative and
innovative response to the environment . Search response can take place in any field of social
and where business , industry , agriculture, education , social work and the like. Doing new
things or doing things that are already known in a new way, is therefore a simple definition of
entrepreneurship (quoted from Satpathy 2001 ).

Entrepreneurship is a dynamic activity which helps the entrepreneur to bring changes in the
process of production, innovation in production, new usage of materials, creator of market
etc. It is a mental attitude to foresee risk and uncertainty with a view to achieve certain
strong motive. It also means doing something in a new and effective manner.

The term “entrepreneurship‟ is often used synonymously with the term ‟Entrepreneur‟
though, they are two sides of the same coin, conceptually they are different.
Entrepreneurship is the indivisible process flourishes, when the interlinked dimensions of
individual psychological entrepreneurship, entrepreneur traits, social encouragement,

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business opportunities, Government policies, availability of plenty of resources and
opportunities coverage towards the common good, development of the society and
economy.

According to Higgins “Entrepreneurship is meant the function of foreseeing investment and

production opportunities, organizing an enterprise to undertake a new production process,
raising capital, hiring labour, arranging the supply of raw materials, finding site, introducing a
new technique, discovering new resources or raw materials and selecting top managers for
day to day operations of the enterprise”.

Kao defines entrepreneurship as “an attempt to create value recognition of business

opportunity, the management of risk taking appropriate to the opportunity and through the
communicative and management skills to mobilize human, financial and material resources
necessary to bring a project to fruition". This definition recognizes that entrepreneurship
involves the fusion of capital technology and human talent to complete a project successfully
with a reasonable degree of risk.

The above definitions highlights risk bearing, innovating and resource organizing aspects and
an individual or group of people achieve goal through production or distribution of products
or services. To conclude entrepreneurship is set of activities performed by an entrepreneur
thus, entrepreneur proceeds entrepreneurship

Entrepreneur and entrepreneurship

An entrepreneur is a person Who takes the responsibility of initiating and establishing an
enterprise or an organization Under conditions of uncertainty. The person is hard working,
optimistic Commerce taker and sets high targets or goals and tries to achieve those amidst
odd situations.

The general characteristic of entrepreneurs are:

first commitment and determination Second leadership third opportunity obsession , fourth
tolerance of risk , ambiguity and uncertainty; fifth creativity , self reliance and ability to
adapt., sixth motivation to excel. The equivalent of entrepreneurship or enterprise is udyoga
and that of entrepreneur is udyogi or udyogpati .To summarize, an entrepreneur is the
person who bears risk, unites various factors of production, to exploit the perceived
opportunities in order to evoke demand, create wealth and employment.
Entrepreneur refers to Entrepreneurship refers to
 Visualiser  Vision
 Organiser  Organisation
 Initiator  Initiative
 Innovator  Innovation
 Motivator  Motivation
 Planner  Planning
 Decision-Maker  Decision-Making
 Risk bearer  Risk bearing.

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Hence, the concept of entrepreneurship can be represented in a sequential manner as
under:

Identification of market or business

opportunities

Assembling resources required to pursue these

opportunities

Judicious investment of resources for exploitation of

opportunities for long term gains

Creation of wealth

Entrepreneurship has also been defined as the professional application of knowledge, skills

and competencies and/or of monetizing a new idea, by an individual or a set of people by

launching an enterprise de novo or diversifying from an existing one (distinct from seeking self

employment as in a profession or trade) and thus, to pursue growth while generating wealth,

employment and social good.

Three Dimensions of Entrepreneurship

Entrepreneurship has also been defined as the professional application of knowledge, skills
and competencies and/or of monetizing a new idea, by an individual or a set of people by
launching an enterprise de novo or diversifying from an existing one (distinct from seeking
self -employment as in a profession or trade) and thus, to pursue growth while generating
wealth, employment and social good.

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From the above definitions, it can be surmised that the three dimensions of
entrepreneurship are:

Concept of Enterprise

The entrepreneur and enterprise are inter-linked. Enterprise is an offshoot of an

entrepreneur. Its success is dependent on the entrepreneur. Enterprise is that where
Entrepreneurial activity is going on. Like: Company, Industry, Firm, organization, office,
agency, franchise, Shops etc.

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Other related terms

Social entrepreneurship refers to recognition of a social problem and uses entrepreneurial/

business principles to organize, create and manage a venture designed to achieve social
change. While a business entrepreneur typically measures performance in terms of profit, a
social entrepreneur focuses on creating social capital. Thus, the main aim of social
entrepreneurship is to further social goals. Social entrepreneurs are most commonly
associated with the voluntary and not-for-profit sectors, but this need not rule out profit
making organizations (e.g Grameen Bank in Bangladesh).

Corporate entrepreneurship is a formal and informal process aimed at creating new

businesses products or services inside of an existing organization, so as to create value and
generate new revenue growth. Corporate Entrepreneurship (CE) can also be defined as the
process by which individuals inside organisations pursue opportunities without regard to the
resources they currently control. Instead, an entrepreneurial manager links up discrete
pieces of new technical knowledge that would provide a solution to a customer problem and
matches this technical capability with the satisfaction of a market and garners resources and
skills needed to take the venture to the next stage. This process often leads to the birth of
new businesses and to the transformation of companies through a renewal of their key ideas
(e.g; e-choupal by ITC).

Corporate Social Entrepreneurship refers to organizational transformation to enable it to

work towards greater societal change/ betterment. Corporate Social Entrepreneurship (CSE)
is a process aimed at enabling business to develop more advanced and powerful forms of
Corporate Social Responsibility (CSR) and is often used interchangeably with CSR, though it
the later often refers to philanthropy. For example; Starbucks entered into a partnership with
Conservation International to foster environmentally sustainable coffee production among
small farmers in Chiapas, Mexico. This entrepreneurial combination of distinctive
competencies created a process that developed new production techniques and supply of

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organic coffee for Starbucks, which in turn generated significant income enhancements to
the farmers and improved environmental conditions in the growing areas.

Intrapreneurs are innovators who belong to an organization and introduce new products,
ideas and services within the framework of an existing organization. They help their
organization adapt, grow and succeed in a changing and /or competitive environment. They
are the key personnel behind corporate entrepreneurship.
Entrepreneurs can be differentiated from Intrapreneurs in the following ways:

1. An entrepreneur is an independent businessman whereas an intrapreneur is

dependent on the promoters/owners of the corporation.
2. An entrepreneur himself raises the necessary capital from various sources and
guarantees the return to investors/creditors. On the other hand, an intrapreneur
neither raises the capital nor guarantees any returns to the supplies capital.

3. An entrepreneur bears full risks of his business whereas an intrapreneur does not
bear the full risk.
4. An entrepreneur operates from outside whereas an intrapreneur belongs to an
organisation and operates within its framework.
5. An entrepreneur takes profit from the business whereas an intrapreneur gets the
incentives if the innovation is successful.
6. An entrepreneur owns the business whereas where as an intrapreneur works for
others.
7. An entrepreneur converts ideas of an intrapreneur into viable options whereas an
intrapreneur creates innovations.

An entrepreneur needs no formal qualification whereas an intrapreneur is engaged by the

organization based on certain predetermined qualifications.

Characteristics of an entrepreneurs:

1. Calculated Risk-taker
2. Innovator
3. Organiser
4. Creative
5. Achievement Motivated
6. Technically Competent
7. Self-confident

8. Socially Responsible
9. Optimistic
10. Equipped with Capability to drive
11. [Link] with Mental Ability
12. Human Relations Ability
13. Communication Ability
14. Decision-Making
15. Business Planning

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16. A venture Capitalist
17. Visionary
18. Entrepreneur make significant differences
19. Ability to Spot and Exploit Opportunities
20. Courage to Face Adversities
21. Leadership---An essential trait of the entrepreneur

Factors responsible for entrepreneurship

According to Amarnath in Samvel 2008 the emergence of entrepreneurs in a society depends

upon closely interlinked social religious cultural and psychological and economic factors.
1. Entrepreneurs generally grow in the tradition of their families and society and internalise
certain values and norms from these sources .
[Link], social and cultural factors also influence the individual for taking up entrepreneur
career in some countries there is religious and cultural belief that higher profit is unethical
this type of belief inhibits growth of entrepreneurship.
3. Psychological factors like high need for achievement , determination for unique
accomplishment , self- confidence creativity, vision leadership etcetera promote
entrepreneurship among individuals on the other hand psychological factors like security
orientation , conformity and compliance , high need for affiliation etcetera inhibit promotion
of entrepreneurship.
4. Political system which promotes free market , individual freedom and private enterprise
will promote entrepreneurship
5. Economic policies of the government and other financial institutions and the opportunities
available in a society as a result of such policies play a crucial role in exerting direct influence
on entrepreneurship.

Characteristic of an entrepreneur

The entrepreneurs are known for their special characteristic which makes them
entrepreneur. An entrepreneur may not possess all the characteristics mentioned here but
not possess his or her own set of characteristics. It may be noted that there is no sex disk
discrimination in becoming an entrepreneur males and females are equally competent to
become entrepreneur in any field .

 Achievement motivation- Entrepreneurs have high achievement motivation that is an

urge for excellence and desire for success in competing with standard set by others as
well as one sets for oneself
 Personal drive and energy- high personal drive and energy is one of the important
characteristic of entrepreneurs. They can work for long hours for days together with
minimum basic amenities
 Self -confidence- the entrepreneurs believe that they are capable of doing things and
have the ability to control the actions and activities of other people
 Calculated risks- entrepreneur prefers to take calculated risk in dealing with the
challenging situation
 Taking initiative- an entrepreneur is prone to take initiative and explore all
possibilities to reach the goal

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 Long term involvement -entrepreneurs are found to set goals that demand long term
involvement and require perseverance
 Goal setting -an entrepreneur sets goals for himself or herself both in terms of what
he or she wants to and when . An entrepreneur realises that time is valuable resource
and wants to utilise it fully to reach the goal in time
 Systematic planning- an entrepreneur believes in planning and taking logical steps to
achieve the goals
 Dealing with failure- failure does not deter an entrepreneur radha he or she analyse
the failure as a feedback information and take appropriate collective steps
entrepreneurs are oriented towards problem solving
 Money as a measure -entrepreneurs use money or profit as a measure for their
success as against the general stigma attached to money making
 Information Seeking -an entrepreneur process information seeking behaviour and is
always on the look out for relevant current information related to the product
process market etcetera to take sound decisions
 Leadership -an entrepreneur follow the style of persuasive leadership which motivate
the team members to put in their maximum effort.
 Use of Resources- procurement and judicious utilisation of resources are other
important characteristic of a successful entrepreneur
 Networking- developing a good network of relationships with the person agencies
organizations connected with enterprise is an important characteristic for a successful
entrepreneur (source Verma Maheswara Rao and Kumar 2006 )

Functions of Entrepreneur

 Initiation- The entrepreneur takes the initiative to start the business . Here she has to
make decision with regard to production and marketing
 Choice of Location -The entrepreneur has to locate the business where production
and marketing facilities exist or can be created
 Innovation- The entrepreneur introduces new scientific findings and technologies ,
new use of product already known , and or new market for the same
 Coordination -The entertainer has to coordinate, direct and supervise the work and
other factors of production
 Risk and uncertainties- the entrepreneur has to face risk and uncertainties and search
for necessary auto natives alternative he or she thinks organises and operates the
business and is responsible for losses or games losses or gains from the business
(source amaranth and Samvel,2008 )

Concept of Intrapreneur

The term ‘intrapreneur’ was coined in the United States of America in the late seventies.
When we split the term we will get, intra + preneur stands for intra-corporate entrepreneur

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To heritage dictionary, “A person with in a large corporation who takes direct responsibility
for turning an idea into a profitable finished product through assertive risk-taking and
Innovation.”

An intrapreneur is an employee who takes the responsibility of creating innovation of any

kind of within organization

The intrapreneur may not face the outsized risks or reap the outsized rewards of an
entrepreneur. Intrapreneur has access to the resources and capabilities of an established
company.

Difference between Entrepreneur and Intrapreneur

Points Entrepreneur Intrapreneur

Dependency He is independent in his He is dependent on the
operation. entrepreneurs
i.e. owner.

Raising of He himself raises funds required for He does not raise funds for the
funds the organization organization.

Risk Entrepreneurs bears the risk involved He does not fully bear the risk
in the business. involved in the organization

Operation An entrepreneur operates from An intrapreneur operates

Outside from inside.

Innovation Entrepreneurs converts the ideas Intrapreneurs takes the

into viable opportunities. responsibility
of creating innovation.

Reward Entrepreneurs takes the profit of He is provided with a

the business. variety of perquisite for his
innovation.

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There are three school of thoughts which says-

1. Entrepreneurs are born

Certain individuals who are possessing certain the intrinsic qualities with them. A
professor of psychology Jacobwitz, A. He did an analysis of over 500 successful
entrepreneurs from different parts of the world and he has consolidated his research
outcomes wherein he has said that the entrepreneurs who are highly successful and they

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started the process of entrepreneurship at the early part of their age so there are certain
qualities these entrepreneurs are having to whom we identify them as they are the born
Entrepreneurs. Following are the qualities these entrepreneur’s are possessing:

1. Restlessness
2. Independence
3. Tendency to be loner
4. Extreme self -confidence.

Learned (1992) “Entrepreneurial DNA”

The another theory which also says that which was proposed by Learned in 1992 the
entrepreneurs are having the DNA “Entrepreneurial DNA” even though the science
has not identified the DNA as an Entrepreneurial DNA but because of the qualities the
process so this type of connotations are giving to those entrepreneurs who are
coming under this category of born entrepreneurs.

2. Entrepreneurs are made

According to McClelland (1987) economic activity could be increased through training
of business. People can be made entrepreneurs through training of business.
There is a casual relationship between desire for achievement and business activity.

3. Entrepreneurs are Event Oriented

Many people have become entrepreneurs out of an “Event”. Knudson [Link]. (2004)
event could take many forms including
 losing one’s job,
 threat of bankruptcy,
 loss a significant one,
 frustration on the job,
 discovering a market place, gap etc.

Types of Entrepreneur:

Based on

• type of business
• use of technology
• ownership
• gender
• size of enterprise

A. Based On The type Of Business:

1. Trading Entrepreneur: They procure the finished product manufacturers and sell these to
the customers directly or through a retailer. These serve as the middlemen as wholesalers,
dealers, and retailers between the manufacturers and customers.

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2. Manufacturing Entrepreneur: Manufacturing Entrepreneur manufacture product They
identify the needs of the customers and, then, explore the resources and technology to be
used to manufacture the products to satisfy the customers‟ needs.

3. Agricultural Entrepreneur: The entrepreneurs who undertake agricultural pursuits are

called agricultural entrepreneurs They cover a wide spectrum of agricultural activities like
cultivation, marketing of agricultural produce, irrigation, mechanization, and technology.

B. Clarence Danhof Classification:

Clarence Danhof classifies entrepreneurs into four types.

1. Innovative: Innovative entrepreneur is one who assembles and synthesis information and
introduces new combinations of factors of production. They are characterized by the smell of
innovativeness. These entrepreneurs sense the opportunities for introduction new ideas new
technology, new markets and creating new organizations. Innovative entrepreneurs are very
much helpful for their country because they bring about a transformation in life style.

2. Imitative/ Adoptive: Imitative entrepreneur is also known as adoptive entrepreneur. He

simply adopts successful innovation introduced by other innovators. These entrepreneurs
imitate the existing entrepreneurs and setup their enterprise in the same manner. Instead of
innovating, they just imitate the technology and methods innovated by others. These
entrepreneurs are very helpful in less developed countries as they contribute significantly in
the growth of enterprise and entrepreneurial culture in these countries. Further by adopting
the technology, which is already tested, they generate ample employment avenues for the
youth and therefore they are treated as agent of economic development.

3. Fabian: The Fabian entrepreneur is timid and cautious. He imitates other innovations only
if he is certain that failure to do so may damage his business. They are very much skeptical in
their approach in adopting or innovating new technology in their enterprise. They are not
adaptable to the changing environment. They love to remain in the existing business with the
age-old techniques of production. They only adopt the new technology when they realize
that failure to adopt will lead to loss or collapse of the enterprise.

4. Drone: These entrepreneurs are conservative or orthodox in outlook. They never like to
get rid of their traditional business and traditional machinery or systems of the business.
They always feel comfortable with their old fashioned technology of production even though
the environment as well as the society have undergone considerable changes. Thus, drone
entrepreneurs refuse to adopt the changes. They are laggards as they continue to operate in
their traditional way and resist changes. His entrepreneurial activity may be restricted to just
one or two innovations. They refuse to adopt changes in production even at the risk of
reduced returns.

C. Based on the Use of Technology

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1. Technical Entrepreneur: Technology based industrialist are called technical entrepreneur.
Speaking alternatively, these are the entrepreneurs who make use of science and technology
in their enterprises.

2. Non-Technical Entrepreneur: The entrepreneurs who are not technical entrepreneurs are
non- technical entrepreneurs. They are concerned with the use of alternative and imitative
methods of marketing and distribution strategies to make their business survive and thrive in
the competitive market.

D. Based on Ownership

1. Private Entrepreneur: A private entrepreneur is one who as an individual sets up a business

enterprise. He / she it‟s the sole owner of the enterprise and bears the entire risk involved in
it.

2. State Entrepreneur: When the trading or industrial venture is undertaken by the State or
the Government, it is called „state entrepreneur.

3. Joint Entrepreneurs: When a private entrepreneur and the Government jointly run a
business enterprise, it is called „joint entrepreneurs.‟

E. Based on Gender
1. Men Entrepreneurs: When business enterprises are owned, managed, and controlled by
men, these are called „men entrepreneurs.‟

2. Women Entrepreneurs: Women entrepreneurs are the enterprises owned and controlled
by a woman or women having a minimum financial interest of 51 per cent of the capital and
giving at least 51 per cent of employment generated in the enterprises to women.

Some More Types of Entrepreneurs Listed By Behavioural Scientists:

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In recent years, some new classifications have been made regarding entrepreneurs, which
are discussed further.
1. Solo operators: These entrepreneurs prefer to set up their business individually. They
introduce their own capital, intellect and business acumen to run the enterprise successfully
They operate their business mainly in the form of proprietorship type of concern.

2. Active partners: Entrepreneurs of this type jointly put their efforts to build enterprise
pooling together their own resources. They actively participate in managing the daily routine
of the business concern. As such, the business houses or the firms which are managed by the
active partners become more successful in their operation.

3. Inventors: These entrepreneurs primarily involve themselves in Research and

Development (R and D) activities. They are creative in character and feel happy in inventing
new products, technologies and methods of production.

4. Challengers: Entrepreneurs of this type take challenges to establish business venture as

mark of achievement. They keep on improving their standard and face boldly the odds and
adversities that come in their way. They use their business acumen and talent to convert the
odds into opportunities thereby making profit. According to them, if there is no challenge in
life, there is no charm in life. Challenges make them bold, and thus, they never hesitate to
plunge themselves into uncertainties for earning profit.

5. Buyers (entrepreneurs): These entrepreneurs explore opportunities to purchase the

existing units which may be seized or are in running condition. If the units they purchase are
sick they turn them around using their experiences, expertise and business acumen. By
purchasing these units they make themselves free from the hassles of building
infrastructures and other facilities.

Entrepreneur's Role/Task:

 Conceptualization
 Research
 Identification of resources
 Creation of business of plan
 Acquisition of funds
 Operation of a business

Conclusion

An Entrepreneur is someone who has an idea and who works to create a product or service
that people will buy, by building an organization to support those sale.

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Chapter -2 MOTIVATION

 Latin word -MOVERE’ – To move

 Motivation is a process that starts with a physiological or psychological deficiency or
need that activates a behaviour or a drive that is aimed at a goal or incentive
([Link],1995)
 Motivation may be defined as goal seeking or goal directed behaviour or activity.
 Behavior is a function of the person, which is interaction within a situation.
 Motivation is also defined as a stage of the organism in which bodily energy
immobilized and selectively directed towards parts of the environment.
 Motivation towards a particular thing means movement or motion
 Motivation is an inner state that energises, activities or moves and direct human
behaviour towards goals
 Need satisfying and goal seeking behaviour is motivation

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TYPES OF MOTIVATION

 Intrinsic motivation/Intrinsic values : Motivation which generates from within one‟s

ownself. These are what a learner does for the same of engaging in the activity itself.
This is to be desired in learning and is more immediate.
 Extrinsic motivation/External Values: Motivation which generates from an outside
induced incentives i.e. awards, money, certificates etc. These are when an incentive
or goal is artificially introduced into a situation to cause it to accelerate activity.

ACHIEVEMENT MOTIVATION

Achievement motivation is defined as "a desire and effort to accomplish something

difficult, to master, manipulate or organise physical objects, human beings or ideas,
to do this as rapidly and as independently as possible, to overcome obstacles and
attain a high standard of excellence".

 Elements of motivation are: Needs, drives and incentives

Needs- Drives Incentives

THEORIES OF MOTIVATION

Maslow's hierarchy of needs is a theory in psychology proposed by Abraham Maslow in his

1943 paper "A Theory of Human Motivation" in Psychological innate curiosity. His theories
parallel many other theories of human developmental psychology, some of which focus on
describing the stages of growth in humans. He then decided to create a classification system
which reflected the universal needs of society as its base and then proceeding to more
acquired emotions. Maslow's hierarchy of needs is used to study how humans intrinsically
partake in behavioural motivation. Maslow used the terms "physiological", "safety",
"belonging and love", "social needs" or "esteem", and "self-actualization" to describe the
pattern through which human motivations generally move. It works on the satisfaction-
progression principle.

Physiological needs

Physiological need is a concept that was derived to explain and cultivate the foundation for
motivation. This concept is the main physical requirement for human survival. This means
that Physiological needs are universal human needs. Physiological needs are considered the
first step in internal motivation according to Maslow's hierarchy of needs. This theory states

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that humans are compelled to fulfil these physiological needs first in order to pursue intrinsic
satisfaction on a higher level. If these needs are not achieved, it leads to an increase in
displeasure within an individual. In return, when individuals feel this increase in displeasure,
the motivation to decrease these discrepancies increases. Physiological needs can be defined
as both traits and a state. Physiological needs as traits allude to long-term, unchanging
demands that are required of basic human life. Physiological needs as a state allude to the
unpleasant decrease in pleasure and the increase for an incentive to fulfill a necessity. In
order to pursue intrinsic motivation higher up Maslow's hierarchy, Physiological needs must
be met first. This means that if a human is struggling to meet their physiological needs, then
they are unlikely to intrinsically pursue safety, belongingness, esteem, and self-actualization.

Physiological needs include:

 Homeostasis
 Health
 Food
 Water
 Sleep
 Clothes
 Shelter
 Safety needs

Once a person's physiological needs are relatively satisfied, their safety needs take
precedence and dominate behaviour. In the absence of physical safety – due to war, natural
disaster, family violence, childhood abuse, institutional racism etc. – people may (re-
)experience post-traumatic stress disorder or transgenerational trauma. In the absence of
economic safety – due to an economic crisis and lack of work opportunities – these safety
needs manifest themselves in ways such as a preference for job security, grievance
procedures for protecting the individual from unilateral authority, savings accounts,
insurance policies, disability accommodations, etc. This level is more likely to predominate in
children as they generally have a greater need to feel safe. Safety and security needs are
about keeping us safe from harm. These include shelter, job security, health, and safe
environments. If a person does not feel safe in an environment, they will seek to find safety
before they attempt to meet any higher level of survival, but the need for safety is not as
important as basic physiological needsSafety and Security needs include:

 Personal security
 Emotional security
 Financial security
 Health and well-being

Safety needs against accidents/illness and their adverse impacts.

Social belonging

After physiological and safety needs are fulfilled, the third level of human needs are seen to
be interpersonal and involves feelings of belongingness. This need is especially strong in

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childhood and it can override the need for safety as witnessed in children who cling to
abusive parents. Deficiencies within this level of Maslow's hierarchy – due to hospitalism
neglect, shunning, ostracism, etc. – can adversely affect the individual's ability to form and
maintain emotionally significant relationships in general.

Social Belonging needs include

 Friendships
 Intimacy
 Family

According to Maslow, humans need to feel a sense of belonging and acceptance among
social groups, regardless of whether these groups are large or small. For example, some large
social groups may include clubs, co-workers, religious groups, professional organizations,
sports teams, gangs, and online communities. Some examples of small social connections
include family members, intimate partners, mentors, colleagues, and confidants. Humans
need to love and be loved – both sexually and non-sexually – by others. Many people
become susceptible to loneliness, social anxiety, and clinical depression in the absence of this
love or belonging element. This need for belonging may overcome the physiological and
security needs, depending on the strength of the peer pressure

Self-esteem

Esteem needs are ego needs or status needs. People develop a concern with getting
recognition, status, importance, and respect from others. Most humans have a need to feel
respected; this includes the need to have self-esteem and self-respect. Esteem presents the
typical human desire to be accepted and valued by others. People often engage in a
profession or hobby to gain recognition. These activities give the person a sense of
contribution or value. Low self-esteem or an inferiority complex may result from imbalances
during this level in the hierarchy. People with low self-esteem often need respect from
others; they may feel the need to seek fame or glory. However, fame or glory will not help
the person to build their self-esteem until they accept who they are internally. Psychological
imbalances such as depression can distract the person from obtaining a higher level of self-
esteem.

Most people have a need for stable self-respect and self-esteem. Maslow noted two versions
of esteem needs: a "lower" version and a "higher" version. The "lower" version of esteem is
the need for respect from others. This may include a need for status, recognition, fame,
prestige, and attention. The "higher" version manifests itself as the need for self-respect. For
example, the person may have a need for strength, competence, mastery, self-confidence,
independence, and freedom. This "higher" version takes guidelines, the "hierarchies are
interrelated rather than sharply separated". This means that esteem and the subsequent
levels are not strictly separated; instead, the levels are closely related.

Self-actualization

21
What a man can be, he must be. This quotation forms the basis of the perceived need for
self- actualization. This level of need refers to the realization of one's full potential. Maslow
describes this as the desire to accomplish everything that one can, to become the most that
one can be. Individuals perceive or focus on this need very specifically. People may have a

" strong, particular desire to become an ideal parent, succeed athletically, or create
paintings, pictures, or inventions. Maslow believed that to understand this level of need, the
person must not only succeed in the previous needs but master them. Self-actualization can
be described as a value- based system when discussing its role in motivation; self-
actualization is understood as the goal- or explicit motive, and the previous stages in
Maslow's Hierarchy fall in line to become the step- by-step process by which self-
actualization is achievable; an explicit motive is the objective of a reward-based system that
is used to intrinsically drive completion of certain values or goals. Individuals who are
motivated to pursue this goal seek and understand how their needs, relationships, and sense
of self are expressed through their behavior. Self-actualization can include:

 Mate Acquisition
 Parenting
 Utilizing & Developing Abilities
 Utilizing & Developing Talents
 Pursuing goals

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2. Douglas McGregor X & Y Theory

Theory X and Theory Y are theories of human work motivation and management. Theywere
created by Douglas McGregor while he was working at the MIT Sloan School of Management
in the 1950s, and developed further in the 1960s. The two theories proposed by McGregor
describe contrasting models of workforce motivation applied by managers in human
resource management, organizational behavior, organizational communication and
organizational development. Theory X explains the importance of heightened supervision,
external rewards, and penalties, while Theory Y highlights the motivating role of job
satisfaction and encourages workers to approach tasks without direct supervision.
Management use of Theory X and Theory Y can affect employee motivation and productivity
in different ways, and managers may choose to implement strategies from both theories into
their practices.

Theory X

Theory X is based on assumptions regarding the typical worker. This management style
assumes that the typical worker has little ambition, avoids responsibility, and is individual-
goal oriented. In general, Theory X style managers believe their employees are less
intelligent, lazier, and work solely for a sustainable income. Management believes
employees' work is based on their own self-interest. Managers who believe employees
operate in this manner are more likely to use rewards or punishments as motivation. Due to
these assumptions, Theory X concludes the typical workforce operates more efficiently under
a hands-on approach to management. Theory X managers believe all actions should be
traceable to the individual responsible. This allows the individual to receive either a direct
reward or a reprimand, depending on the outcome's positive or negative nature. This
managerial style is more effective when used in a workforce that is not essentially motivated
to [Link] to McGregor, there are two opposing approaches to implementing
Theory X: the hard approach and the soft approach. The hard approach depends on close
supervision, intimidation, and immediate punishment. This approach can potentially yield a
hostile, minimally cooperative workforce that may cause resentment towards management.
Managers are always looking for mistakes from employees, because they do not trust their
work. Theory X is a "we versus they" approach, meaning it is the management versus the
employees.

The soft approach is characterized by leniency and less strict rules in hopes for creating high
workplace morale and cooperative employees. Implementing a system that is too soft could
result in an entitled, low-output workforce. McGregor believes both ends of the spectrum
are too extreme for efficient real-world application. Instead, McGregor feels that an
approach located in the middle would be the most effective implementation of Theory X.
Because managers and supervisors are in almost complete control of the work, this produces
a more systematic and uniform product or work flow. Theory X can benefit a work place that
utilizes an assembly line or manual labour. Using this theory in these types of work
conditions allows employees to specialize in particular work areas which in turn allows the
company to mass-produce a higher quantity and quality of work.

Theory Y

23
Theory Y managers assume employees are internally motivated, enjoy their job, and work to
better themselves without a direct reward in return. These managers view their employees
as one of the most valuable assets to the company, driving the internal workings of the
corporation. Employees additionally tend to take full responsibility for their work and do not
need close supervision to create a quality product. It is important to note, however, that
before an employee. carries out their task, they must first obtain the manager's approval.
This ensures work stays efficient, productive, and in-line with company standards. Theory Y
managers gravitate towards relating to the worker on a more personal level, as opposed to a
more conductive and teaching-based relationship. As a result, Theory Y followers may have a
better relationship with their boss, creating a healthier atmosphere in the workplace. In
comparison to Theory X, Theory Y incorporates a pseudo-democratic environment to the
workforce. This allows the employee to design, construct, and publish their work in a timely
manner in co-ordinance to their workload and projects.

Although Theory Y encompasses creativity and discussion, it does have limitations. While
there is a more personal and individualistic feel, this leaves room for error in terms of
consistency and

uniformity. The workplace lacks unvarying rules and practices, which could potentially be
detrimental to the quality standards of the product and strict guidelines of a given company.

3. Herzberg’s Two-Factor Theory of Motivation

In 1959, Frederick Herzberg, a behavioural scientist proposed a two-factor theory or the

motivator-hygiene theory. According to Herzberg, there are some job factors that result in
satisfaction while there are other job factors that prevent dissatisfaction. According to
Herzberg, the opposite of “Satisfaction” is “No satisfaction” and the opposite of
“Dissatisfaction” is “No Dissatisfaction”.

Herzberg classified these job factors into two categories

24
FIGURE: Herzberg’s view of satisfaction and dissatisfaction

a. Hygiene factors- Hygiene factors are those job factors which are essential for existence of
motivation at workplace. These do not lead to positive satisfaction for long-term. But if these
factors are absent / if these factors are non-existant at workplace, then they lead to is
[Link] other words, hygiene factors are those factors which when
adequate/reasonable in a job, pacify the employees and do not make them dissatisfied.
These factors are extrinsic to work. Hygiene factors are also called as dissatisfiers or
maintenance factors as they are required to avoid dissatisfaction. These factors describe the
job environment/scenario. The hygiene factors symbolized the physiological needs which the
individuals wanted and expected to be fulfilled. Hygiene factors include:

 Pay - The pay or salary structure should be appropriate and reasonable. It must be
equal and competitive to those in the same industry in the same domain.
 Company Policies and administrative policies - The company policies should not be
too rigid. They should be fair and clear. It should include flexible working hours, dress
code, breaks, vacation, etc.
 Fringe benefits - The employees should be offered health care plans (mediclaim),
benefits for the family members, employee help programmes, etc.
 Physical Working conditions - The working conditions should be safe, clean and
hygienic. The work equipments should be updated and well-maintained.
 Status - The employees‟ status within the organization should be familiar and
retained.
 Interpersonal relations - The relationship of the employees with his peers, superiors
and subordinates should be appropriate and acceptable. There should be no conflict
or humiliation element present.
 Job Security - The organization must provide job security to the employees.

25
b. Motivational factors- According to Herzberg, the hygiene factors cannot be regarded as
motivators. The motivational factors yield positive satisfaction. These factors are inherent to
work. These factors motivate the employees for a superior performance. These factors are
called satisfiers. These are factors involved in performing the job. Employees find these
factors intrinsically rewarding. The motivators symbolized the psychological needs that were
perceived as an additional benefit. Motivational factors include:

 Recognition - The employees should be praised and recognized for their

accomplishments by the managers.
 Sense of achievement - The employees must have a sense of achievement. This
depends on the job. There must be a fruit of some sort in the job.
 Growth and promotional opportunities - There must be growth and advancement
opportunities in an organization to motivate the employees to perform well.
 Responsibility - The employees must hold themselves responsible for the work. The
managers should give them ownership of the work. They should minimize control but
retain accountability.
 Meaningfulness of the work - The work itself should be meaningful, interesting and
challenging for the employee to perform and to get motivated.

Limitations of Two-Factor Theory

The two factor theory is not free from limitations:

1. The two-factor theory overlooks situational variables.

2. Herzberg assumed a correlation between satisfaction and productivity. But the research

conducted by Herzberg stressed upon satisfaction and ignored productivity.

3. The theory‟s reliability is uncertain. Analysis has to be made by the raters. The raters
may spoil the findings by analyzing same response in different manner.
4. No comprehensive measure of satisfaction was used. An employee may find his job
acceptable despite the fact that he may hate/object part of his job.
5. The two factor theory is not free from bias as it is based on the natural reaction of
employees when they are enquired the sources of satisfaction and dissatisfaction at
work. They will blame dissatisfaction on the external factors such as salary structure,
company policies and peer relationship. Also, the employees will give credit to
themselves for the satisfaction factor at work.
6. The theory ignores blue-collar workers. Despite these limitations, Herzberg‟s Two-
Factor theory is acceptable broadly.

26
Implications of Two-Factor Theory

The Two-Factor theory implies that the managers must stress upon guaranteeing the
adequacy of the hygiene factors to avoid employee dissatisfaction. Also, the managers must
make sure that the work is stimulating and rewarding so that the employees are motivated to
work and perform harder and better. This theory emphasize upon job-enrichment so as to
motivate the employees. The job must utilize the employee‟s skills and competencies to the
maximum. Focusing on the motivational factors can improve work-quality.

4. ALDERFER’S ERG Theory

27
Alderfer further developed Maslow's hierarchy of needs by categorizing the hierarchy into his
ERG theory (Existence, Relatedness and Growth). The existence group is concerned with
providing the basic material existence requirements of humans. They include the items that
Maslow considered to be physiological and safety needs. The second group of needs is those
of relatedness – the desire people have for maintaining important interpersonal
relationships. These social and status desires require interaction with others if they are to be
satisfied, and they align with Maslow's social need and the external component of Maslow's
esteem classification. Finally, Alderfer isolates growth needs: an ntrinsic desire forpersonal
development. These include the intrinsic component from Maslow's esteem category and the
characteristics included under self-actualization. Alderfer categorized the lower order needs
(Physiological and Safety) into the Existence category. He fit Maslow's interpersonal love and
esteem needs into the Relatedness category.

The Growth category contained the self-actualization and self-esteem needs. Alderfer also
proposed a regression theory to go along with the ERG theory. He said that when needs in a
higher category are not met then individuals redouble the efforts invested in a lower
category need. For example if self-actualization or self-esteem is not met then individuals will
invest more effort in the relatedness category in the hopes of achieving the higher need.

5. McClelland's Theory of needs

MOTIVATION means movement or motion, an inner state that energizes, activates or moves
and directs human behaviour towards goals. It is a need satisfying and goal seeking
behaviour. David McClelland identified several motivating needs which are basic to
entrepreneurship development.

Need for Achievement

The need to excel, known as achievement, is a critical factor in the personality of an

entrepreneur. People with high need for achievement have desire for success in competition
with others, or with a self-imposed standard of excellence. They try to accomplish
challenging tasks. Entrepreneurs, by and large, have been found to be people with a high
drive, high activity level and goal orientation. They take external help whenever needed and
feel happy on accomplishment of the task.

Need for Independence

Need for independence is the prime characteristic that will drive the entrepreneur to start
their own business. These entrepreneurs do not conform to routine jobs and practices. They
set their own challenging goals and make efforts to achieve these goals.
The entrepreneurs do not wait for directions from others and choose their own course of
action. They are masters of their own activities and take full responsibility for the outcome of
their actions. The independence provides opportunity for trying out new ideas and helping
them to achieve their life goals.

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Need for Power

High need for achievement leads one in to launching an enterprise but may not be adequate
to contribute to its success. Once an entrepreneur starts an enterprise and wants to manage
it successfully, he / she also need to influence people, a drive which sells them his / her ideas
and leads them in the process of establishing and expanding the organization. Such drive to
influence people and to lead them to implement his / her ideas may be called as need for
power. It implies controlling the actions and activities of other people. This helps them to
become successful enterprise builders. However, they do not develop emotional bonds with
people they work with; and their need for affiliation is low.

6. Drive theory
This theory might be described as “push theory‟ of motivation. Here, the behavior is pushed
towards goal by driving states within a person. When an internal driving state is aroused, the
individual is pushed to engage in behavior which will lead to a goal that reduces the intensity
of driving state.

Motivation consists of

 A driving state
 The goal directed behavior initiated by the driving state
 The attainment of an appropriate goal
 The reduction of the driving state and subjective satisfaction and relief when goal is

reached.

7. Incentive Theory: Incentive means the motivational value of a reinforce. In contrast

with the push of drive theories, incentive theories are „pull theories of motivation. Because
of certain characteristics they have, the goal objects pull behaviour towards them. Incentives
can be:  Positive incentives: Wages, salaries, bonuses vacations and the like.  Negative
incentives: Punishment etc. Summary - Theories of motivation
 1st is HIERARCHY OF NEEDS THEORY given by Abraham Maslow -When one kind of need satisfied,
this kind of need ceases to be motivator . Basic human needs are physiological needs- food, water,
warmth, shelter, sleep ; security and safety needs- job, property; affliation or belongingness
needs- group membership; Self- esteem needs – prestige, status, self -confidence , self-
actualization needs- meditation Nirvana
 2nd is ERG THEORY BY CLAYTON Alderfer- people are motivated by existence needs, relatedness
needs and growth needs. The theory stressed that when higher needs a frustrated low needs will
return even though they were already satisfied . Existence needs- Maslow’s fundamental needs;
relatedness needs -need for interpersonal relations; growth needs- need for personal creativity
 3rd TWO FACTOR THEORY BY FREDERICK HERZBERG -DISSATISFIERS are called as- maintenance
hygiene or job context factors are not motivators; SATISFIERS- are motivators and are related to
job content
 4TH THEORY X AND THEORY Y BY MCGREGOR -theory X assumptions- every human beings have an
inherent dislike of work, people must be coerced, controlled, directed and threatened with
punishment. theory Y assumptions- people are self -directed and self -controlled ,people not only
accept responsibility but also seeks it. theory X is pessimistic, static and rigid ; theory y is -
optimistic, dynamic, flexible limitations of theory X and theory Y -they are assumptions only ; do
not imply hard or soft management; theory X&Y are not in continuum but are on extremes
 5th EXPECT EXPECTANCY THEORY VICTOR H VROOM -People will be motivated to do things 29 to
reach a goal if they believe in the worth of the goal and if they can see that what they will do will
help them in achieving it FORCE= VALANCE X EXPECTANCY
Chapter 3- SWOT ANALYSIS

What is SWOT analysis?

 A technique that enables a group or individual to move from everyday problems and
traditional strategies to a fresh prospective.
 SWOT analysis looks at your strengths and weaknesses, and the opportunities and
threats your business faces.

• Technique is credited to Albert Humphrey who led a research project at Stanford

University in the 1960s and 1970s.
• Planning tool used to understand Strengths, Weaknesses, Opportunities, & Threats
involved in a project / business.
• Used as framework for organizing and using data and information gained from
situation analysis of internal and external environment.

• The SWOT Analysis framework is important and useful tool to use in marketing
Management and other business applications
• As a basic tool its mastery is a fundamental requirement for the marketer,
entrepreneur or business- person.
• A clear understanding of SWOT is required for business majors.

30
• Carefully inspecting the business and its environment through the various dimensions
of Strengths, Weaknesses, Opportunities, and Threats.

• Analysis of external and internal environment together is called SWOT analysis.

• It refers to identifying the strengths, weaknesses, opportunities and threats of an
organization

Production, finance marketing

Products and Services

Strength
• It is the basic asset of an organisation that would provide competitive advantage for its
growth and development

Weakness
• It is the liabilty of an organisation that create a state of time and situation specific dis-
advantage for its growth and development

Opportunity
• It is the ability of the organisation to grow and achieve its specific objective in a given
situation

Threat
• It is a situation that blocks the abilities of the organisation to grow and develop for
reaching its ultimate goal.

31
Strengths

• Characteristics of the business or a team that give it an advantage over others in the
industry.
• Positive tangible and intangible attributes, internal to an organization.
• Beneficial aspects of the organization or the capabilities of an organization, financial
resources, products and services, customer goodwill and brand loyalty.

• Strengths are the company’s core competencies, and include proprietary technology,
skills, resources, market position, patents, and others
• Strengths are within the control of the entrepreneur and they occur at present

Examples -
• technical expertise • Availability of necessary infrastructure
• new improvements of product • Adequate production capacity
• good network with customers • Skilled manpower
• packaging • Good manufacturing practices, quality
• managerial experience assurance and quality control
• superior technology • Low cost of manufacture
• distribution system • Facilities for product and process
• product features (utility, durability, etc.) development
• comparatively cheap price • Good location
• Wide distribution network
• Motivated staff
• Brand image
• Consistency in earning profits
• Efficient management
WEAKNESSES
Characteristics that place the firm ata disadvantage relative to others.
Detract the organization from its ability to attain the core goal and influence its growth.

Weaknesses are the factors which do not meet the standards we feel they should meet.
• Weaknesses are conditions within the company that can lead to poor performance
and can include obsolete equipment, no clear strategy, heavy debt burden, poor
product or market image, weak management and others.
• Weaknesses: Weaknesses are within the control of the entrepreneur; they occur at
present. They are "lack of...", "missing...", or weak points.

Examples-
• no control over raw material
• lack of promotion experience
• limited product life
• technological obsolescence
• poor design of product
• inexperienced managers/owners
• weak selling effort
• lack of working capital

32
• comparatively high price
• low level of stocks in times of peak sales
• no technical expertise of owner
 Low level of motivation of staff
 Scarcity of capital
 Problem of under utilization of capacity
 Outdated technology
 Poor project planning
 Inadequate infrastructure
 Shortage of trained technicians
 Insufficient managerial expertise
 Unorganized nature of operations
 Lack of effective co-ordination
 Inadequate training in skills

OPPORTUNITIES
Chances to make greater profits in the environment arise when an organization can take
benefit of conditions in its environment to plan and execute strategies that enable it to
become more profitable.
• Opportunities are outside conditions or circumstances that the company could turn
to its advantage, and could include a specialty niche skill or technology that suddenly
realizes a growth in broad market interest.
• Opportunities: Positive or favourable factors in the environment, mostly beyond the
control of the entrepreneur.
Example-
• few and weak competitors
• no such products in the market
• arising income of target market
• scarcity of product in the locality
• growing demand
• favourable government policy
• similar products making profit
• favourable government programs
• technical assistance available
• low interest on loans
• access to cheap raw material
• adequate training opportunities

THREATS
• External elements in the environment that could cause trouble for the business.
Compound the vulnerability when they relate to the weaknesses. Threats are
uncontrollable. When a threat comes, the stability and survival can be at stake. are
current or future conditions in the outside environment that may harm the company,
and might include population shifts, changes in purchasing preferences, new
technologies, changes in governmental or environmental regulations, or an increase
in [Link]: Threats are negative or unfavourable external factors in the
environment and normally beyond the control of the entrepreneur

33
Shortage of power, water, fuel
Examples-
Rejection by the market
• Rising raw materials costs
• too much competition Tough competition
• government bureaucracy
Political instability
• restive labour force
• raw materials shortages policy resulting into increased taxes, duties,
• piracy of skilled labour
imports reservations, licensing
• natural disasters
• insufficient power Resource crunch
• graft and corruption
Difficulty in retaining technical experts
• poor infrastructure
• changing government regulations Climatic changes

Aim of SWOT analysis

• To help decision -makers share and compare ideas.

• To bring a clearer- common purpose and understanding of factors for success.
• To organize the important factors linked to success and failure in the business
world To provide linearity to the decision- making process allowing complex ideas to
be presented systematically.

Who needs SWOT analysis

34
How to conduct SWOT analysis

35
36
3. Prepare Action Plan

• Once the SWOT analysis has been completed,

mark each point with:

• Things that MUST be addressed immediately

• Things that can be handled now
• Things that should be researched further
• Things that should be planned for the future

Pitfalls of SWOT Analysis

• Can be very subjective. Two people rarely come up with the same final version of a SWOT.

• Use it as a guide and not as a prescription.

• May cause organizations to view circumstances as very simple due to which certain key strategic contact may
be overlooked.

• Categorizing aspects as strengths, weaknesses, opportunities & threats might be very subjective as there is great
degree of uncertainty in market.

• To be effective, SWOT needs to be conducted regularly. The pace of change makes it difficult to anticipate
developments.

• The data used in the analysis may be based on assumptions that subsequently prove to be unfounded [good &
bad].

• It lacks detailed structure, so key elements may get missed.

.

Tips for SWOT analysis

37
Tips • Dont’s
х Try to disguise weaknesses.
• Do’s
х Merely list errors and mistakes.
 Be analytical and specific.
 Record all thoughts and ideas. х Lose sight of external influences
 Be selective in the final evaluation. and trends.
 Choose the right people for the х Allow the SWOT to become a
exercise.
blame- laying exercise.

 Choose a suitable SWOT leader or х Ignore the outcomes at later

facilitator. stages of the planning process.
 Think out of the box
 Be open to change

38
SCHOOL OF AGRICULTURE

LOVELY PROFESSIONAL UNIVERSITY

READING MATERIAL AEE 313

UNIT -II

Syllabus- ROLE OF GOVERNMENT IN ENTREPRENEURSHIP DEVELOPMENT: GOVERNMENT

POLICY AND PROGRAMS and institutions for entrepreneurship development

Why should government promote entrepreneurship?

• Attainment of Economic Development

• Create Large Scale Employment opportunities
• Promote Balanced Regional Development
• Reduce Concentration of Economic Power

Role of Entrepreneurship in the LPG Era

1. Liberalisation: shows the direction; making the economy more market and service-
oriented and expanding the role of private and foreign investment. Offers
substantial opportunities for entrepreneurs.
2. Privatisation: shows the path; process under which the state assets were
transferred to the private sector.
3. Globalisation: shows the ultimate ‘goal’; unrestricted cross border movements of
goods and services, capital and the labour force. It shows interaction among nations,
economies and people.

Entrepreneurial Scenario in India

• Entrepreneurship development is one of the key elements for the promotion of

micro and small enterprises, particularly for the first generation entrepreneurs.
• Entrepreneurship and resultant creation of employment and wealth is a major
means for inclusive development.
• Hence, entrepreneurship development has been one of the priorities of the Ministry
of Micro, Small and Medium Enterprises.
• During post-independence era, entrepreneurship has begun to grow faster.
• The Government of India has spelt through industrial policy statements steps for
rapid and balanced industrialization of the country.
• The government recognizes the vital role of the private sector in accelerating
industrial development especially after the economic liberalization in 1991

1
The government pursues the following objectives: ·

• To disseminate the entrepreneurial acumen concentrated in a few dominant

communities to a large number of industrially potential people of varied social
strata.
• To encourage the spirit of industrialization by spreading entrepreneurship from the
existing centers to other cities, towns and villages.
• To maintain a proper distribution of economic power between public and private
sectors.

Industrial
Policies

Tax Reforms Government Economic

Policies Reforms

Financial
Sector
Reforms

2
Reforms can be categorized into

1. Stabilization Measures - Stabilization measures are short-term in nature and

attempt to control the crisis situation by maintaining sufficient foreign exchange
reserves
2. Structural Reform Policies- Structural reform policies are long-term policies that
attempt to improve the overall economic condition by increasing the international
competitiveness and removing, the rigidities and other restraining obstacles.

Central Govt. Policies

• In 1948, the Government of India announced its first industrial policy. This policy
envisaged a mixed economy. It laid emphasis on the development of cottage and
small scale industry
• 1956 industrial policy gave importance to the role of the State to assume a
predominant and direct responsibility for industrial development.
• Along with the development of capital based industries .The industrial policy was
modified in 1973, 1977 and 1980.
• The 1977 industrial policy introduced the concept of District Industries Centre (DIC)
to provide services to village and small industry (VSI) sector under a single roof. It
also introduced the concept of tiny sector enterprise.
• The 1980 policy laid stress on ancillarisation and the creation of nucleus plant for
promotion of Small Scale Industries
• Until 1991, the Central government followed the policy of protection, particularly
for the SSI sector.
• In 1991, the policy of protection was replaced by the policy of promotion. The prime
objective of this industrial policy was to free the Indian economy from bureaucratic
controls and integrate it with world economy (DC-SSI, 2000).
• In February 2007, the Government of India announced another package of
promotional measures for MSE sector, which includes policy support, fiscal support,
credit support, marketing support, technologies and quality up-gradation support,
etc.

Micro, Small, and Medium Enterprises Development Act 2006:

• Micro, Small & Medium Enterprises Development(MSMED) Act, 2006 is a turning

point for the development of Indian industry, as it addresses and streamlines entire
frame work along with key governance & operational issues being faced by the
SMEs.
• With the enactment of MSMED Act 2006, the paradigm shift that has taken place is
the inclusion of the services sector in the definition of Micro, Small & Medium
enterprises, apart from extending the scope to medium enterprises.

3
(MSME) are classified in two Classes

1. Classification of Enterprises- Previous conception of ‘Industries’ have been reformed to

‘Enterprises’. Enterprises have been categorised into:

(i) Enterprises involved in the manufacture/production of products.

(ii) Enterprises involved in of service sector

Manufacturing Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed twenty five lakh rupees

Small Enterprises More than twenty five lakh rupees but

does not exceed five crore rupees

Medium Enterprises More than five crore rupees but does not
exceed ten crore rupees
Service Sector
Enterprises Investment in equipments
Micro Enterprises Does not exceed ten lakh rupees:
More than ten lakh rupees but does
Small Enterprises
not exceed two crore rupees
More than two crore rupees but does
Medium Enterprises
not exceed five crore rupees

Role of Government in Entrepreneurship Development

• People of India, especially the young, crave employment.

• Limitation to employment opportunities offered by the various sectors of
economy, but the government does provide employment guarantee programs.
• However, these programs are targeted at providing basic needs and tend to provide
labour intensive jobs that have no link with innovation.
• There is a realization that, to sustain rapid growth and alleviate poverty, India needs
to aggressively harness its innovative potential, relying on innovation-led, rapid, and
inclusive growth to achieve economic and social transformation.

4
Programmes Promoting Entrepreneurship in the country

Role of Government in Entrepreneurship Development

• Creates conducive business environment.

• Promote financial help via Venture capitals,
• Angel Investors and business houses.
• Promoting establishment of incubators.
• Develop ‘Entrepreneurial Ecosystem.’

Role of Government

• Entrepreneurship Development Programmes (EDPs)

• Entrepreneurship cum Skill Development Programmes (ESDPs) and
• Training of Trainers (ToTs) programmes in the areas of Entrepreneurship and/or Skill
Development

Role of Entrepreneurial Development Programme (EDP’s) in the Economic Growth of a

Nation

1) Creates employment opportunities: Prime Minister’s Rozgar Yojana, National Rural

Employment Programme and Integrated Rural Development Programme

2) Helps in achieving Balanced Regional Development: Successful EDPs assist in

accelerating the pace of industrialisation in the backward areas and helps in reducing the
concentration of economic power in the hands of an individual

3) Prevents industrial slums: Entrepreneurs are provided with various schemes, incentives,
subsidies and infrastructural facilities to set up their own enterprises in all the non-
industrialized areas.

5
4) Use of Local Resources: Plenty of locally available resources remain unutilized due to
absence of initiative and lack of adequate knowledge by the entrepreneurs.

5) Economic Independence: Able to achieve economic independence of a country by

producing a wide variety of better quality goods and services at competitive prices.

6) Improves the standard of living and per- capita income: EDPs also help in establishing
more enterprises which aid to provide more employment opportunities and help in
increasing the earning of the people.

Entrepreneurship Skill Development Programmes:

• Comprehensive training programmes are organized to upgrade skills of prospective

entrepreneurs, and
• Existing workforce and also develop skills of new workers and
• Technicians of MSEs by organizing various technical-cum- skill development training
programmes
• The specific tailor made programmes for the skill development of socially dis-
advantaged groups (OBC, SC/ST, minorities and women) are organized

INSTITUTIONAL SUPPORT FOR ENTREPRENEURSHIP

Broadly classified into three categories

— [Link] Level Institutions

— [Link] level Institutions
— [Link] based Institutions

[Link] Level Institutions

a) Small Scale Industries Board (SSIB)

b) Small Industry Development Organisation (SIDO)
c) National Small Industries Corporation limited (NSIC)
d) The Khadi and Village Industries Commission(KVIC)

a. Small Scale Industries Board (SSIB)

— Apex non statutory body constituted by Government of India.

— The board was constituted in 1954
— The industrial minster of Government is chairman of SSIB.

6
It provides forum for interaction to facilitate co-operation and inter-institutional linkages
and to render advice to Government on various policy matter

b. Small Industries Development Organisation (SIDO)

• Small Industries Development Organization (SIDO) is a subordinate office of the

Department of SSI & Auxiliary and Rural Industry (ARI).
• It is an apex body and nodal agency for formulating, coordinating and monitoring the
policies and programmes for promotion and development of small-scale industries.

The main functions of the SIDO are classified into:

(i) Co-ordination,
(ii) Industrial development, and
(iii) Extension.

Functions Relating to Co-ordination:

a. To evolve a national policy for the development of small-scale industries,

b. To co-ordinate the policies and programmes of various State Governments,
c. To maintain a proper liaison with the related Central Ministries, Planning
Commission, State Governments, Financial Institutions etc., and
d. To co-ordinate the programmes for the development of industrial estates.

Functions Relating to Industrial Development:

[Link] reserve items for production by small- scale industries,

b. To collect data on consumer items imported and then, encourage the setting of
industrial units to produce these items by giving coordinated assistance,

Function Relating to Extension:

a. To make provision to technical services for improving technical process,

production planning, selecting appropriate machinery, and preparing factory lay-out
and design,
b. To provide consultancy and training services to strengthen the competitive ability
of small-scale industries.

c. National Small Industries Corporation (NSIC)

— Set up in 1955
— Promoting, aiding and fostering the growth of SSIs with focus on commercial
aspects

National Small Industries Corporation (NSIC), is an ISO 9001-2015 certified Government

of India Enterprise under Ministry of Micro, Small and Medium Enterprises (MSME).

7
NSIC has been working to promote, aid and foster the growth of micro, small and
medium enterprises in the country. NSIC operates through countrywide network of
offices and Technical Centres in the [Link] addition, NSIC has set up Training cum
Incubation Centre managed by professional manpower.

Mission: “To promote and support Micro, Small & Medium Enterprises (MSMEs) Sector”
by providing integrated support services encompassing Marketing, Technology, Finance
and other services.

Vision: “To be a premier Organization fostering the growth of Micro, Small and Medium
Enterprises (MSMEs) Sector”.

Schemes of NSIC

NSIC facilitates Micro, Small and Medium Enterprises with a set of specially tailored
scheme to enhance their competitiveness. NSIC provides integrated support services
under Marketing, Technology, Finance and other Support service.

Marketing Support

Marketing has been identified as one of the most important tool for business
development. NSIC acts as a facilitator and has devised a number of schemes to support
enterprises in their marketing efforts, both domestic and foreign markets. These
schemes are briefly described as under :

• Consortia and Tender Marketing-Small Enterprises in their individual capacity face

problems to procure & execute large orders, which deny them a level playing field vis-
a'-vis large enterprises. NSIC forms consortia of Micro and Small units manufacturing
the same product, thereby pooling in their capacity.
• Single point Registration for Government Purchase-The units registered under Single
Point Registration Scheme of NSIC are eligible to get the benefits under “Public
Procurement Policy for Micro & Small Enterprises (MSEs) Order 2012” as notified by
the Government of India, Ministry of Micro Small & Medium Enterprises, New Delhi
vide Gazette Notification dated 23.03.2012.
• MSME Global Mart B2B Web Portal for MSMEs-With increase in competition and
melting away of international boundaries, the demand for information is reaching new
heights. NSIC, realizing the needs of MSMEs, is offering Infomediary Services which is
a one-stop, one-window bouquet of aids that will provide information on business &
technology and also exhibit the core competence of Indian MSMEs. B2B Webportal is
offering following benefits to the members of Infomediary Services.

• Interactive database of MSMEs

• Self web development tool
• National Tenders on email
• Centralized mail system
• Popular Products Section
• Unlimited global Trade Leads

8
• Trust Seal of NSIC
• MSME Web Store
• Multiple Language Support
• Discussion Board
• Call Centre Support & Live Chat
• Other Value added Services
• Payment Gateway for membership subscription

Marketing Intelligence-Collect and disseminate both domestic as well as international

marketing intelligence for the benefit of MSMEs.
Exhibitions and Technology Fairs-To showcase the competencies of Indian SSIs and to
capture market opportunities, NSIC participates in select International and National
Exhibitions and Trade Fairs every year..
Buyer-Seller meets-Bulk and departmental buyers such as the Railways, Defence,
Communication departments and large companies are invited to participate in buyer-seller
meets to enrich small enterprises knowledge regarding terms and conditions, quality
standards, etc required by the buyer. These programmes are aimed at vendor development
from MSMEs for the bulk manufacturers.
Credit Support-NSIC facilitates credit requirements of small enterprises in the following
areas:
Financing for procurement of Raw Material (Short term)-NSIC's Raw Material Assistance
Scheme aims at helping Small Enterprises by way of financing the purchase of Raw Material
(both indigenous & imported). The salient features are:

1. Financial Assistance for procurement of Raw Materials upto 90 days.

2. Bulk purchase of basic raw materials at competitive rates.
3. NSIC facilitates import of scares raw materials.
4. NSIC takes care of all the procedures, documentation & issue of letter of credit in
case of imports.

Finance through syndication with Banks-In order to ensure smooth credit flow to small
enterprises, NSIC is entering into strategic alliances with commercial banks to facilitate long
term / working capital financing of the small enterprises across the country. The arrangement
envisages forwarding of loan applications of the interested small enterprises by NSIC to the
banks and sharing the processing fee.
Technology Support-NSIC offers small enterprises the following support services through its
Technical Services Centres and Extension Centres:

1. Advise on application of new techniques

2. Material testing facilities through accredited laboratories
3. Product design including CAD
4. Common facility support in machining, EDM, CNC, etc.
5. Energy and environment services at selected centres
6. Classroom and practical training for skill upgradation

9
d. KVIC

Khadi and Village Industries Commission (KVIC) plans, promotes, organizes and implements
programs for the development of Khadi and other village industries in rural areas
nationwide. KVIC also helps in building up reserve of raw materials for supply to producers.
The commission focuses in creation of common service facilities for processing of raw
materials, such as semi-finished goods. KVIC has also helped in creation of employment in
Khadi industry. The interest subsidy scheme offered by KVIC shall be applicable to specific
loans offered by financial agencies. Loans raised by KVIC for disbursement as capital
investment and working capital loans are offered by:

• Institutions: Registered under Societies Registration Act 1860

• Co-operative Society: Registered under Co-operative Societies Act 1912
• Charitable Trusts for public welfare and religious purposes
• Financial Institutions: Scheduled and Non-scheduled banks, Nationalised Banks, Co-
operative Banks, State Financial

Corporations and Industrial Development Banks

Functions of KVIC:

• Building up of a reserve of raw materials and implementation for supply to

producers
• Formation of common service facilities for processing of raw materials that include
semi-finished goods
• Promoting the sale and marketing of Khadi and Village Industries products, as well as
handicrafts
• Promoting research in the village industries sector related production techniques
and equipment
• Providing financial assistance to individuals and institutions for the development and
operation of Khadi and Village industries

Objectives of KVIC:

• To promote Khadi in rural areas

• To provide employment
• To produce saleable articles
• To create self-reliance amongst the poor
• To build up strong rural community

[Link] LEVEL INSTITUTES

a) State Small Industries Development corporation (SSIDC)

b) State Directorate of Industries (SDI s)
c) District Industries Centres (DICs)

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a. State Small Industries Development corporation (SSIDC)

— Incorporated under the Companies Act 1956

— SSIDC were set up in different states as wholly owned companies for promoting
industrial development in their respective states.

b. State Directorate of Industries (SDIs)

— Through a network of district industries offices ,industries and extension officers at

district sub –division and block level respectively.
— Function like Registration of small scale units

c. District Industries Centres (DICs)

— Developing industrial infrastructure

— Launched on May 8, 1978
— Promotion of cottage and small scale industries
— Serves as integrated administration framework at district level for industrial
development

[Link] BASED INSTITUTIONS

a. Small Industries Development Bank of India (SIDBI)

b. State Financial Corporations

a. Small Industrial Development Bank of India (SIDBI):

• SIDBI set up on 2nd April 1990 under an Act of Indian Parliament,

• Acts as the Principal Financial Institution for Promotion, Financing and Development
of the Micro, Small and Medium Enterprise (MSME) sector as well as for co-
ordination of functions of institutions engaged in similar activities.

Mission: To facilitate and strengthen credit flow to MSMEs and address both financial and
developmental gaps in the MSME eco- system

[Link]

b. State Financial Corporations

• SFC Act 1951 brought into force to enable all the state Governments to set up
State Financial Corporations as regional development banks.
• The first SFC was set up in Punjab in 1953
• Provide assistance to small and medium scale .

OTHER INSTITUTIONS PROVIDING SUPPORT for Entrepreneurship

11
[Link] Development Institute of India (EDI):

EDI is the premier institute of small to medium sized enterprise management in India. It is
an autonomous not for profit body founded in 1983 with corporate partners including the
State Bank of India and IBDI Bank Ltd, as well as significant involvement with the Indian
Industry Development Commission and the United Nations Industry Development
Organization.

[Link]

EDI has two main functions

1. Educating graduate-level students regarding advanced entrepreneurial procedures and

strategies as well as the social impact of entrepreneurship.

2. Consulting on behalf of India’s central government to foster and develop specific

industries with large employment potential for India’s developing economy.

[Link] for Entrepreneurship Development (CED):

The Centre for Entrepreneurship Development (CED)-A Government of Gujarat Organisation

is the 1st of this kind in the country, established in 1979, engaged in promoting Skill and
Entrepreneurship across the state of Gujarat.

[Link]

3. National Institute for Micro, Small and Medium Enterprises (NI-MSME), Hyderabad:

• NI-MSME, formerly known as National Institute of Small Industry Extension Training

(NISIET), was set up in 1960 at New Delhi as a Department of Central Government
under theMinistry of Commerce and Industry and was initially known as Central
• Industrial Extension Training Institute (CIETI).
• [Link]

4. Indian Institute of Entrepreneurship (IIE), Guwahati

• The Indian Institute of Entrepreneurship (IIE) was set up at Guwahati in 1993. It took
over NI-MSME’s NER Centre w.e.f. 1st April, 1994.
• The Institute regularly organizes training programmes and undertakes research and
consultancy services in the field of promotion of MSMEs and entrepreneurship.
• [Link]
• Organizes rural, general and women EDPs and sector specific EDPs.
• Organized one faculty development programme in entrepreneurship for school,
college and university teachers

12
5. National Institute for Entrepreneurship and Small Business Development (NIESBUD):

• NIESBUD, Noida, was set up in 1983 as an apex institution in the field of

entrepreneurship development to promote, support and sustains entrepreneurship
and small business through training, education, research and consultancy services.
• [Link]
• [Link]
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Agri-clinics and Agribusiness Centers (ACABC)

• The Ministry of Agriculture, Government of India, in association with NABARD has

launched a unique programme to take better methods of farming to each and every
farmer across the country. Programme aims to tap the expertise available in the
large pool of Agriculture Graduates.
• Irrespective of whether he or she is a fresh graduate or not, or whether currently
employed or not, one can set up his / her own Agri Clinic or Agri Business Centre and
offer professional extension services to innumerable farmers.
• Committed to this programme, the Government is now also providing start-up
training to graduates in Agriculture, or any subject allied to Agriculture like
Horticulture, Sericulture, Veterinary Sciences, Forestry, Dairy, Poultry Farming, and
Fisheries, etc. Those completing the training can apply for special start-up loans for
venture

Objectives of agri-clinics and agribusiness centers

Ø To supplement the efforts of government extension system.

Ø To make available supplementary sources of input supply and services to needy farmers.

Ø To provide gainful employment to agriculture graduates in new emerging areas in

agricultural sector.

The graduates can apply their indents to set up agri -clinics / agribusiness centers to
NABARD. The loans can be repaid within 5-10 years. The rate of interest, margin and
security on loans will be decided by the respective bank, as per RBI norms.

The graduates can apply their indents to set up agri- Agri-clinics Agri-clinics are envisaged to
provide expert services and advice to farmers on cropping practices, technology
dissemination, crop protection from pests and diseases, market trends and prices of various
crops in the markets and also clinical services for animal health so as to enhance
productivity of crops / animals.

Agribusiness Centres: Agribusiness Centres are envisaged to provide input supply, farm
equipments on hire and other services. In order to enhance viability of the ventures,
Agriculture Graduates may also take up in agriculture and allied areas along with the
Agriclinics/ Agribusiness Centres

13
ELIGIBILITY

• This scheme is open to agricultural graduates /graduates in subjects allied to

agriculture like horticulture, animal husbandry, forestry, dairy, veterinary and other
allied activities.
The project can be taken up by agricultural graduates either individually or on joint
/ group basis.
• The group may normally be of 5 members of whom one could be a management
graduate with qualification of experience in business development and
management.
• The outer ceiling for the cost of project by individual would be Rs.20.00 lakhs and
for group it is Rs. 100.00 lakhs

Training:

• The eligible graduates are given almost free of cost training for two months at
selected training centres across the country by paying nominal registration fee.
• It was initiated by SFAC (Small Farmers Agribusiness Consortium), coordinated by
MANAGE. The training course comprises Entrepreneurship and Business

14
Management, as well as skill improvement modules in the chosen area by the
unemployed graduate.

Project activities:

Ø Soil and water quality cum input testing laboratories.

Ø Pest surveillance, diagnostic and control services.
Ø Seed processing units.
Ø Setting up vermin-culture units, production of bio- fertilizers, bio-pesticides and
bio-control agents.
Ø Provision of livestock health cover, setting up veterinary dispensaries & services
Ø Setting up of Information Technology Kiosks in rural areas for access to various
agriculture related portals
Ø Feed Processing and testing units
Ø Value Addition Centres
Ø Setting up of Cool Chain from the farm level onwards
Ø Retail marketing outlets for processed agri-products
Ø Rural marketing dealerships of farm inputs and output
Ø Provision of extension consultancy services etc.
Ø Setting up Bee-keeping and honey bee products'
Ø Hatcheries

Selection of Borrowers:

Repayment:

The period of loan will vary between 5 years to 10 years depending on the activity.

The repayment period may include a grace period (to be decided by the financing bank as
per the individual scheme) of a maximum of 2 years.

Advantages:

Ø Multi-sourced extension services.

Ø Input supply and support services are provided on competitive basis.

Ø Location specific specialized crop advices are provided.

Ø Field level staff are adequately qualified and trained for extension work.

Ø Provision of specialized agri-services like agricultural insurance, technology information,

maintenance and repairs etc.

Ø Serves as a source of incentive to graduates by affording them to various viable business

opportunities.

Training of Trainers (ToTs) –

15
[Link] Academy of Agricultural Research Management (NAARM)

Mandate

1. Enhance individual and institutional competencies in managing innovation through

capacity development,

research and policy advocacy.

2. Serve as a think tank for National Agricultural Research and Education System and
facilitate strategic management of human capital.

[Link]

2. MANAGE- National Institute of Agricultural Extension Management

• Mission: Facilitating the Acquisition of Managerial and Technical skills by Extension

Officers, Managers, Scientists and Administrators in all sectors of Agricultural
economy to enable them to provide most effective support and services to Farmers
and Fishermen for practicing Sustainable Agriculture.
• [Link]

16
LOVELY PROFESSIONAL UNIVERSITY, PUNJAB READING MATERIAL

AEE313: Entrepreneurship Development and business Communication

Department of Agricultural Economics and Extension

UNIT-3

Entrepreneurial development: impact of economic reforms on agribusiness/

agri enterprises, entrepreneurial development Process;

1
Definition:

Economic reforms denote the process in which a government prescribes declining role for state and
expanding role for the private sector in an economy. “Reform is not the aim of economy, Reforming
the economy is the aim”. Reform is an means towards the end .

Process of Economic Reforms:

LPG stands for

L-Liberalisation
P-Privatisation
G-Globalisation
These 3 process specify the characterstics of economic reforms initiated in 1991. They are regarded
as direction, path and ultimate goal of the reform.

Liberalisation
Setting the direction
It is the process of decreasing traits of a state economy and increasing traits of market economy. In
Indian case it is declining influence of planned economy and that of increasing for capital economy.
Prior 1991, government had imposed several types of controls on Indian economy e.g. industrial
licensing system, price control or financial control on goods, import license, foreign exchange
control, restriction on investment by big business houses, etc. These controls leads to fall in
economy growth

Privatisation

Moving through the path

• In narrow sense it refers to introduction of private ownership in publicly owned enterprise. While
in broader sense it implies private ownership, induction of private management and control in the
private sector enterprise. The first major programme of privatisation was adopted in U.K. by the
conservative government of Margaret Thatcher during 1980s. It covers 3 sets of measures:
1. Ownership: joint venture, liquidation, management bye-out, complete handover

2. Organizational: leasing, holding a company structure, restructuring

3. Operational : autonomy in decision making, development of investment criteria, freedom in rising

fund from capital

Globalisation

Reaching the ultimate goal

• It is the process of integrating various economies of the world without creating any hinderances in
the free flow of goods,services,technology,capital as well.
• The term become more familiar after WTO emerged by Marrakesh agreement of Uruguay round of
negotiation 1994.

2
Reforms Measures

Industrial Policy Reforms:

[Link] of Industrial policy 1991 fostered competition by a. abolishing monopoly restrictions,

b. Terminating the phased Manufacturing programmes
c. Freeing foreign direct investment and import of foreign technology

d. De-reservation of sectors hitherto reserved for the public sector.

At present, only five industries are under licensing, mainly on account of environmental, health,
safety and strategic considerations.
Only two industries are reserved
for the public sector, viz, atomic energy and railway transport.
Foreign Direct Investment (FDI) up to 100 per cent is allowed under the automatic route in most
sectors, with a few exceptions

Trade Reforms:

Withdrawal of the quantitative restrictions on exports and imports Quantitative restrictions on

imports of manufactured consumer goods and agricultural products were removed on April 1, 2001,
almost exactly ten years after the reforms began phasing out of the system of import licensing
Import licensing was abolished relatively early for capital goods and intermediates which became
freely importable in 1993, lowering the level and dispersion of nominal tariffs

The peak customs tariff rate was progressively brought down from 150 per cent in 1991-92 to10 per
cent by [Link] liberalization of restrictions on various external transactions led to current
account convertibility under Article VIII of the Articles of Agreement of the IMF in 1994• Later on,
the capital account made virtually free for non-residents and resident corporates with some
restrictions on financial institutions and higher restrictions on resident individuals.

Fiscal sector Reforms:

• Tax reforms : such as lowering of tax rates, broadening the tax base and so on.
As a result, The combined fiscal deficit of the central and state governments was successfully
reduced from 9.4 percent of GDP in 1990-91 to 7 percent in both 1991-92and 1992-93 and the
balance of payments crisis was over by 1993.
• Introducing CENVAT,VAT,GST for collection of more revenue.
• restructuring of public sector: reduce central government subsidies ,increase public saving
• introduction of the Fiscal Responsibility and Budget Management Act (FRBM) in 2004

Monetary policy Reforms:

• elimination of automatic monetization from April 1997, which provided instrument independence
to the Reserve Bank of India in the conduct of monetary policy.
• reduction of statutory pre-emption of the lendable resource of banks interest rate deregulation
• RBI switched from a monetary targeting framework, adopted in the mid-1980s, to a multiple
indicator approach
• Following Basel norms . After completing norm I & II, Now RBI has set to follow norm III

3
Finance sector Reforms:

The development of financial markets has been regarded as a critical prerequisite for improving the
operational effectiveness of the transmission of monetary policy

• measures for liberalization, like dismantling the complex system of interest rate controls,
eliminating prior approval of the Reserve Bank of India for large loans reducing the statutory
requirements to invest in government securities;
• measures designed to increase financial soundness, like introducing capital adequacy
requirements and other prudential norms for banks and strengthening banking supervision

• measures for increasing competition like more liberal licensing of private banks and freer
expansion by foreign banks
• Insurance Regulation and Development Authority (IRDA) has been formed to govern the insurance
industry.

• The Securities and Exchange Board of India was formed as the capital market regulator & NSE as a
new modern technology oriented stock exchange was formed (the National Stock Exchange
• private sector mutual funds allowed and encouraged; along with the abolition of the Controller of
Capital Issues (CCI) who controlled both issuance of securities and administered their price.

Impact of economic reforms

Positive impact:
Sharp correction in fiscal deficit-GDP ratio and reduced monetisation of deficits .
• New industrial policy fostered competition
• Real GDP growth averaged 5.7 per cent per annum in the 1990s, which accelerated further to 7.3
per cent per annum in 2000s.
• There is gain in the share of services, including construction, from 52 per cent to 65 per cent during
the period 1990s to 2010-11.
• Exports and imports of goods and services have more than doubled from 23 per cent of GDP in the
1990s to 50 per cent in the recent period of 2009-11.

• Debt-GDP ratio has declined from 29% to 18.6%. & Debt-service ratio fell to 24.9% to 4.7%mfor the
period of 1991-00 to 2009-11.
• The high growth was achieved in an environment of price stability as headline WPI inflation
dropped to an annual average of 5.5 per cent in the 2000s from 8.1 per cent to the 1990s.

Negative impact:

Agriculture as a percentage of real GDP declined from 3.2% to 2.4%.There is a need to increase
agricultural productivity.
• Failed to address labour market inflexibity and thereby increasing concentration of labour force in
agricultural sector hence high unemployment. • It could not attract sufficient investment in
Infrastructure. • Credit market has still remain an important issue.

4
ENTREPRENEURSHIP DEVELOPMENT CYCLE

Entrepreneurship development is a process involving a number of phases and steps. The process has
been viewed at two level- one at the level of individual- developing entrepreneurial quality in an
individual and another at the level of community- creating an environment in which
entrepreneurship activities can grow.

1. Stimulatory phase: The stimulatory activities help in the emergence of entrepreneurs in society.
They prepare the background where from entrepreneurship can sprout. People start looking for the
entrepreneurial pursuits. These generate the initial entrepreneurial motivation; help people
perceive incentives and also offers opportunity to acquire relevant information and skill. All these
taken together help stimulate entrepreneurship in the society. This initial phase would include all
such activities that stimulate efforts such as:

1. Generating entrepreneurial awareness in the community through well planned publicity.

2. Identifying and selecting potential entrepreneurs.
3. Helping them through training to raise their motivational level.
4. Improving their skills in modern management methods.
5. Developing technical competence relevant product selected.
6. Helping them to develop project report.
7. Making available techno- economic information and project profiles.
8. Helping entrepreneurs to select new products.
9. Developing a data bank on new products and process available to target group.
10. Creating forums for entrepreneurs to discuss their mutual problems and success.
11. Evolving new products and processes available to the local situation.
12. Public recognition of entrepreneurial excellence

[Link] Phase: The support activities provide infrastructure facilities, resources, abilities and skills
to entrepreneurs for enterprise launching and management. These activities provide nurturance and
help the already stimulated entrepreneur to move ahead to reach his goal. This includes all such
activities that help entrepreneurs in establishing and running their enterprise. These activities
remove many hurdles, which are likely to cause sickness or discourage the new entrepreneurs. The
activities in this phase may include:

1. Registration of the unit.

2. Arranging finance of any type and fixed capital on working capital.
3. Helping in purchase of plant and machinery.
4. Providing land,shed,power,water,[Link] establishing the unit.
5. Guidance for selecting and obtaining plant and machinery and layout.
6. Issue of licenses for scarce raw materials.
7. Granting tax relief and other types of subsidy.
8. Offering management consultancy.
9. 9. Assisting in marketing the products either through reservation or assigning government
quota purchase etc. Providing information related to the industry

3. Sustaining Phase: Sustaining phase activities refer to all such efforts that facilitate growth and
continuity through expansion, modernization, diversification and technology upgradation of on-
going enterprises and rehabilitation of the sick units. This is a phase in which entrepreneurs are
supported to continue their enterprise in efficient and profitable manner. The sustaining activities
may include:

5
1. Helping in modernization/ products substitution.
2. Additional financing for full capacity utilization.
3. Deferring repayment/interest depending on the situation.
4. Help and guidance in diagnosing the cause of failure or low

production.

5. Modification or change in legislation/policy affecting units.

6. Product reservation/creation of new avenues for marketing.
7. Quality testing and quality improvement at low cost .
8. Creating common facilities which are not feasible in a single unit but are needed by the unit
both in production and marketing organization

Life cycle of entrepreneurial venture

Life cycle of entrepreneurial firms

• Birth stage
• Breakthrough stage
• Maturity stage

Each stage poses different managerial challenges and requires different managerial competencies.

6
STAGES IN ENTREPRENEURIAL PROCESS

qIdentify an opportunity : is an first step towards setting up an enterprise. Entrepreneur before

identification of an opportunity should do proper market analysis about market situation, economic
conditions and understand taste preference of customers.

q Establish vision : is second step towards establishing an enterprise. In the process entrepreneur is
required to establish long term vision and accordingly plan in mission which will serve as roadmap to
achieve company vision. Objectives established by entrepreneur should be flexible in nature to
adjust according to changing situation.

7
q Persuade others : even though the idea of entrepreneurship is initiated by individual person, it
requires team effort to covert an idea into reality. Entrepreneur is required to convince skilled
employees to work on business plan, make investors and marketers understand credibility of
business to enhance status and goodwill of company in business market.

qGather resources : next step towards entrepreneurship requires gathering of required resources to
start business. Resources includes

a. Finance resources : it refers to getting required capital through financial institutions, raising
capital through general public by issue of shares, raising required finance though other resources
such as self-investment, finance through family and friends.

b. Operating resources : refers to tangible and intangible resources which includes machinery, raw
material, company image, operating procedure, transportation etc.

c. Human resources refers to skilled labour force in organization and other decision in relation to
human resource such as training and development of employees, decision to hire permanent or
temporary employees, amount of investment to be made of human resource in organization

d. Information resources : it is very important on part of organization to collect information about

competitors, customers taste and preference, recent development in area of business company will
be operating. The company has to maintain valid and accurate management information system in
order to suffice to the information needs of company.

qcreate new venture : once the entrepreneur has arranged in for resources mentioned above, next
step involves creation and establishment of new venture. Which requires fulfilment of various legal
formalities.

q Change and adapt with time : initial plan developed by entrepreneur may not be suitable for long
run. So business plan is required to be updated on regular basis to cope up with recent trends or
updation in market.

Theories and Models of Entrepreneurship development

Theories of Entrepreneurship development

Theory: A well-substantiated explanation acquired through the scientific method and repeatedly
tested and confirmed through observation and experimentation. Entrepreneurial behaviour has
been explained in several ways by different scholars. These theories can be classified under the
following broad heads:

1. The Economic Theory

2. The Sociological Theory
3. Entrepreneurship Innovation Theory
4. Psychological Theory
5. Theory of Achievement Motivation/Achievement Theory

----The Kakinada Experiment

8
6. Status Withdrawal Theory
7. Theory of Social Change
8. Theory of Social Behaviour
9. Theory of Leadership
10. Theory of Model Personality
11. Theory of Systematic Innovation

[Link] Economic Theory – Entrepreneurship and economic growth takes place when economic
conditions are favourable. Economic incentives are the main motivators.

Economic incentives include: the taxation policy, industrial policy, sources of Finance and Raw
Material, - Infrastructure, availability , investment and marketing opportunities , access to
information, market conditions, technology etc.

• Richard Cantillon, an Irish French Economist viewed entrepreneurs as an agent who buys
factors of production at certain prices in order to combine them with a view to selling it at
uncertain prices in future. He illustrated farmer as an entrepreneur, who pays out
contractual incomes to the landlords and labourers, which are certain while sells his crops at
a price, which is uncertain.
• Entrepreneur as a Risk Taker.

Critical Evaluation

• According to William J. Baumol, the economic theory has failed to provide a satisfactory
analysis of either the role of entrepreneurship or its supply.
• Traditional model treat the entrepreneurial function like a managerial function

[Link] Sociological Theory

• Entrepreneurship is likely to get a boost in a particular social culture. The (entrepreneurial)

behaviour of individuals in a society is influenced by:
• - Society’s values, - Religious beliefs, - Customs,- Taboos, etc.
• The entrepreneur merely performs a role as per the expectations of the society. As per Jean
Baptiste say, an aristocratic Industrialist . - Entrepreneur combines land of one, labour of
another and the capital of yet another to produce a product. - By selling the product he pays
interest on the capital, rent on land and wages to labourers and what remains is profit.

First time distinction between the capitalist as the financer and the entrepreneur as the organiser.

• Entrepreneurship Innovation Theory - promoted by Joseph Schumpeter. Entrepreneurship is

Innovation. This theory ignores earlier two abilities, which were till then considered key for
an entrepreneur:
1. Organising Abilities ,
2. Risk Taking Abilities

• Joseph Schumpeter, a 20th century Austrian Economist. He stated- “An entrepreneur is a

person who is willing and able to convert a new idea or invention into a successful
innovation.” Entrepreneurship resulted in new industries, even though it entailed combining
the existing inputs in a new way. Schumpeter’s example of innovation was the combination
of a steam engine with wagon- cart, to produce the horseless [Link] this case the
Innovation, the car, was transformational. But it did not require thedevelopment of a new

9
technology. Merely the application of existing technologies in a novel manner was
entrepreneurial. Entrepreneurship and Innovation

• An entrepreneur innovates when - Introduces a new product example: Virgin Galactic

• - Introduces a new production method example: Line production system in food by
MacDonald’s - Finding new source of raw material supply , example: moving from coal to
petroleum to nuclear energy sources.

Critical Evaluation of this theory is

• Distinction between innovator and inventor.

• Entrepreneurs – economic development.
• Development requires basic changes – entrepreneurs do the changes.
• Limitations :- innovative functions required, ignores risk taking, organising aspect. most
vigorous type of enterprise , excludes individuals operating established business , assumes
entrepreneurs as large- scale business- man.

[Link] Theory

• Entrepreneurship gets boost when society has sufficient supply of individuals with necessary
psychological characteristics.
• These psychological characteristics include: - Need for Achievement,
- A vision Foresight,
- Ability to face opposition.

These characteristics are formed- during the individual’s upbringing- by high standards of excellence
- self -reliance and- low father dominance

[Link] of Achievement Motivation/Achievement Theory - David McClelland identified:

- Need for Achievement

- Need for Affiliation
- Need for Power

• As the basis of entrepreneurial personality, he emphasized the importance of achievement

motivation through which, entrepreneur fulfils:
a. Economic and Social Development -the Need for Achievement was found highest among
Entrepreneurs through an experiment.

----The Kakinada Experiment

• Conducted by McClelland in America, Mexico and India (Kakinada)

• Young adults were selected and put through a 3 months training to induce achievement
motivation.
• In the course content: -Trainees asked to control their thinking and be positive , - Trainees
imagined themselves in need of challenges and success and to set achievable goal, - imitate
their role models . Results showed- Positive impact on performance, Traditional beliefs do
not inhibit entrepreneurial spirit.
• McClelland identified two characteristics of entrepreneurship: - doing things in a new and
better way and - decision making under uncertainty

10
• Stressed that people with High Achievement Orientation (Need to Succeed) are more likely
to become entrepreneurs. People are not influenced by money or external incentives.
Profits are only a measure of success and competency

Critical Evaluation- High achievement orientation ensures the success of entrepreneurs. It

is necessary to create a climate to enable children to grow to become individuals with high
n-achievement. It is possible to improve the performance of existing entrepreneurs through
imparting proper training and education.

[Link] Withdrawal Theory

• This theory provides that a class which lost its previous prestige or a minority group tends to
show aggressive entrepreneurial drive.
• If a group feels that their values and status are not respected by society, they turn to
innovation to get respect of society.
• Entrepreneurship is a function of status withdrawal.

Four events which can produce status withdrawal :

• - Displacement of a traditional elite group by physical force.

• - Denigration of values, symbols due to change in attitude of superior class
• - Inconsistency of static symbol due to change in economic power
• Non-acceptance of expected status on migration to a new society
• Entrepreneur as a creative problem shooter.

Hagen visualized an innovative personality. - Retreatist - Ritualist

- Reformist and - Innovator . Innovation requires creativity and such creative individuals cause
economic growth .

Critical Evaluation-

• Distinguish between entrepreneurship and intra-preneurship.

• There are various factors which motivate executives and professionals to do innovative
behaviour not governed by status withdrawal.
• Presupposes long term perspective for entrepreneurial growth, but it does not happen in
India.

7. Theory of Social Change- Max Weber – Ethical value system protestant ethic and the spirit of
capitalism. Religion and its impact on entrepreneurial culture. Weber opined that spirit of rapid
industrial growth depends upon

• - Rationalized technology
- acquisition of money
- rational use of money for productivity
• - Multiplication of money

These elements depend upon specific value orientation of individuals generated by ethical values.

Critical Evaluation- Invalid assumptions : in Hinduism single system of Hindu value. - Indian
community internalised those values and translated them in day to day behaviour, these values

11
remained immune to and insulated against external pressures and change. Further studies show that
Hinduism is not averse to the spirit of capitalism and to adventurous spirit

• [Link] of Social Behaviour – Kunkel presents a behavioural model .Supply of

entrepreneurs is a function of social, political and economic structure. Individuals perform
various activities of which some are accepted by society while others are not. Four
structures in society : Limitation Structure
- Demand Structure,- Opportunity Structure and Labour Structure.

Critical Evaluation Theory assumes ideal structures for supply of entrepreneurs. There is
discrepancy between objectives, structures and actual incidence of entrepreneurs.
Entrepreneurship is also governed by specific combinations of circumstances which are
generally not available in the environment.

9. Theory of Leadership-

• Hoselitz – entrepreneurship is a function of managerial skill and leadership. It has ability to

lead and manage. Social conditions should ensure the development of enterprise-oriented
personalities. Hoselitz emphasized on the role of culturally marginal groups

Critical Evaluation-Marginal men or women enjoying an ambiguous cultural and social position
having no bondage of tradition to inhibit them from entrepreneurial development. But there are
certain economic and political factors also which encourage the people to initiate
entrepreneurial behaviour.

10. Theory of Model Personality –

• The theory of Cochran is a sociological theory of entrepreneurial supply. Cochran

emphasises cultural values, role expectation and social sanctions as the key element .
Entrepreneurs performance is influenced by : - his attitude towards his occupation - role
expectation held by sanctioning groups - operational requirements of the job .Society’s
values – most important for attitude and role expectation.

Critical Evaluation-

• The theory deals with only social factors.

• Profit is an important factor for encouraging entrepreneurs to assume risky behaviour.
• Need for achievement starts from profit making process.
• Entrepreneur is expected to perform managerial functions, theory fails to incorporate all
these requirements

11. Theory of Systematic Innovation – Prof Peter Drucker– developed the theory.

• “Systematic innovation consists in the purposeful and organised search for changes and in
the systematic analysis of the opportunities such changes might offer for economic or social
innovation.” Systematic innovation means seven sources for innovative opportunity.

The first four sources lie within the enterprise. These four source areas are : 1. The unexpected –
the unexpected success, the unexpected failure, the unexpected outside event ; 2. The
incongruity – between reality as it actually is and reality as it is assumed to be or ought to be ; 3.

12
Innovation based on process need ; 4. Changes in industry structure or market structure that
catch every one unaware.

The second set of sources for innovative opportunity, a set of three involves changes outside the
enterprise of industry : - Demographics (Population changes) ; - Changes in perception, mood
and meaning ; - New knowledge, both scientific and non- scientific.

Lines between these seven source areas of innovative opportunities are blurred, and
considerable overlap between them.

Critical Evaluation- Quite comprehensive [Link] is required to identify different

sources of change. Coordinate these changes with opportunities available in environment. Reliability
and predictability of seven sources.

In Conclusion of above theories we can consider, entrepreneurship is a multidisciplinary area

governed by human factors – ever changing society pursuing simultaneously - economic objectives
- social objectives, - psychological objectives . Theory of Entrepreneurship is woven into : -
sociological, cultural, psychological, political and managerial fiber. With them it forms a economic
web.

Models of the Entrepreneurship development

A theory is aimed at a generalized statement aimed at explaining a phenomenon. A model, on the

other hand, is a purposeful representation of reality. ... Another way to link the two and point out
differences is, a model is often used to describe an application of a theory for a particular case.

Several models have been developed to explain entrepreneurship and entrepreneurial behaviour.
Important models are described below:

1. Psychodynamic model
2. Social development model
3. Social marginality model
4. Kao’s model
5. Timmons Models

(1) Psychodynamic model: This was propounded by Kets de Vries. This says that people tend to be
self-employed and become successful because of “troubled childhood”. In troubled childhood,
children tend to be lacking, security or abused, low self-esteem, lack of confidence. Therefore
growing in such an environment some people do have repressed wishes towards those in control.

(2) Social development model -This theory contends that it is the transactions with different context
in one‟s life and career that shape one‟s propensity to be self-employed. These are factors, which
start in early, middle or late life.

3) Social marginality model -This theory suggests that individuals who perceive a strong level of
incongruence between their personal attributes and the role they hold in society will be motivated
to change or reconstruct their social reality. While some people may reconstruct their reality by

13
changing careers or employers, others may choose self- employment. „Marginal men” are referred
as individuals who are less integrated in their society. Since marginal men are not completely part of
the society of their adoption, they are free of the restrictions imposed by its value system. At the
same time, having left their own society, they are no longer constrained by its dominant values. This
situation gives way to the development of unconventional patterns of behavior, which increases
their propensity to become entrepreneurs.

4) Kao’s model -According to this model, entrepreneurship is an outcome of interaction between

three elements; viz, person, task and organizational context .

Figure: ECO analysis framework

In this model, the person (i.e the entrepreneur and team members) is the most important element
as it is the people who create an enterprise through their efforts. Hence, their personality, skills,
motivation, etc. are critical for the success of the venture. The task refers to the activities
undertaken by the group or organization. These are in turn influenced by organizational strategy and
external environment. Tasks can include perceiving opportunities, collecting and allocating
resources, finding out and creating market opportunities, etc. Lastly, organizational context refers to
setting in which activities take place. This includes organizational structure, culture, systems,
policies, etc. and significantly effect entrepreneurial outcomes. All these key elements are
embedded within the external environment which is the outside world. It comprises of resources,
infrastructure, laws and regulations, policies and technology. The environment significantly
influences the enterprise and is effected in turn. A successful entrepreneur adapts himself to the
changing environment.

5) Timmon’s model of entrepreneurial process -The key factors in the Timmons model (given
below) are the entrepreneur, the founding team, the opportunity, and the resources that are
mustered to start the new organization. The key ingredient is the entrepreneur, and under right
conditions, he or she will deliberately search for an opportunity, and upon finding it, shape it so that
is has the potential to be a commercial success, or what Timmons calls a high-potential venture. The
entrepreneur then gathers the resources that are necessary to start a business to capitalize on his or
her opportunity. Explicit in the Timmons framework is the notion that the entrepreneur and the
provider of capital will be rewarded with profits, and that both are commensurate with the risk and
effort involved in starting, financing, and building the business. The entrepreneur usually risks
career, personal cash-flow, and some or all of his or her net worth. In an ideal situation, all this is
quantified in a business plan before the business is operational.

14
UNIT IV
Essential skills for entrepreneurship development: business leadership skills;
developing organizational skill (controlling, supervising, problem solving,
monitoring & evaluation)

1
Importance of management

1. Management is a critical element in the economic growth of country -by bringing

together the for factors of production man money material and machines management
enables a country to experience a substantial level of economic development.

[Link] is essential in all organised efforts be it a business activity or any other

activity -principles of management are now universally used not just for managing business
organizations. They are also applied to various other types of organizations such as
educational social military and government

[Link] is the dynamic life giving element in every organization -It is this element
that coordinates current organizational activities and plans future ones .It arbitrates disputes
and provides leadership. It adapts the organization to its environment can often shapes the
environment to make it more suitable to organization .

In the words of Claude S George management is “the central core of our national as well as
personal activities and the way we manage ourselves and our institutions reflects with
alarming clarity but we and our society will become”.

Definition of management-

Mary Parker Follett - Management is the art of getting things done through people .

This definition calls attention to the fundamental difference between a manager and other
personal of an organization . A manager is one who contributes to the organizations goals
indirectly by directing the efforts of others not by performing the task himself on the other
hand a person who is not a manager makes his contribution to the organizations goals directly
by performing the task himself

George R Terry- management as a process consisting of planning organising actuating and

controlling performed to determine and accomplish the objectives by use of people and
resources .

Management functions or the process of management

Henry Fayol identifies five function of management that is planning, organising,

commanding, coordinating, and controlling.

Luther Gulick states seven such functions under the catchword POSDCORB-which
stands for planning, organising, staffing, directing, coordinating, reporting and budgeting

Ernest Dale-planning organising directing and controlling

Reddy and Tripathi- planning ,organising, directing, controlling, Innovating and

representation

Planning-

2
Planning is the function that determines in advance what should be done it is looking ahead
and preparing for the future it is the process of deciding the business objectives and charting
out methods of attaining these objectives .
In other words it is the determination of what is to be done how and where it is to be done
who is to do it and how results are to be evaluated this is done not only for organization as a
whole but for every division, department or sub unit of the organization does.
Planning is a function which is performed by managers at all levels top middle and lower
levels. Supervisory plans made by top management for the organization as a whole make our
periods as long as 5 or 10 years plan made by middle or first line managers cover much
shorter periods such plans maybe for the next day's work for example or for a 2 hour meeting
to takes place in a week.

Organising
To organise a business is to provide it with everything useful to its functioning: personel ,raw
materials, tools, capital. All this may be divided into 2 main sections the human
organization and the material organization .Once managers have established objectives and
developed plans to achieve them, they must design and develop human organization that will
be able to carry out those plans successfully. According to Allen this organization refers to
the structure which results from identifying and grouping, work defining and delegating
responsibility and authority and establishing relationship.

Staffing
may also be considered an important function involved in building the human organization in
staffing the manager attempts to find the right person for each job staffing fixes a
manager's responsibility to recruit and to make certain that there is enough manpower
available to fill the various positions needed in the organization.
Staffing involves the selection and training of future managers and encouraging a highly
disciplined approach to work among them even if it requires taking punitive measures.
It also necessitates a suitable system of compensation staffing obviously cannot be done
once and for [Link] people are continually leaving getting fired retiring and dying often to
the changes in the organization create new positions and these must be filled.

Directing
after plans have been made and the organization has been established and start the next step
is to move towards its defined objectives this function can be called by various names
leading, directing, motivating ,actuating and so on but whatever the name used to identify it
in carrying out funktion the manager explains to his people what they have to do and helps
them do it to the best of their ability. Directing involves 3 sub functions –
communication, leadership, and motivation
communication is the process of passing information and understanding from one person to
another
leadership is the process by which a manager guides and influences the work of his
subordinates
motivation means arousing desire in the minds of workers to give their best to the enterprise
. It is the act of stimulating or inspiring workers if the workers of an enterprise are properly
motivated they will pull them weight effectively give their loyalty to the enterprise and carry
out their task effectively. Two broad categories of motivation are financial and non -financial.
Financial motivation takes the form of salary, bonus, profit sharing etc while non- financial
motivation takes the form of job security, opportunity of advancement, recognition praise etc.

3
Controlling
the manager must ensure that performance occurs in conformity with the plants adopted the
instructions issued and principles established this is the controlling function of management
and it involves 3 elements
[Link] standard of performance
2 measuring current performance and comparing it against the establish standard
3 taking action to correct any performance that does not meet those standards

In the absence of sound control there is no guarantee that the objectives which have been set
will be realised the management may go on committing mistakes without knowing them
control compels events to confirm to plans.

Innovating
These days it is not necessary for an organization to grow bigger but it is necessary that it
constantly grows better this makes innovation an important function of a manager. Innovation
means creating new ideas which may improve a product process or practice does Hindustan
Unilever inexpensive single use shampoo sachets,Eureka Forbes direct to house Sales force
and ITC E -choupal which now benefits hundreds of Indian farmers across the country by
providing temporal time information and higher farm gate prices of their commodities are
examples of innovations in packaging distribution and business models respectively.

Representing
A manager is also required nowadays to spend a part of his time in representing his
organization before various outside groups which have some stake in the organization. These
stakeholders can be government officials, labour unions, financial institutions, suppliers,
customers etc. They wield influence over the organization a manager must win their support
by effective managing the social impact of his organization. It should be understood that
every function has 2 dimensions substantive and procedural .Substantive dimension is what is
being done process is how it is done the above definitions and functions of management only
help us identify what a manager does but they tell us little about how he does .
We must keep in mind that the relationship among the 6 sub processes as mentioned above is
by no means as straight forward.

Levels of management

Although all managers perform the same functions of planning, organising ,directing
controlling, innovating and representing, there are levels among them in any organization the
so called first line, middle, and top managers

lower or first line management group is made up of men and white colour supervisors, men
and women who are only one step above the rank and file

middle management a vast and diverse group that includes sales managers, plant managers,
personel managers and many other department heads.

top management consisting of board chairman, the company presidents, the executive vice
president, that is the men who coordinate all the specialities and make policies for the
company as a whole.

4
Managerial skills

Skill is an individuals ability to perform physical or mental task with specified outcome. Skill
is not necessarily inborn it can be developed through practice and through translating once
knowledge and experience into [Link] us look into the definition of roles-these are sets of
behavioural expectations of related individuals or groups from a manager. In order to be able
to successfully discharge his roles a manager should possess 3 major skills.

These are conceptual skill, human relations skills and technical skills. Conceptual skill
deals with ideas, technical skill with things and human skill with people while both
conceptual and technical skills are needed for good decision making human skill is necessary
for a good leader.

The conceptual skill refers to the ability of a manager to take abroad and farsighted view of
the organization and its future his ability to think in abstract, his ability to analyse the forces
working in a situation, his creative and innovative ability and his ability to assess the
environment and the changes taking place in it .In short it is his ability to conceptualize the
environment the organization and his own job so that he can set appropriate goals for his
organization for himself and for his team. This can seems to increasing importance as
manager moves up to higher positions of responsibility in the organization.

The technical skill -the managers understanding of the nature of job that people under him
have to perform it refers to persons knowledge and proficiency in any type of process or
technique in a production department. This would mean understanding of the technicalities of
the process of production whereas this type of skill and competence seems to be more
important at the lower levels of management .Its relative importance as a part of the manager
role diminishes as the manager move to higher positions. In higher functional positions such
as the position of marketing manager or production manager the conceptual component
related to these functional areas become more important and the technical component
becomes less important .

Human relation skill -is the ability to interact effectively with people at all levels. This skill
developed in the manager sufficient ability to recognize the feelings and sentiments of others
be to judge the possible reactions to an outcome of various courses of action.

The history of management

can be divided into 3 periods early, neo -classical and modern. The early periods consist of 3
approaches that is the scientific management , the administrative management and
bureaucracy .Each one of the approaches has made a distinct contribution to management
theory the stress in the scientific management approach is on the task aspect of group effort
in the administrative management approach it is laying down universal principles of
management and in bureaucracy it is on following standard rules

Scientific Management- Frederick Winslow Taylor (1856 to 1915) is considered to be the

father of scientific management. He exerted a great influence on the development of
management thought through his experiments and writings during his career spanning a
period of 26 years. He conducted a series of experiments in 3 companies – Midvale Steel,
Simon's rolling machine and Bethlehem Steel. While serving as a as the chief engineer of

5
Midvale steel company Taylor made several important contributions which are classified
under scientific management .

1. Time and motion study- since Taylor had been a machinist himself he knew how
piecework employees used to hold back production to it's 1/3 level because they feared that
their employers woodcut there piece rate as soon as there was a rise in production the real
trouble. Taylor thought was that no one knew how much work it was reasonable to expect a
man to do, he therefore started time and motion study. Under which each motion of a job was
to be time with the help of a stopwatch and shorter and fewer motions were to be developed
thus the best way of doing a job was found. This replace the old rule of thumb knowledge of
the Workman .

[Link] payment -Taylor introduced a new payment plan called the differential piece
work in which he linked incentives with production

3. Drastic reorganization of supervision -Taylor suggested 2 new concepts 1)separation of

planning and doing and 2)functional foremanship. In those days it is used to be customary for
each worker to plan his own work, worker himself used to select his tools and decide the
order in which the operations were to be performed. Thee foreman simply told the worker
what jobs to perform not how to do them .Taylor suggested that the work should be planned
by a foreman and not by the worker.

4 Scientific recruitment and training emphasised the need for scientific selection and
development of the worker, to bring out his/her best faculties and to enable him/her to do a
higher more interesting and more profitable class of work then what s/he has done in the
past.

5. Intimate friendly cooperation between the management and workers- Taylor said that
for the above suggestions to succeed a complete mental revolution on the part of management
and labor was required.

Contributions and limitations of scientific management

First, time and motion studies have made us aware that the tools and physical movements
involved in a task can be made more efficient and rational , second , the stress which
scientific management placed on scientific selection of workers has made us recognize that
without ability and training a person cannot be expected to do his job properly. Finally the
importance that scientific management gave to work design has encouraged managers to seek
that one best way of doing a job both blue colour production job and white collar office and
service jobs, have become specialized and standardised this makes workers more efficient
and the management control over them easier .

Taylor scientific management emphasis emphasised the management of only muscular task at
the floor level and neglects the areas of problem solving and decision making .Taylor's belief
that economic incentives are strong enough to motivate workers for increased production is
wrong no man is entirely economic man that is a Man’s behaviour is not always dictated by
his financial needs. He has many other needs also such as security needs, social needs, or
egoistic needs which motivate him far more potently than his desire for money at least after
he has risen above from starvation level.

6
2. Administrative management while Taylor is considered the father of scientific
management Henry Fayol (1841 to 1925) is considered the father of administrative
management theory with a focus on the development of broad and administrative principles
applicable to general and higher managerial levels. He was a French mining engineer turned a
leading industrialists and successful manager. He wrote a monograph in French in 1916
entitled General and Industrial Administration until this book was translated into English in
1929 little was known about him by the western world .

He said that all activities of business enterprises could be divided into 6 groups : technical
,commercial , financial , accounting , security and administrative or managerial. He defined
management in terms of 5 functions : planning, organising, commanding ,coordinating and
controlling.

He also presented 14 principles of management as general guides to the management process

and management practice. These are discussed below :

[Link] of work- division of work in the management process produces more and better
work with the same effort. Various functions of management like planning, organising
directing and controlling cannot be performed efficiently by a single proprietor or by group
of directors they must be interested to a specialist in related field .

[Link] and responsibility -as the management consists of getting the work done
through others it implies that manager should have the right to give orders and power to exact
obedience. A manager may exercise personal power and formal authority. Formal authority
is derived from his official position while personal power is the result of intelligence ,
experience, moral , birth, ability to lead , etc. Responsibility is closely related to authority
and it arises whenever authority is exercised. An individual who is willing to exercise
authority must also be prepared to be take responsibility. Responsibility is feared as much as
authority is sought after.

[Link]- is absolutely essential for the smooth running of a business. By discipline we

mean the obedience to authority observance of the rules of service and norms of performance
respect for agreements, sincere efforts for completing the given job, respect for superiors etc.
The best means of maintaining discipline are: a) good supervisors at all levels b) clear and
fair agreement between the employees and the employer c)judicious application of penalties
.In fact discipline is what leaders make it

[Link] of command- this principle requires that each employee should receive instructions
about a particular work from one superior only. If an employee was to report to more than
one superior he would be confused due to conflict instructions and also it would be difficult
to pinpoint responsibility to him.

[Link] of Direction- it means that there should be complete identity between individual and
organizational goals on the one hand and between departmental goals inter se on the other.
They should not pull in different directions .

[Link] of individual interest to general interest: in a business concern an

individual is always interested in maximising his own satisfaction through more money ,
recognition status, etc. This is very often against the general interest which lies in maximising
production hence the need to subordinate the individual interest to general interest.

7
[Link]- the remuneration paid to the personal of the firm should be fair it should
be based on general business conditions, cost of living, productivity of the concerned
employees and the capacity of the firm to pay. Fair remuneration increases workers
efficiency and moral and foster good relations between them and management.

[Link]- if subordinates are given more role and importance in the management and
organization of the firm it is decentralization. The management must decide the degree of
centralization or decentralization of authority on the basis of the nature of the circumstances,
size of the undertaking, the type of activities and the nature of organizational structure, the
objective to pursue should be optimum utilization of all faculties of the personnel.

[Link] chain means the hierarchy of authority from the highest executive to the lowest one
for the purpose of communication. It states superior subordinate relationship and the
authority of superiors in relation to subordinates at various levels. As per this principle the
orders or communications should pass through the proper channels of authority along the
scalar chain but in case there is need for swift action the proper channels of authority may be
short circuited by making direct contact called gangplank with the concerned authority .

[Link]- to put things in in order, needs effort. Disorder doesn't need any effort. It evolves
by itself. Management should obtain orderliness in work through suitable organization of
men and materials - the principle of right place for everything and for every man, should
be observed by the management. To observe this principle there is need for scientific
selection of competent personnel correct assignment of duties to personnel and good
organization.

[Link] - means equality of Fair treatment. Equity results from a combination of kindness
and justice. Employees expect management to be equally just to everybody. It requires
managers to be free from all prejudices, personal likes or dislikes. Equity and shows healthy
industrial relations between management and labour which is essential for successful working
of the enterprise .

[Link] of tenure- in order to motivate workers to do more and better work it is

necessary that they should be assured security of job by the management. If they have fear of
insecurity of job moral will be low and they cannot give more and better work. Further they
will not have any sense of attachment to the firm and they will always be on the lookout for a
job elsewhere .

[Link]- means freedom to think out and execute a plan. Zeal and energy of employees
are augmented by initiative. Innovation which is the hallmark of technological progress is
possible only where the employees are encouraged to take initiative

[Link] de Corps
This means team spirit since union is strength- the management should create team spirit
among the employees. Only when all the personal pull together as a team there is scope for
realising the objective of the concern. Divide and rule should be avoided and verbal
communication should be used for removing misunderstandings. Differences grow more
better when cleared through written communication

Developing Organisational Skills

8
The word organization has two meanings. The first meaning refers to the process of
organising . The second meaning signifies the institution or group which comes into
existence as a result of organising.

The organization structure is made up of various departments . Departmentalization is the

grouping together of a similar or logically related work activities. Departmentalization -it is
the grouping of work activities , so that similar and logically related activities occur together

Span of management it is the number of subordinates who report directly to a manager

-Designing and maintaining these systems of roles is basically the Managerial function of
organising .

-For an organizational role to exist and be meaningful to people , it must incorporate:

1) verifiable objectives
2) a clear idea of the major duties or activities involved
3) an understood area of discretion or authority

so that person filling the role known what he or she can do to accomplish the task .

In order to make a role work out effectively provision should be made for supplying needed
information and other tools necessary for performance in that role.

Organising :

1 identification and classification of required activities

2 grouping of activities necessary to attain objectives
3 assignment of each grouping to a manager with delegation necessary to supervise it
4 provision for coordination horizontally and vertically in the organization structure

An organization structure should be designed to clarify who is to do what tasks and who is
responsible for what results, remove obstacles to performance, caused by confusion and
uncertainty of assignment and to furnish decision making and communities networks
reflecting and supporting enterprise objectives .

Organization means for most practicing managers the term organization implies a
formalised intentional structure of roles or positions .

Formal and informal organization

formal organization -intentional structure of roles in a formally organised enterprise

informal organization -Chester Bernard author of the management classic -the functions of
executive -described informal organization as any joint personal activity without conscious
joint purpose ,even though contributing to joint results .
informal organization -a network of personal and social relations not established or required
by the formal organization but arising spontaneously as people associate with one another .

9
One aspect of organising is the establishment of Department .The word Department
designates a distinct area division for branch of an organization oh which a manager has
authority for the performance of specified activities .

Organisational levels and the span of management

The purpose of organising is to make human cooperation effective ,the reason for levels of
organization is the limitations of the span of management .
A wide span of management is associated with few organisational levels, a narrow span of
management with many levels .Prominent British consultant – Lyndall Urwick, found ideal
number of subordinate at lowest level of organization between eight to 12 .The ideal number
of subordinates for all superior authorities to be four .

Problem with organizational levels

Levels are extensive ,departmental levels complicate communication .An enterprise with
many levels has greater difficulty communicating objective, plans, policies downward
through organizational structure then does a firm in which top manager communicates
directly. Levels filters of information. Numerous departments and levels complicate planning
and control. A plan definite and complete at the top level loses coordination and clarity as it
is subdivided at lower levels. Control becomes difficult as levels and managers are added.

Operational management position- a situational approach

classical school approach to span of management(SOM) deals with specifying numbers of
subordinates for an effective SOM. Upper level(SOM) is from three to eight subordinates,
however more recent operational management theorists have taken the position that there are
too many underlying variables in management situation for us to specify any particular
number of subordinates that a manager can effectively supervise, so does the principle of
span of management states that there is a limit to the number of subordinates a manager can
effectively supervise. But the exact number will depend on the impact of underlying factors
such as:

Factors determining an effective span

1. subordinate training
2 clarity of delegation of authority
3 clarity of plans
4 use of objective standards
5 rate of change
6 communication techniques
7 amount of personal contact needed
8 variation by organizational levels
9 other factors
10 the need for balance

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Narrow span of management Wide span of management –
• a great deal of time spent with • very little time spent with subordinates
subordinates related to, related to ,
• little or no training , • thorough subordinate training,
• inadequate unclear authority of • Clear delegation to undertake well
delegation , defined task ,
• unclear plans for non -repetitive • well defined plans for repetitive
operations , operation ,
• non verifiable objectives and standards , • verifiable objectives used and standards,
• fast changes in internal and external • slow changes in external internal
environment , environment,
• use of poor or inappropriate • use of appropriate techniques such as
communication techniques including proper organizational structure,
vague instruction, • written and oral communication,
• ineffective interaction of superior and • effective interaction between superior
subordinate and subordinate,
• ineffective meetings ,greater number of • effective meetings,
specialities at lower and middle levels, • number of specialities at upper levels,
• incompetent and untrained manager , • Competent and trained manpower,
• complex task , • simple task,
• subordinates unwillingness to assume • subordinates willingness to assume
responsibility and reasonable risk , responsibility and reasonable risks,
• immature subordinate • mature subordinate

Organizational environment for Entrepreneuring and Intrapreneuring

Specific activity of entrepreneurs is to look out for commitment to a systematic innovation.

The essence of entrepreneurship is innovation that is goal oriented change to utilise the
enterprise potential. Gifford Pinchot makes a distinction between the intrapreneur and the
entrepreneur. Intrapreneur is a person who focuses on innovation and creativity and who
transforms a dream or idea into a profitable venture by operating within organization
environment. Entrepreneur is the person who focuses on innovation and creativity and who
transformed dream/ idea into a profitable venture by operating outside the organizational
setup.

Structure and process of organising

Looking at organising as a process requires -

first place structure must reflect objectives and plans because activities derive from them
in second place ,it must reflect the authority available to an enterprise management ,
authority in a given organization is socially determined right to exercise discretion as such it
it is subject to change. In 3rd place organization structure like any plan must reflect the
environment. And effective organizational structure depends on the situation. In the 4th
place since the organization is staffed with the people , the grouping of activities and the
authority relationship of an organization structure must take into account peoples limitation
and customs .

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the logic of organising

the organising process consists of 6 steps

[Link] enterprise objectives
2. formulate supporting objective, policies and plans
3 identifying and classifying the activities necessary to accomplish these
4. grouping these activities in the light of human and material resources available and the best
way under the circumstances of using them .
[Link] to the head of each group the authority necessary to perform these activities
6 tying the groups horizontally and vertically through authority relationship and information
flows

one must not forget there is no best way to organise and that the application of structural
organization theory must take into account the situation.

Basic departmentation

The groupings of activities and people in to departments make organizational expansion

possible. Departmentation can be done by simple numbers , by time , by enterprise function,
by territory or geography, by the kinds of customers served , and the process of equipment
required. Relatively new kinds of departmentation are the product , matrix or grid , or project
organization and strategic business unit. There is no single best way to organise the most
appropriate pattern depends on various factors in a given situation .
These factors include
[Link] kind of job to be done
2 the way the task must be done
3 the kinds of people involved
4 the technology
5 the people served
6 internal and external consideration
at any rate, the selection of a specific departmentation pattern should be done so that
organizational and individual objectives can be achieved effectively and efficiently .
Accomplishing this goal often requires mixing forms of departmentation .

Departmentation by simple numbers achieved by telling off tolling of persons who are to
perform the same duties and putting them under supervision of a manager
the essential fact is that the success of the undertaking depends on the upon the number of
persons involved in it
this technique has declined because -one technology has advanced to decline of
departmentation as purely by number is that groups composed of specialized personnel are
frequently more efficient than based merely on numbers [Link] is useful only at the lowest level
of organization .

Departmentation by time -oldest form , used at lower levels , is grouping on the basis of
time, use of shifts , we are normal workday will not suffice advantages services go beyond
typical eight hours are often extending to 24 hour per day to possible use processes that can't
be interrupted . Expensive capital equipment can be used more than 8 hours per day., for
some people find it convenient to work in night .
Disadvantages –
1. supervision lacking night shift

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2 fatigue factor
3 coordination and communication problem

Departmentation by enterprise function -grouping activities in accordance with the

functions of an enterprise is called as functional departmentation
[Link] designation do not appear in the organizational chart
2 basic activities often differ in importance , is the reason for variance of terms
3 absence of sales, production finance .

Functional departmentation- is the most widely used basis for organizational activity and is
present in almost every enterprise at some level in organization
Advantages -logical and time proven method, power and prestige of basic activities of the
enterprise are defended by top managers , simplifies training, follows principle of
occupational specialization thereby facilitates efficiency in utilization of people.
Disadvantages -deemphasize overall enterprise objectives, territorial groupings sometimes
better than this method, loyalty only to functional Department not to organization as a whole ,
only chief is held responsible for profits

Departmentation by territory or geography -based on territory is rather common in

enterprises that operate over wide geographic areas.
Extent Of Use -territorial departmentation is especially attractive to large scale firms or
enterprises whose activities are physically dispersed .
Advantages -places responsibility at lower levels , encourages local level participation,
production organised on territorial basis , reduce transportation cost and delivery time ,
geographic departmentation improves face to face communication with local people .
Disadvantages -requires more persons with general managerial abilities , short age of them
limit growth of an enterprise . Increase the problem of control by top managers , duplication
of services.

Customer departmentation -grouping activities so that they reflect common interest in

customers .Advantages -address the special and widely varied needs of customers for clearly
defined services .Disadvantages -difficulty in coordination with this type and other type of
Department on other basis .

Process or equipment departmentation -manufacturing firms often group activities around

the process or type of equipment . Example paint, electronic, data processing Department .

Departmentation by product -grouping activities on the basis of products or product lines.

Advantages -facilitates use of specialised capital ,promote certain type of coordination,
permit maximum use of personal skills and specialised knowledge. Disadvantages -making
available persons with more general managerial abilities

Matrix organization -matrix or grid organization or project or product management .The

essence of matrix organization normally is the combining of functional and product pattern of
departmentation in the same organizational structure .Example construction, aerospace
Advantages -1. highly trained professional may not tolerate the insecurity of frequent
organizational change 2 they feel more at home within the functional Department , if the
proficiency in the same field will likely to appreciate more their expertise.

Problem with matrix –

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1. a state of conflict between functional and project manager
2. role conflict, role ambiguity and role overload
3 imbalance of authority and power as well as horizontal and vertical influence of the project
and functional managers
4 because of potential conflicts managers may want to protect themselves against plain by
putting everything in writing
5 required time consuming meetings

Strategic business units (SBU)-organizational devices referred as SBU. SBU are distinct
little business businesses that are set up in larger company to ensure that a certain product or
line is promoted and handled as though it were an independent business. for each SBU a
manager is appointed. SBU ensures that the product will not get lost among other products

Line Or Staff Authority And Decentralization

There are number of different bases of power. Power can be legitimate , expert, referent,
reward, or coercive. There are also various ways to conceptualize line and staff .generally
line staff are characterised by relationship and not by people.

Line authority -is that relationship in which a superior exercises direct supervision over
subordinates .

Staff relationship -on the other hand consists of giving advice and counsel .

Functional authority -is the right to control selected processes, practices, policies or other
matters in departments other than a persons own. Functional authority is small slice of line
managers authority and should be used sparingly .Using staff authority has benefit as well as
limitation such as danger of undermining line authority and lack of responsibility of staff.
There are also the possibilities of making impractical recommendations and undermining the
unity of command.

Another important concept is decentralisation which is the tendency to disperse decision

making authority. Centralization on the other hand is the concentration of authority . It may
refer to geographic departmental concentration or the tendency to restrict delegation of
decision making.

The process of delegation of authority includes determining the results to be achieved,

assigning tasks , delegating authority and holding people responsible for results. Delegation
which is an art is influenced by personal attitudes . Balance is the key to proper
decentralisation . Power may also come from expertness of person or group . This is the
power of knowledge. Power arises from the ability of the person to grant rewards . Likewise
University professor has considerable reward power

Problem Solving

Effective problem solving is a key management skill and a major factor in determining
individual and organizational success. People with good problem solving skills adapt more
quickly in times of rapid change and are generally the high achievers, whether it is by putting
things right when they go wrong, making the best use of resources, or creating and exploiting
opportunities. . Each of us has an innate ability to solve problems. To develop this ability we

14
need a clear understanding of the skills and techniques involved and practice in applying
them in different situations. To be a successful problem solver we must go through these
stages:
• Recognizing and defining the problem
• Finding possible solutions
• Choosing the best solution
• Implementing the solution.

Concept of Problem-Solving

Problems in - solutions out - is your job - everybody's job. It helps improve your
effectiveness. Each of us is a constant problem solver. Problems, as visualised by most of us,
are irritants, impediments, hassles and a headache, in general are negative things. In
organisational situations - problems are actually, something to do, something challenging,
something positive, to show our worth, to improve our performance. We see or note that
there is problem, through its associated symptoms. The symptom by itself is not the problem.
Through symptom we have to exercise to pin down the problem responsible for the
symptoms we see. This process is known as gathering the facts to identify the specific
problem. Repeat - symptom is not the problem. problem is the cause of symptoms we see.
You have to eliminate symptomatic causes till you are left with the essential problem.

These 7 problem solving steps provide a short outline of a process to help you solve problems
effectively.

1. Find the Right Problems to Solve.

Too often our approach to problem solving is reactive, we wait for the problems to arise.
Firstly in our 7 problem solving steps, we advocate taking a proactive approach, go and find
problems to solve; important and valuable problems. The real starting point then for any
problem- solving process is to find the right problem to solve.

2. Define the Problem

It is very tempting to gloss over this step and move to analysis and solutions. However, like
the first step, it is one of the secrets of effective problem solving. Combining problems that
are valuable to solve, with defining exactly what you are trying to solve, can dramatically
improve the effectiveness of the problem solving process. The secret to defining the problem,
is really about attitude.

3. Analyse the Problem

Analysis is a process of discovery of the facts, finding out what you know about the
situation. In doing so you are breaking down complexity, stripping away the superficial and
getting to the causes/issues.

4. Develop Opportunities
There are always more than one way to solve a problem, so take time to develop plenty of
creative possibilities to solve the problem

5. Select the best solution

Selecting is about making choices, about deciding. To do this you need to weigh up the
competing value and risk of the different options you generated in the previous step.

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6. Implement
Good solutions are often only as good as the way they are implemented. Implementation
requires project management and a determination to deliver the outcomes essential to solving
the problem you originally defined.

7. Evaluate and Learn

It would be all too easy to forget them in rushing to solve the next problem, or to implement
the solution. You should evaluate at least two areas

Types of Problem-Solving

Following classification of problems is presented:

• Analytic Problem Solving: It involves a situation in which there is only one correct answer
or result. In this situation, 2 +2 =X 2+2= 4

• Judgmental Problem Solving : Judgmental Problem solving frequently offers the problem
solver a limited choice of alternatives.

• Creative Problem Solving : Creative problem solving is the type of problem solving people
do 90 percent of the time. The range of alternatives is very broad, much more so than in
judgmental problem solving.

• Decision Making and Problem Solving: Decision-making is part of the problem- solving
process. Problem solving involves the consideration of a number of possible solutions for the
situation

Problem –Solving Skill

In literature below cited problem solving skills are quoted: -

• Recognize problems when and where they exist.
• Anticipate developing problems while they are still in an embryonic stage.
• Determine an objective or goal, that is, the results desired when the problem is solved.
• Generate several possible solutions to the problem.
• Evaluate systematically the possible solutions against a set of predetermined criteria, and
thus lead to an effective, appropriate solution.
• Plan for the implementation of the solution in an organized manner.
• Evaluate the results of the solution and monitor for future problems.

Problem Solving Vs. Decision Making

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What is controlling

Definition: Control is a primary goal-oriented function of management in an organization. It

is a process of comparing the actual performance with the set standards of the company to
ensure that activities are performed according to the plans and if not then taking corrective
action.

• Controlling -process is to monitor the progress of an organization towards its goals.

Controlling can be defined as the continuous measurement and analysis of actual
operations against the established industry standards developed during the planning
process and corrections of deviations, if any.
• The basic control process involves (1) comparing performance with standards, (2)
determining where negative deviations occur, and (3) developing remedial measures
to correct deviations.

Features of Controlling
• An effective control system has the following features:
• It helps in achieving organizational goals.
• Facilitates optimum utilization of resources.
• It evaluates the accuracy of the standard.
• It also sets discipline and order.
• Motivates the employees and boosts employee morale.
• Ensures future planning by revising standards.
• Improves overall performance of an organization.
• It also minimises errors.

Process of Controlling
Control process involves the following steps as shown in the figure-

17
1. Establishing standards: This means setting up of the target which needs to be achieved to
meet organizational goals eventually. Standards indicate the criteria of performance

2. Measurement of actual performance: The actual performance of the employee is

measured against the target. With the increasing levels of management, the measurement of
performance becomes difficult

3. Comparison of actual performance with the standard: This compares the degree of
difference between the actual performance and the standard.

[Link] corrective actions: It is initiated by the manager who corrects any defects in actual
performance.

Note- Controlling process thus regulates companies’ activities so that actual performance
conforms to the standard plan. An effective control system enables managers to avoid
circumstances which cause the company’s loss.

Types of control
There are three types of control viz.,
1. Feedback Control: This process involves collecting information about a finished
task, assessing that information and improvising the same type of tasks in the future.
2. Concurrent control: It is also called real-time control. It checks any problem and
examines it to take action before any loss is incurred. Example: control chart.
3. Predictive/ feed forward control: This type of control helps to foresee problem
ahead of occurrence. Therefore action can be taken before such a circumstance arises.

Advantages of controlling
• Saves time and energy
• Allows managers to concentrate on important tasks. This allows better utilization of
the managerial resource.
• Helps in timely corrective action to be taken by the manager.
• Managers can delegate tasks so routinely chores can be completed by subordinates.

Supervision

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• The supervision means instructing, guiding, monitoring and observing the employees
while they are performing in the organization.
• The word supervision = super + vision where super means over and above and vision
means seeing.
• So it means seeing the activities of employees over and above.
• Supervisor plays the role of mediator and he acts as a linking pin between superior
and subordinates.

What is Supervision
• The term “supervisor” typically refers to one’s immediate superior in the workplace,
that is, the person whom you report directly to in the organization.
• For example, a middle manager’s supervisor typically would be a top manager. A first-
line manager’s supervisor would be a middle manager. A worker’s supervisor typically
would be a first-line manager.

Typical Roles in Supervision

• The job of a supervisor is a very dynamic one, depending on the culture of the
organization, complexity of the department's goals, access to sufficient resources and
expertise of the people in the department, and especially on the supervisor's ability to
successfully delegate to their direct reports. A supervisor might play different roles
even in the same day.
• Advocate- The supervisor is often responsible to represent the employee's requests
and to management, along with also representing the employee's case for deserving a
reward. For example, if an employee deserves a promotion, the supervisor often must
justify the case for promotion to the supervisor's supervisor, as well.
• Boss-There are many different names for leaders in organizations and how they are
viewed. However, the most conventional term and the most widely understood is that
of boss. The supervisor is deemed to be the boss when people in the department are
ultimately looking for direction and guidance in their jobs.
• Coach-The term coach has taken on an entirely new meaning with the recent growth
of the field of personal and professional coaching. Coaches in that field are experts at
supporting others to bring out and apply their own wisdom. Often, they pose
thoughtful questions to help that happen
• Facilitator-The job of a facilitator is to support a group of people to clarify their
desired results and achieve their results by working with each other.
The nature of how facilitators do their job ranges from rather directive advice
(especially when the group is getting started) to thoughtful questions, paraphrasing
and summarizing. Thus, with an established team, a facilitator works much like a
coach.
• Mentor-A mentor is a person who helps another (a mentee) to develop in their job
and career. The mentor may have officially accepted that role, for example, as part of
an overall mentoring program, or informally accepted the role based on a mutual
relationship. The mentee sees themselves as being able to count on the mentor for
help.
• Trainer-The supervisor is often the first person who is considered when a new
employee needs to learn the job or when an employee is struggling to improve
performance in the job. Employees also often turn to the supervisor to ask about
personnel policies. Progressive employees might ask about the organization's culture.
The supervisor is responsible to ensure that training occurs, and might do the training
themselves or arrange it through a subject matter expert.

19
Concept and meaning of leadership

Leadership as the name suggests implies one’s ability to lead. A manager has to get the work
done from his subordinates. In this process the manager has to constantly provide guidance to
the subordinates. This role of providing guidance and influencing the behavior, attitude and
willingness to work for the achievement of organizational objectives is called leadership.

Leadership is the ability to influence a group toward the achievement of a vision or set of goals.

“Leadership is the ability of a manager induces subordinates to work with confidence and zeal.”
Koontz and O’Donnel

“Leadership is the activity of influencing people to strive willingly for group objectives.”
George Terry

“Leadership is a set of interpersonal behaviors designed to influence employees to cooperate

in the achievement of objectives.” Glueck

“Leadership is the process of influencing and supporting others to work enthusiastically toward
achieving objectives.” - Barnard and Thomas

So from all above definitions we can say that leadership indicates the ability of an individual
to maintain good interpersonal relations with followers and motivate them to contribute for
achieving organisational objectives.

2. Characteristics of leadership

1. Leadership is a continuous process of behavior; it is not one-shot activity.

2. Leadership tries to bring change in the behavior of others.
3. Leadership may be seen in terms of relationship between a leader and his followers
(individuals and/or groups) which arises out of their functioning for common goals.
4. Leadership is spontaneous, i.e., voluntary and is not imposed by anyone.
5. Leadership tries to brighten and sharpen the latent capabilities of subordinates.
6. Leadership gives experience of help to followers to attain common goals. It happen
when the leader feels the importance of individuals, gives them recognition, and
conveys them about the importance of activities performed by them.
7. Leadership is exercise in a particular situation, at a given point of time, and under
specific set of circumstances

3. Difference between leadership and management

S. No. Basis Leadership Management

1. Focus Focus on people Focus on resources
2. Process Inspires trust Relies on control
3. Sources of Power Personal abilities Authority delegated
4. Approach Transformational Transactional
5. Emphasis Collectivity Individualism
6. Futurity Proactive Reactive

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Theories of leadership
A. Traditional Theories of Leadership:

a. Trait Theories of leadership: it differentiate leaders from nonleaders by focusing on

personal qualities and characteristics. They are based on the premise that leaders are ‘born,
not made’.Individuals such as Mahatma Gandhi, Margaret Thatcher, South Africa’s Nelson
Mandela are recognized as leaders and described in terms such as charismatic, enthusiastic
and courageous. Various research studies have given intelligence, attitudes , personality and
biological factors such as ingredients for effective leaders. According to Stogdill, various trait
theories have suggested these traits in a successful leader:

• Physical and constitutional factors (height, weight, physique, energy, health and
appearance)
• Intelligence
• Self-confidence
• Sociability
• Will (initiative, persistence, ambition)
• Dominance
• Surgency (talkative, cheerfulness, geniality, enthusiasm, expressiveness, alertness and
originality).

Implications of the theory

i. The theory emphasis that a leader requires some traits and qualities to be effective.

ii. Many of these qualities may be developed in individuals through training and development
programmes.

Limitations of the Theory:

i. There cannot be generalization of traits for a successful leader.

ii. No evidence has been given about the degree of the various traits because people have
various traits with different degrees.

iii. There is a problem of measuring the traits.

iv. People might be misleading in thinking that all good leaders have the core traits of the
theory.

b. Behavioral Theory: Behavioral theory of leadership emphasizes that strong leadership is

the result of effective role behavior. The most comprehensive and replicated of the behavioral
theories resulted from research that began at Ohio State University in the late 1940s. They
identified two dimensions of leader behavior i.e.

Initiating structure: refers to the extent to which a leader is likely to define and structure his
or her role and those of employees in the search for goal attainment. It includes behavior that
attempts to organize work, work relationship, and goals.

21
Consideration: is described as the extent to which a person is likely to have job relationship
that are characterized by mutual trust, respect for employee’s ideas and regards for their
feelings.

The Michigan Group also came up with two dimensions of leadership behavior:

Employee-oriented leaders: described as emphasizing interpersonal relations; they took a

personal interest in the needs of their employees and accepted individuals differences among
members.

Production-oriented leaders: emphasized the technical or task aspects of their jobs- their
main concern was in accomplishing each group’s tasks, and the group members were a means
to that end

Implications of Theory: They can shape their behavior which appears to be functional and
discard the behavior which appears to be dysfunctional.

Limitations of Theory:

i. A particular behavior may be functional at a point of time but it may be dysfunctional at

another point of time.

ii. Effectiveness of leadership behavior depends on various factors which are not in the leader
but external to him like nature of followers and the situations under the leader’s behavior
takes place.

C. Contingency Theory of Leadership: Contingency theory was developed to focus on

situational influences on leadership effectiveness suggested that under condition a, style x
would be appropriate whereas style y would be more suitable for condition b. There are two
contingencies theories:

i. Fiedler Model: The Fiedler contingency model for leadership was developed by Fred
Fiedler. This model proposes that effective group performance depends on the proper match
between leader’s style and the degree to which the situation gives control to the leader. He
has identified leadership styles on two dimensions:

• Human relations style: it is concerned with achieving good interpersonal relations

and achieving a position of personal prominence.
• Task-directed style: it is primarily concerned with the achievement of task
performance. The leader derives satisfaction out of the task performance.

Fiedler used two types of scores to measure the style adopted by a leader:

a) Least Preferred Coworker (LPC) questionnaire: rating on this was based on an

individual’s liking
or disliking of working with other individuals in the group and measured in 16 items.
b) Assumed Similarity (AS) between opposites: rating on this was based on the degree to
which
leaders perceived group members to be like themselves.

22
B. Contemporary Theories of Leadership:

a. Charismatic Leadership theory: This theory is also known as great man theory. John
[Link], Martin Kay Ash and Steve Jobs (cofounder of Apple Computer) are
individuals frequently cited as being charismatic leaders.

Abilities of charismatic leaders:

• They have a vision

• They are willing to take personal risks to achieve that vision
• They are sensitive to follower needs
• They exhibit behaviors that are out of the ordinary.

How Charismatic Leader influence Followers:

A 3-step process:

1. It begins by the leader articulating an appealing vision. The vision provides a sense of
continuity for followers by linking the present with a better future for the organization. For
example, Brijmohal Lall Munjal of Hero Honda had a clear and focused vision of what he
wanted to do in his life, career, and in business.

2. Next, the leader conveys through words and actions, a new set of values and by his or her
behavior, sets an example for followers to intimate.

3. Finally, the charismatic leader engages in emotion-inducing and often unconventional

behavior to demonstrate courage and convictions about the vision.

a. Transformational Leadership: it occurs when leader and followers engage with one
another in such a way that they raise one another to higher levels of morality and motivation.
These leaders were known for growth in their organizations, bringing about mammoth
acquisitions, diversifications, takeovers, mergers and vibrant operations. Transactional
leaders are those kinds of leaders who guide or motivate their followers in the direction of
established goals by clarifying role and task requirements.

Transactional and transformational leadership shouldn’t be viewed as opposing approaches to

getting things done. Both they complement each other. Transformational leaders encourage
their followers to be more innovative and creative. They are more effective because they
themselves are more creative, but they are also more effective because they encourage those
who follow them to be creative too

b. Authentic Leadership: the authentic leader is one who remains true to his or her values,
preferences, hopes and aspirations and acts in a way that is consistent with those values and
beliefs. The primary quality produced by authentic leadership is trust. How does authentic
leadership build trust. Authentic leaders share information, encourage open communication,
and stick to their ideals. The result: People come to have faith in authentic leaders.

23
Components of Authentic Leadership:

• Self- awareness
• Unbiased or balanced processing
• Being true to self and motivated by personal convictions

c. Shared Leadership: it is a dynamic interactive influence process among individuals in

groups in which the objective is to lead one another to their achievement of group or
organizational goals.

d. Positive Leadership: Kim Cameron has developed an approach he calls positive

leadership. It is primarily concerned with facilitating extraordinary performance, affirming
human potential and facilitating the best of the human condition.

Style of leadership

I. Approach Based Leadership Style: The supervisor motivates their subordinates in two
ways i.e. positively and negatively.

1. Positive Leadership: It leads to higher job satisfaction and work performance. Rewards
may be in the form of increase in pay, bonus, work productivity allowance, profit-sharing
ratio or in the form of better status, more recognition; promotion better working quality life
or job-enrichment.

2. Negative Leadership: Negative leaders use penalties and coercive measures to get the
desired behavior pattern. They use demotion, reduction in pay, threatening and compelling
modes to compel their subordinates to do the job which is delegated to them.

II. Authority Based Leadership Style: The supervisors in this category are classified
depending upon how much authority is retained by them Vs how much authority is delegated
to them. Following are the styles of this type of leadership:

1. Autocratic Leadership: It is also known as authoritarian leadership. In this, a person has

full authority and control over decision making. This type of leadership is applicable when
the organization is small and he has limited number of employees. Authoritarian leaders
make decisions independently with little or no input from the rest of the group.

In an autocratic work environment, the leader typically keeps a close watch on the activities
of the workers. Because one individual has complete control over an operation, there is less
of a need for layers of management or bureaucracy. The autocratic, or "do this or else," type
of leadership is intuitive, easy to learn and does not require specialized training or knowledge
of leadership theory

Advantages of Autocratic Leadership

• it provides strong motivation and reward for the leader.

• Quick decision making is guaranteed because single person decides for the whole
group.
• No need of initiative in decision making, planning or organizing.
• Possibility of strict control and supervision.

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Disadvantages of Autocratic Leadership:

• People in the organization dislike it especially when it is strict and the motivational
style is negative.

• Employees lack motivation. Frustration, low morale, and conflict develop in the
organization jeopardizing the organizational efficiency.

• There is more dependency and less individuality in the organisaiton.

2. Participative Leadership: this style is also called democratic, consultative or ideographic.

A participative manager decentralizes his decision making process. Here decisions are not
unilateral but they arise from consultation with followers and participation by them.
Subordinates feel that their ideas are honored and they are given importance. There are three
categories of participative leaders:

i. Consultative Participative: In this supervisors take opinions from the group before taking
a decision, with clear very clear understanding that he may or may not incorporate that
opinion in his final decision makings.

ii. Consensual Participative: A group discussion is held on the problems and decision is
taken after consensus of the group members.

iii. Democratic Participative: Here full authority is given to the subordinates.

3. Free-Rein Leaders: It is also called laissez-faire. In this supervisor gives free hand to the
subordinates to take their decisions. Such type of leadership gives chance for open discussion
and creativity.

Advantages of Free-rein leadership:

• It needs very little guidance and directions from supervisors.

• Gives full freedom to subordinates to take decisions.
• Offers more creative decisions.
• Group will exercise self-control.
• Problem solving on their own by subordinates.

Disadvantages of Free-rein leadership:

• It results in delay in decision-making.

• It creates miscommunication among managers and group members.
• It may lead to chaos and confusion.
• Fear of failure or wrong decisions by the group.
• Lack of feedback

4. Task Based Leadership Style: It is the style in which leader places more importance to
the task to be performed or the people performing the task. There are four combinations of
this type of style:

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i. High Relationship and Low Task: Such supervisor gives more encouragement
and support and less guidance and instructions. This style represents supportive style
of leadership.

ii. High Task and High Relationship: In this style, supervisor spends considerable
time in guiding the subordinates to complete the task. This style represents
participative leadership.

iii. Low Task and Low Relationship: Subordinates are given considerable latitude in
performing their tasks and they also get very little support, encouragement,
motivation or appreciation. This style represents a free-rein leadership style.

iv. High Task and Low Relationship: This type of leader focuses more on task
rather than on people. Strict instructions are provided by the supervisors to perform
their work.

5. People Based Leadership Style: This type of style is based on the willingness of the
employees to do the work.

i. Theory X: This assumes that employees are naturally unmotivated and dislike working,
and this encourages an authoritarian style of management.

• Employees dislike work.

• Avoidance of the work
• Ignore the responsibilities
• Little ambition

ii. Theory Y: It assumes self-directed and self-disciplined employees who love to work. They
are committed persons. They get satisfaction out of work.

• Employees love work

• Committed to their goals
• Self-directed and self –controlled persons
• Innovative support
• Accept responsibilities

Qualities of a good leader

The qualities of successful leadership are so varied that it is difficult to define them.
However, based on the conclusions from the studies of leadership research, we have tried to
enlist them under three broad heads, viz., (1) Personality Traits; (2) Knowledge and ability
(3) Skills.

(1) Personality Traits:

• Character- integrity and sincerity beget trust.

• Intelligence: A leader should be intelligent enough to tackle the situations carefully.
• Will power: A leader should have the strength to take difficult decisions, and the
moral

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courage and self-confidence to carry out the decisions whatever be the obstacles.
• Judgment: A leader should be a s shrewd judge of men and matters.
• Flexibility of mind and resourcefulness.
• Vision, clarity of purpose and imagination.
• Fellow-feeling: The true leader takes an abiding interest in his followers as
individuals with their own sentiments and aspirations.
• Faith
• Mental and physical energy- the leader must be capable of covering a wide area of
activities.
• Enthusiasm and drive
• Emotional stability
• Tact and humor; A tactless leader is a bull in a China shop. A good leader is a good
tactician. Tact is a sine qua non in human relations, in the art of dealing with people.

(2)Knowledge and Ability:

Education- A business leader should have a good educational background. He must have a
wide range of interests and aptitudes.
Technical competence: The ability to plan, organize, delegate, analyze, make decisions, the
capacity to control and co-ordinate the group efforts- all these traits of technical excellence
distinguish a competent leader.

Teaching ability: A good leader is a good teacher too. Appraisal

(3) Skills

i. Problem-solving and decision-making skill.

ii. Communication skills
iii. Human relation skills
iv. Conceptual skills
v. Social skills
vi. Administrative skills

Monitoring and Evaluation

Monitoring- The Periodic tracking (for example, daily, weekly, monthly, quarterly, annually)
of any activity’s progress by systematically gathering and analyzing data and information is
called Monitoring.

Definition- Monitoring is a process of measuring, recording, collecting, processing and

communicating information to assist project management decision making.

• In monitoring the purpose is to ascertain whether project objectives are achieved.

• This is carried out in terms of
– Whether the various tasks are carried out according to schedule
– Whether project impact is in accord with project objectives
– Whether project objectives / targets/ execution needs adjustments
• It is a management function

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• Begins with start of the project and ends with completion of the project

What to monitor

Level in
Objective What to Monitor and Evaluate
Hierarchy

Activities Have planned activities been completed on time and within budget?
What unplanned activities have been completed.

Outputs What direct tangible products or services has the project delivered as a
result of activities

What changes have occurred as a result of the outputs and to what

Outcomes extent are these likely to contribute towards the project propose and
desired impact.

Impact To what extant has the project contributed towards its longer terms
goals? Why or why not? What unanticipated positive or negative
consequences did the project have? Why did they arise?

Types of monitoring

• Process Monitoring (Real Time Monitoring)- Process monitoring is a key

component of any M&E system. Process monitoring informs management and a
donor about the actual implementation of project activities in the field
• Progress Tracking- Every project has set output targets to be achieved. One of
the key functions of any robust M&E system is to capture progress against those
output targets.

• Progress Validation- Progress validation is another important type of

monitoring. Progress of key project activities are usually reported by the field
staff.

• Performance Monitoring- Participants were explained that projects are mainly

designed and funded to achieve desired outcomes.

Misra’s Ten Principles for Monitoring (1998)

1. Monitoring must be simple. A complex or complicated monitoring system is self-defeating.

2. Monitoring must be timely. Timeliness is critical so that appropriate modifications in a project
or program can be made soon enough to increase chances for project success.
3. Monitoring must be relevant. Monitoring must match objectives, generate useful information.
4. Monitoring information should be dependable. Management will rely on monitoring findings
only if the information is believed to be reasonably accurate.

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5. Monitoring efforts should be participatory. It should include all stakeholders concerned with
extension (e.g., field-level personnel, subject-matter specialists, extension clients [farmers]).
6. Monitoring must be flexible. It is iterative in nature, and becomes routine over time.
7. Monitoring should be action-oriented. It should follow pragmatic approaches, keeping
requirements of extension’s clients uppermost in consideration.
8. Monitoring must be cost-effective.
9. Monitoring efforts should be top-management-oriented. Monitoring units should keep in mind
requirements of top management when designing and operating a monitoring system.
10. Monitoring units represent specialized undertakings. Monitoring is not merely concerned with
the collection and analysis of data, but with diagnosing problems and suggesting alternative
practical solutions.

Difference between monitoring and supervision

EVALUATION : Definitions

• ‘Evaluation’ is a derived of Latin word ‘Valere’ means strength

• From ‘Valere’ comes the word ‘Value’ meaning worth or quality of something
• Evaluation may be defined as the process or method of determining the worth or
quality of something.

EVALUATION : Types

A. Informal and Formal evaluations

Formal evaluation -have data which support the conclusions made from the test. We
usually refer to these types of tests as standardized measures.

Informal evaluation- informal evaluation are not data driven but rather content and
performance driven.

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Informal and Formal Evaluations

There are several degrees of evaluation

• Casual every day evaluation

– First impressions
– Without much consideration of principles of evaluation
– Umbrella decision
• Self-checking evaluation
– Further checking our ordinary observations
– Talking with others

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– Writing to others
– Sending brief questionnaire
• Do-it ourself evaluation
– More systematically done
– Carefully planned
– Require technical help
– Surveys which produce usable results
• Extension studies
– Complicated to plan and carryout
– Broader in scope
– Require greater attention of sound principles of evaluation
– Theses for Master’s degree
– Scientific research
– Involves very complex problems and techniques
– Long time and experimental studies - Cause and effect
– Atomic research, satellite research

B. Formative and Summative Evaluations

• Formative evaluation
– It attempts to identify and remedy shortcoming during the developmental state
of a programme.
– These are conducted before programme completion – During programme
implementation
– Provide early feedback
– Can be used to modify or adjust remaining stages of programme
• Summative evaluation
– It assess the worth of final version
– Conducted after the completion of programme
– We can assess the accomplishments and can know whether objectives are
achieved

C. On-going and Ex-post Evaluation

• On-going evaluation
– An action -oriented analysis
– To be carried out during implementation
• Ex-post evaluation
– Conducted several years after completion of investment
– To review the experience and impact
– Base for future policy formulation and project design

Advantages of Evaluation
• Helps to establish bench mark
• Shows how far our plans have progressed
• Shows whether we are proceeding in the right direction
• Indicates effectiveness of a programme
• Helps to locate strong and weak points
• Improves our skills in working with the people
• Helps to determine priorities for activities in plan of work

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• Brings confidence and satisfaction to our work

Difference between Monitoring and Evaluation

Monitoring Evaluation
Continuous – starts and ends with a One shot operation- at a point of time
programme (usually at completion or mid -way of
programme)
Required for immediate use and mid -course Used for future
correction planning/replication/expansion
Done by implementation personnel Usually by outside agency
Quick but covers all units In -depth . covers a sample
Correcting/Managing Learning process
Symptomatic , early warning system Diagnostic

TYPES OF MONITORING
Monitoring can be divided into two types, likely:

i) Beneficiary Contact Monitoring: Beneficiary Contact Monitoring is the key to

successful overall project monitoring. Physical and financial monitoring — the first main
component of a management information system - generally measures a project’s provision
and delivery of services and inputs. But project managers also need to know whether their
services are being accepted and how they are being integrated into.

Beneficiary contact monitoring is taken up:

• To maintain records for each participant (feasibility of Credit, Health,

Education, Nutrition and similar projects) and to analyze these periodically to
monitor the penetration of the service and the establishment of a clientele.
• To establish a regular schedule of surveys to enable managers to measure the
progress of a project and the responses of its beneficiaries. Formal sampling
techniques must be used to get statistically significant data from these surveys.
• To use informal interviews to alert managers to outstanding success stories or
problems.

ii) Process Monitoring: As discussed earlier, project implementation begins with

deployment of inputs/ resources to realize some specific outputs. The conversion of inputs
into outputs will involve certain methods, activities, and completion of certain events. This
happens in a sequence as below.

Process: It is the way in which activities are conducted. Processes are continuous and
cuts across activities. For example rapport building as a process is relevant to SHG
formation activities, training, etc.
Milestones: These are a series of achievements that leads to a completion of stage in
an activity (an event).
Activities: These are what we do to deliver the output. Activities always have a
beginning and an end and are associated with numbers linked to a budget.

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Output: This is what a project delivers before the close of the project.

Process monitoring is an approach that ensures that processes are steered to achieve the
desired results and that quality is maintained throughout. As long as there is a focus, not only
on the inputs and outputs, but the way in which the outputs are being delivered, and quality
indicators are devised and tracked, process monitoring would be useful and successful.

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UNIT V

Entrepreneurial Characteristics: developing managerial skills, business leadership skills

(communication, direction and motivation skills), problem solving skill; supply chain
management and total quality management

Leadership Skills

Leadership has been described as “a process of social influence in which one person can
enlist the aid and support the others in the accomplishment of a common task. Leadership
is "organizing a group of people to achieve a common goal".

The leader may or may not have any formal authority. Students of leadership have
produced theories involving –
(1) traits,[2] situational interaction, function, behaviour, power, vision and values,[3]
charisma, and intelligence, among others.
• Somebody whom people follow: somebody who guides or directs others. Eg.,
contact farmers/adarsha raithu/model farmers/Extension worker. To be an effective
leader, you need to understand and develop skills for performing various roles in
your group. several of these skills are dealt with in detail in other chapters. This
chapter explores various aspects of leadership- its theory, styles and functions

• Several community-initiated projects have come to a grinding halt owing to a lack of

leadership and other management skills. Many local leaders have the best of
intentions for solving environmental problems in their community and initiate a
project only to see it fail through poor leadership.

• Sometimes they have an outdated philosophy of management which does not sit
comfortably with volunteer members of government and non-government agencies.
Ideas about leadership have changed considerably, and the expectations of groups
and communities are changing also.

• As people become better educated they become more articulate and no longer
respond to authoritative styles of leadership in every situation. There is a need and
also a demand for community involvement in decision-making. Participative styles of
management are needed when addressing the complex problems that land and
water management groups have to solve.

• Most members of land and water management groups will need to develop these
and other leadership skills. Leaders perform various roles such as planning and
implementing, evaluating, monitoring, controlling, motivating, managing conflicts,
organizing task groups, mobilizing human and financial resources, and above all,
setting an example to the group.

1
• Leadership is sometimes viewed as headship, as in a formal position such as that of
chairperson, director, or politician. A person who lacks leadership skills may still be
appointed to such a position. In due course, this person may be replaced by new
leaders if he/she does not learn to exercise the functions of leadership in such a way
as to satisfy the needs of the group or the community. While government officers or
corporation staff are usually termed “managers”, and people elected from the
community are labelled “leaders”, both positions involve leadership and
management functions.

• Leadership has been defined as “the process of influencing the activities of an

individual or a group in efforts towards the achievement of goals in a given
situation” . The source of influence may be formal, or informal. Leaders can emerge
from within a group as well as being formally appointed.

• Although we all start with different amounts of natural talent, leadership is a learned
behaviour. The skills involved can be acquired. Leaders are not born, they are made.

• Each person is a potential leader. As in any other field of endeavour, such as cricket,
medicine or farming, natural abilities can be developed through study and practice.
Many of today’s prominent leaders in the rural community began as inexperienced
members of community groups. Give a lead in rescuing the future

Leadership Functions- Each member of a participative action group will be performing one
or more leadership functions. These functions are related to the three needs of any group
and can be categorized under the headings shown below :

• inspiring the group and the community with a well-informed vision for a
better future based on long-term sustainable use of land and water resources
• setting an example in what they say and what they do to help make that
vision a reality
• scanning various information sources to form an idea of the threats and
opportunities ahead for the group, and the strengths and weaknesses of the
group in dealing with them.
• developing a comprehensive database to assist the group in participative
decision-making coordinating the contributions of the leadership roles of
various government and non-government agencies
• initiating action
• keeping members’ attention on goals clarifying issues
• developing a procedural plan with the participation of the rest of the group
helping decide who does what, when, where and how through participative
planning methods
• motivating group and community members by both transactional methods
(i.e. by exchanging benefits) and transformational methods (i.e., by making
members aware of new priorities)

2
• mobilizing the human and financial resources necessary for projects IJ
monitoring progress
• helping solve problems and seize opportunities as they emerge.

The functions that leaders in participative action groups perform for group maintenance and
individual needs maintenance are:
• maintaining good working relationships with the other group members, and with
key individuals and organizations outside the group
• keeping interpersonal relations pleasant
• providing encouragement
• giving minorities a chance to be heard
• stimulating self-direction and self-development
• increasing the interdependency among members
• giving due recognition to people and agencies
• managing conflicts of needs and values
• following a definite program of developing leadership skills and qualities in other
group members.

The social style of leaders must be participative and group-centred. The degree and type of
leadership action must be appropriate to the situation and to the maturity of the group.

Self-leadership: Self-leadership is a process that occurs within an individual, rather than an

external act. It is an expression of who we are as people .Bases of Power-1) Why is it that we
are able to influence people ? 2)And why do some people have more power of influence
than others? Research has revealed that there are in fact five bases of this influence (3).

1. Reward Power : In some situations, people have the ability to give out money,
promotions, recognition or resources and they use this to influence others. Not everyone
can offer these material rewards, but everybody has the ability to give praise and support.

2. Coercive Power : People who have the ability to punish those who do not comply with
their wishes have coercive power. This power may be based on a formal position, as with
police, employers, or supervisors, or it can stem from the Working Together For Land Care
ability to withhold such things as custom, recognition, or service It can also be based on the
exertion of other pressures such as harassment or social censure.

3. Legitimate Power : This stems from internalized values which recognize that particular
people, because of their position, -have the legitimate right to influence others. If legitimate
power is used outside its recognized sphere, there will be a decrease in the legitimate
power of the person exercising it. In other words, leaders who abuse power will be rejected
in the long run.

4. Referent Power : This is based on the desire to identify and be closely associated with a
person or group. The “reference group” is a concept which has emerged from the
recognition of this power. Any person or group that people look up to and follow has
referent power.

3
5. Knowledge Power : Sometimes called “expert power”. this results from the perception
that a person knows more than oneself about certain things. The range of expert power is
limited to particular areas of knowledge. A sixth source of power is “people power”. By
organizing into groups. a once loosely--knit community can acquire new strength and
power. If these groups join at catchments, regional and national level, this will further
increase and extend their influence. The participative action model provides a basis for
building sustainable community groups. These sources of power are interrelated and are
found in everyone in every community, in varying degrees. The practical implication of
understanding this concept is that you can increase your or community power in any of
these areas except legitimate power, although this too may be acquired as a result of an
overall increase in power. Leaders need to recharge their power bases periodically by
gaining new knowledge and skills.

Spheres of Influences

In our society, different leaders influence different spheres of activity. Some will be opinion-
leaders on only one topic (monomorphic leaders); others will be opinion-leaders on a
variety of topics (polymorphic leaders). It is important to understand in which area/s of
knowledge an individual commands trust, respect and credibility. (An effective operational
leader uses the different kinds of opinion-leaders for their various specialized skills).

Another facet of influence is that of its geographical extent. A leader may be influential at a
district, shire, region, state, national or even international level. In other words, the
influence of a leader can be specific to a topic or to a geographic region. The group can
benefit from an understanding of the spheres of influence of various leaders and by
networking with them.

Analytical style : People with an analytical social style combine a high level of emotional
self-control with a low level of assertiveness. They tend to take a precise, deliberate,
systematic approach to their work. They gather and evaluate much data before acting.
People with this style are generally hardworking, objective and well organized. When their
strengths are over-extended, however, they can be inflexible and given to ‘nit-picking”.
Their preferred fall-back behaviour is avoidance.

Amiable style : Persons who have an amiable social style combine higher-than-average
responsiveness with a comparatively low level of assertiveness. They tend to be highly
sensitive and sympathetic to the needs of others. Their trust in other people may bring out
the best in the people with whom they mix. Extremes of this style give rise to conformist
and permissive behaviour. Amiable people fall back to an acquiescing position. Expressive
style : Persons with an expressive social style are the most flamboyant, having a high level of
assertiveness integrated with much emotional expression. They tend to look at the broad
picture and take a fresh, novel approach to problems. They are willing to take risks in order
to realize their goals. Their love of fun, use of humour and spontaneous ways often lift the
morale of their coworkers. Their ability to charm, persuade. excite and inspire people with a
vision of the future can be a strong motivating force. When unrestrained, people with this
style can be over-bearing and pursue unrealistic goals. Their back-up strategy is to attack.

4
Driver style : Persons with driver social style blend a high level of emotional self-control
with a high degree of assertiveness. They are task-oriented, know exactly what they want,
and express themselves clearly. They are competitive, willing to take calculated risks and are
valued for their ability to get things done. Drivers, when over-extended, can become
domineering and unfeeling. Their back-up strategy is autocratic.

Communication

Communication is the most vital ingredient of an organization. In fact, an organization

cannot be conceived of without communication. An organization is a group of persons
constituted to achieve certain specific objectives. The achievement of these objectives
largely depends upon a proper Co-ordination and integration of human effort in an
organization. The people working in an organization are interrelated, their activities are also
interrelated because all activities are performed only to achieve the organizational
objectives. The more effective the system of communication is, the better are the relations
between the workers, and between workers and the management

Communication was a Latin root ‘communis’ which means common – It also requires a
degree of commonness between individuals for communication to occur. The purpose of
communication is to establish commonness. Communication, thus refers to the process of
sharing information, feeling ideas in a manner that there is common understanding of
meaning, intent and use of the message.

Communication is the nervous system of an organization. It keeps the member of the

organization informed about the internal and external happenings relevant to a task and of
interest to the organization. It co-ordinates the efforts of the members towards achieving
organizational objectives. It is the process of influencing the action of a person or a group. It
is a process of meaningful interaction among human beings to initiate, execute, accomplish,
or prevent certain actions. Communication is, thus, the life blood of an organization.
Without communication, an organization is lifeless and its very existence is in danger.

Types of Communications in organization

Communication in an organization carries innumerable kinds of messages which may be

difficult to map out; but it may be possible to classify communications in regard to how to
transmit, or who communicates to whom, or what kinds of relationships communication
develops. Thus, Communication may be grouped on the following basis.

A) According to organizational structure

1. Formal communication: Such communications are those communications, which are

associated with the formal organization structure. The travel through the formal channels -
Officially recognized positions in the organization chart. They are established mainly by the
organization structure. Formal communications are mostly in black and white. We generally

5
hear the phrase ‘ through proper channel”. It explains the essence of formal channels. Such
communications include orders, instructions, decisions or intensions etc., of the superior.

2. Informal Communications: Informal Communications are also known as “ Grapevine

Communications”. They are free from all sorts of formalities, because they are based on the
informal relationship between the parties, such as friendship, membership of the same club
or association or origin from the same place. Such communication include comments,
suggestions of any other informal reaction also. They may be conveyed by a simple glance,
gesture, nod, smile or mere silence too.

B) According to Direction of Communication

Vertical Communication: Upward and downward flow of messages constitutes vertical
communication.
1) down word communication 2) Upward Communications:

Upward Communications are just reverse of the downward Communications. It flows from
the sub-ordinates to their superiors. Such communications include reactions and
suggestions from workers, their grievance etc. Contents of the upward Communication are
reports, reactions, suggestions, statements and proposals prepared for the submission to
the boss etc. Upward Communication is considered to be a main source of motivation in
employees.

Lateral / Horizontal Communication: This type of communication refers to communication

between various departments or units representing the same level, or people within the
same or different departments, without having a superior – subordinate relationship viz.,
peer groups, friends and trainees. It flows between persons at the same hierarchical level.
The main object of this type of communication is to coordinate the efforts of different
departments performing different but related activities. Such communications may be oral
or written.

Diagonal Communication: In an organization, communication does not necessarily traverse

along a stipulated path. While vertical and lateral forms for transmission of messages are
important, there is yet another mode to be taken cognizance of. That is, the diagonal. In this
type of communications, their is no direct path chalked out for information to travel. It
could, at certain stage, take on the upward path, then a lateral direction and finally, move
downward, or it could even skip certain stages.

• This channel proves to be very affective as hierarchical bindings are done away with
and communication flows irrespective of position or status. It also helps in building
relationships and binding ties between the superior and the subordinate.

c) According to expression and body language -According to way of expression, and body
language, the communication may be oral or written and Non- Verbal.

Oral or verbal communication: In oral communications both parties to the process of

communication exchange their ideas through oral words either in face-to face

6
communication or through any mechanical device such as telephone, etc. Meetings and
conferences, lectures and interviews are other media of such communications.

Written communication: They are communications on black and white. They include
written words, graphs, diagrams, pictures etc. They may take the form of circulars, notes,
manuals, reports, posters or memos etc.

Non-Verbal Communication: Non-Verbal Communication is an integral part of us and helps

in communicating effectively. The way an individual positions himself, holds his hands, tilts
his head, all transmit volumes about the individual. A receiver observes non-verbal
communication 55% of the time, which is much more than listening merely to the words
and the voice articulation. Lack of emphasis in this area is due to paucity of material and
lack of expertise.

Types of Barriers
Barriers, obstructions, and interruptions in communication may broadly be categorized into
the following groups. However, this classification does not suggest that these categories are
mutually exclusive.

External Barriers : External barriers are those caused by factors other than organizational
and personal factors. Such external barriers may be (a) Semantic barriers, (b) emotional or
psychological barriers.

Semantic Barriers: These barriers are obstructions caused in the process of receiving or
understanding a message during the process of encoding or decoding it into words and
ideas. The linguistic capacity of the two parties may have some limitations, or the symbols
used may be ambiguous. Symbols may have several meanings and, unless the context is
known to the receiver, he is likely to take the meaning of the symbol according to his
preconceived notion and misunderstand the communication.

For this purpose, a meaningful distinction should be made between inferences and facts.
Inferences are meaning taken out of the context of the communication and at times cannot
be avoided in communication process. Since inferences can give a wrong signal, one should
be aware of them and analyze them carefully. In case of any doubt, more feed back may be
sought. Symbols may be classified as language, picture, or action.

(i) Language :In written or verbal communication, words used are important. A word used in
the communication may have several meanings. In a face-to-face communication, it is easy
to seek clarification of words used, if any doubt is encountered. In case of doubt feedback is
required. Many words which we use informally may be taken literally in other contexts, non-
friendly situations, or in written communication. Thus, effective communication is idea-
centred rather than word centred. The communication may be decoded correctly by the
receiver only if the context is known to him; otherwise, it may be incorrectly interpreted.
Without context, language is just like an eyesore that irritates our senses and interferes with
our perceptions poorly chosen and incorrect words and phrases, careless omissions, lack of

7
coherence, bad organization of ideas, awkward sentence structure, inadequate vocabulary,
platitudes, numbing repetitions etc. are some of the faults found in many cases of poor
communication.
(ii) Picture : Picture is another type of symbol. Pictures are visual aids worth-thousands of
words. An organization makes extensive use of pictures like blueprints, charts, maps,
graphs, films, three-dimensional models, and other similar devices. A viewer may come to
understand the whole story when he sees them. Sometimes, a picture creates confusion in
the mind of the observer: it may be ambiguous if it is not supplemented by words or
actions.
(iii) Action: Action is another type of symbol. We communicate by both – by action or by
lack of it. To do or not to do, both have a meaning for the receiver. For example, if a
subordinate does a good job, patting and non-patting on his back by the superior, both have
a meaning. Patting may inspire him to do a better job again, and non-patting may make him
disappointed. In this sense, we communicate all the times on the job whether we intend to
do so or not. Action or non-action may influence the perception of the receiver. Action
speaks louder than words: if a person says something and does another, there is a credibility
gap. The bigger the gap, the less seriously people take him, and he will lose the confidence
of his subordinates. They will not take seriously what he says.

[Link] language is a type of action in which a message is communicated through the

movement of the whole body or a part of it. Mostly face and hands are used in body
language. Examples are eye contact, eye movement, smiles and frowns, touching a
furrowed brow, closeness, lip movement, breathing rate etc.
2. Emotional or Psychological Barriers: Personal or emotional or psychological barriers
arise from motives, attitudes, judgment, sentiments, emotions, and social values of
participants. These create a psychological distance that hinders the communication, or
partly filters it out, or causes misinterpretation, thereby making the communication
inadequate.

The following are some emotional barriers:

(i) Premature evaluation Premature evaluation is a tendency to evaluate a communication
prematurely, rather than keeping an open mind during the interchange. Such evaluation
interferes with the transfer of information and begets a sense of futility in the sender. This
barrier can be remedied by empathy and non-evaluative listening.

(ii) Loss in transmission and retention When communication passes through various levels
in a organization, successive transmissions of the same message are decreasingly accurate.
A part of information is lost in transit: it is said that about 30% of the information is lost in
each transmission. Poor retention of the information is again a malady. Research reveals
that workers retain only 50% of information, and the supervisors retain 60% of it.

(iii) Distrust of communicator The communicator is sometimes distrusted by his own

subordinates. It happens when he lacks self-confidence, or is less competent in his position.
He frequently makes ill-considered judgments or illogical decisions, and then reviews his
own decisions when he fails to implement them. Repeated experience of this kind gradually
conditions the receiver to delay action, or to act unenthusiastically, hence making the
communication ineffective, though apparently it is complete.

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(iv) Failure to communicate -Sometimes, managers do not communicate the needed
messages to their subordinates. This might be because of laziness or procrastination on
their part, or they arbitrarily assume that everybody has got the information, or they may
hide information deliberately to embarrass the subordinate.

(v) Undue reliance on the written word A written communication might fail to explain the
purpose of the order, procedure, or directive. Written communication often tells what is to
be done bur not why it should be done and, thus, it lacks persuasion. Hence, written
communication should not be relied upon very rigidly, rather it should be used as
supplementary to productive face to face relationships.

(vi) Inattention The preoccupied mind of the receiver and the resultant non-listening is one
of the major chronic psychological barriers. It is a common phenomenon that people simply
fail to react to bulletins, notices, minutes, and reports.

Organisational Barriers An organization is a deliberate creation of management for the

attainment of certain specific objectives. The day-to-day functioning of the organization is
regulated in such a way as to contribute to the attainment of these objectives in the most
effective manner. For this purpose, a variety of official measures are adopted such as
designing of the structure, arrangement of activities, formulation of various policies, rules
and regulations, and procedures, laying down of norms of behaviour, instituting a reward
and punishment system etc. All these variables markedly affect the organisation’s
functioning. As such major organizational barriers are:

1. Organisation policy -The general organizational policy regarding communication provides

overall guidelines in this matter. This policy might be in the form of a written document, or
it has to be inferred from organizational practice, particularly at the top level. If the policy
creates hindrance in the free flow of communication in different directions, communication
would not be smooth and effective.

2. Organisational Rules and Regulations

More often, different activities of an organization are governed by specific rules and
regulations, Such rules and regulations prescribe the subject-matter to be communicated as
also the channel through it is to be communicated. The rules may restrict the flow of certain
messages and may omit many important ones. An employee may give up the idea of
conveying a message to the top executive to avoid the observance of rules. The message
may be important to the organization. It may also be the case that the superior may not
allow him to convey the message. This barrier is strongly operative in Indian public sector
undertakings where observance of rules and regulations is more rigid.

3. Status Relationship -The placing of people in superior-subordinate relationship in a

formal organization structure also blocks the flow of communication and more particularly,
in the upward direction the greater the difference in hierarchical positions in terms of their
status, the greater would be the worry of middle managers about what their senior bosses
might think; this leads to their paying little attention to the needs and demands of their
subordinates. Dislike, distrust, dissatisfaction with job and work environment are other

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reasons for reluctance to tell anything to their bosses. Such obstruction may be overcome
by creating an atmosphere of trust and confidence in the organization.

4. Complexity in Organisation Structure In an organization where there are a number of

managerial levels, communication gets delayed as it moves along the hierarchical line. Also,
chances of the communication getting distorted are greater as the number of filtering
points is higher. This is particularly true in upward communication because people at
intermediate levels do not like to pass on negative remarks either of themselves or of their
superiors.

5. Organisational Facilities- Certain organizations provide certain facilities for smooth,

adequate, clear, and timely flow of communication such as meetings, conferences,
complaint or suggestion boxes, open door system etc. If these facilities are not properly
emphasized, people generally fail to communicate effectively.

Personal Barriers As communication is basically an interpersonal process, many personal

factors inherent in the two parties to communication, the sender and the receiver, influence
the flow of communication and present many hurdles in the way of effective
communication.

1. Barriers in Superiors- Superiors play an important role in communication. Because of

their hierarchical position, they act as barriers in a number of ways as follows:
i) Attitude of Superiors General attitude of the superiors about communication, or attitude
towards a particular communication, affect the flow of messages in different directions. If
the attitude is unfavorable, there is greater possibility of filtering or colouring of the
information. Any information received from the top may not reach the bottom in the same
form, or even the reverse may happen. Managers at intermediate levels may colour the
information, sometimes intentionally, with a view to twist the situation in their favour. In
some cases the superior quotes his subordinate incorrectly or may say something against
him before his boss just to spoil his career, or his chance of promotion, or his image in the
eyes of the boss.

(ii) Fear of challenge to authority The superiors in an organization generally try to withhold
the information coming down the line or going up as frequent passing of information may
disclose their own weaknesses; thus what happens generally happens when the superior
lacks self-confidence and is afraid that someone else might be promoted in his place if his
weaknesses were to come to light.

(iii) Insistence on proper channel There are channels of communication in an organization

along which information passes upward or downward. Some officers insist too much on
communication through proper channel. They do not like any bypassing in communication.
But, sometimes, by passing becomes necessary in the interest of the organization; however,
the superiors think bypassing as thwarting of their authority and block the flow of
communication.

(iv) Lack of confidence in subordinates The superiors generally perceive that their
subordinates are less competent and, they are not capable of advising their superiors.

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Therefore they feel, whether correctly or otherwise, that they are overburdened and have
no time to talk to their subordinates. (v) Ignoring communication Sometimes, the superiors
ignore a communication or a part of it, to and from their subordinates, to maintain their
importance. In some cases, information does not reach the receiver in the same form as it
was received from the sender: the superiors filter the information

2. Barriers Regarding subordinates There are certain factors with the subordinates, which
adversely affect their participation in the communication process. Some factors like
attitude, lacks of time, applicable to the superiors are also applicable here. Two more
factors with the subordinates need special attention, which are responsible for blocking
communication in the upward direction.

Unwillingness to communicate: The subordinates generally are not willing to communicate

upward any information, which is likely to affect them adversely. If they feel that supply of
such adverse information is necessary for control purposes they would modify it in such a
way so as not to harm their interest.

Lack of suitable incentive: Lack of incentives to communicate also prevents the

subordinates from communicating upward. They are punished when they are wrong but
may not be rewarded when they work marvelously well and offer a novel suggestion The
superiors assume that better performance on the part of subordinates is their duty towards
the organization or it is in their own interest. The rewards and punishment system and the
attitude of the superiors towards their subordinates are responsible for this agony. If a
novel suggestion by a subordinate does not evoke any interest in the superior he would not
convey it.

Direction:

Direction is an important element of management without which nothing in the managerial

process can achieve success. Direction is the very essence of management. Infact, it is the
sum total of all managerial efforts to see the organisation marching towards its defined
goals.

The managerial function of directing is like the activities of a teacher in a classroom. In order
to teach, a teacher has to guide his students, maintain discipline, inspire them and lead
them to the desired goal. It is a very important function in the management of any
enterprise. It helps the managers in ensuring quality performance of jobs by the employees
and achievement of organisational goals. It involves supervision, communication and
providing leadership to the subordinates and motivating them to contribute to their best of
capability. In this lesson we shall learn about this function in detail.

While managing an enterprise, managers have to get things done through people. In order
to be able to do so, they have to undertake many activities, like guide the people who work
under them, inspire and lead them to achieve common objectives. An office manager, for
instance, has to supervise the activities of his subordinates, i.e., typists, office assistants,
dispatchers, accounts clerks, etc. He has to issue instructions to them and describe and

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illustrate the work and related activities. He has to tell them what to do, and how to do it.
The office manager can plan, organise and appoint people, but he can not get things done,
unless he assigns specific duties to his subordinates and motivates them to perform well. All
these activities of a manager constitute the directing function.

Definition of Directing :

Directing is concerned with instructing, guiding, supervising and inspiring people in the
organisation to achieve its objectives. It is the process of telling people what to do and
seeing that they do it in the best possible manner. The directing function thus, involves:

• Telling people what is to be done and explaining to them how to do it.

• Issuing instructions and orders to subordinates to carry out their assignments as
scheduled.
• Supervising their activities.
• Inspiring them to meet the mangers expectation and contribute towards the
achievement of organisational objectives.

Features of Directing :

They are explained as follows :

i) Directing Initiates Action:

Other functions prepare a base or setting of action, i. e., how action has to be carried on the
directing initiate or start action. By giving directions or instructions the managers get the
work started in the organisation.

ii) Directing takes place at every level:

Directing is a pervasive function as it is performed by managers at all levels and in all

locations. Every manager has to supervise, guide, motivate and communicate with his
subordinate to get things done. However, the time spent in directing is comparatively more
at operational level of management. Directing takes place wherever superior subordinate
relation exists.

iii) Directing flows From Top to Bottom:

Directions are given by managers to their subordinates. Every manager can direct his
immediate subordinate and take directions from immediate boss. Directing starts from top
level and flows to lower level.

iv) Performance Oriented:

Directing is a performance oriented function. The main motive of directing is bringing

efficiency in performance. Directing converts plans into performance. Performance is the
essence of directing. Directing functions direct the performance of individuals towards
achievement of organisational goal.

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v) Human Element:

Directing function involves study and molding of human behaviour. It improves

interpersonal and intergroup relationship. It motivates employees to work with their best
ability.

Importance of Direction:

Plans remain mere plans unless they are put into action. In the absence of direction,
subordinates will have no idea as to what to do. They will probably not be inspired to
complete the job satisfactorily. Implementation of plans is, thus, largely the concern of
directing function. As a function of management, directing is useful in many ways. They are
as follows :

1. It guides and helps the subordinates to complete the given task properly and as per
schedule.
2. It provides the necessary motivation to subordinates to complete the work
satisfactorily and strive to do them best.
3. It helps in maintaining discipline and rewarding those who do well.
4. Directing involves supervision, which is essential to make sure that work is
performed according to the orders and instructions.
5. Different people perform different activities in the organisation. All the activities are
interrelated. In order to co-ordinate the activities carried out in different parts and
to ensure that they are performed well, directing is important. It thus, helps to
integrate the various activities and so also the individual goals with organisational
goals.
6. Directing involves leadership that essentially helps in creating appropriate work
environment and build up team spirit.

Principles of Direction :

They are explained as follows :

i) Principle of Maximum Individual Contribution: According to this principle, management

should adopt that directing policy through which the employees get motivated and give
their maximum individual contribution for the achievement of organisational objective.

ii) Principle of Harmony of Objectives: According to this principle, there must be full
coordination between organisational and individual objectives. Employees work in an
organisation with an objective to get better remuneration, promotion, etc. On the other
hand, organisational goal can be to earn more profits and to increase market share.

Sometimes it is seen that there is a conflict between the objectives of both the parties, e.g.,
organisation wants that it should get a major share of profit whereas employees perceives
that as they work directly on the job, so more profit must be shared among them in the

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form of bonus. Management here must establish coordination between the objectives of
both the parties/factors by adopting suitable method of direction.

iii) Principle of Unity of Command: According to this principle, a subordinate should get
directions from one officer at a time. If the subordinate gets directions from more than one
officer, the subordinate will be unable to priorities his work. As a result, situation of
confusion, conflict and disarrangement is created. By following this principle, effective
direction takes place.

iv) Principle of Appropriateness of Direction Technique: According to this principle,

appropriate direction techniques should be used, e.g., to supervise effectively, to provide
able leadership, to adopt free communication and to motivate through right medium.

v) Principle of Managerial Communication: According to this principle, it should be

monitored by the management that the subordinates get the same meaning for what has
been said. This simplifies the job of the subordinates and they need not go to the managers
repeatedly for enquiring.

vi) Principle of Use of Informal Organisation: According to this principle, there must be a
free flow of information between the seniors and the subordinates. The success of direction
depends upon effective exchange of information to a great extent. Information should be
given both through formal and informal mediums. Special attention should be given to the
informal organisation. This strengthens the formal organisation.

vii) Principle of Leadership: According to this principle, while giving directions to the
subordinates a good leadership must be provided by the managers. By this, subordinates
get influenced by the managers. In this situation, subordinates act according to the wish of
the managers.

vii) Principle of Follow Through: According to this principle, it must be monitored by

management as to what extent the policies framed and issued directions have been
enforced. Thus, it must be seen whether the employees are following the management or
not.

If yes, then to what extent. As per this principle, the job of managers is not to sit idle after
framing policies or issuing directions but to continuously take feedback. The advantage of
this will be that if there is any problem in implementing a policy or a direction it can be
removed then and there.

Motivation

Creating Proper Motivational Climate

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If you are a manager, concerned with motivating your employees, how do you apply
theories of motivation and the strategy you may adopt are distilled on the following
suggestions-

1. Recognise Individual Differences- Almost every contemporary motivation theory

recognizes that employees are not homogenous. People have different needs. They also
differ in terms of attitudes, personalities, and other important individual variables.

2. Match People to Jobs- There is abundant evidence to support the idea that motivation
benefits accrue from carefully matching people to jobs. High achievers should not be put
into a job that is inconsistent with his or her needs. At the same time, it should be kept in
mind that not everybody will be motivated by jobs with increased autonomy, variety and
responsibility.

3. Use Goals-The goal setting literature gives us considerable confidence in suggesting that
managers should ensure that employees have hard and specific goals, as well as feedback
on how well they are doing in pursuit of these goals. The manager can use assigned goals or
participatory depending upon its practice or your perception of goal acceptance.

• Ensure that goals are perceived as attainable.

• Managers must be sure that employees feel confident that their effort can lead to
performance goals.
• Individualize Rewards Managers should use their knowledge of individual
differences to individualize the rewards over which they have control.
• Link reward to performance : Managers need to make rewards contingent on
performance. Managers should initiate actions that will make rewards more visible
and potentially more motivating.
• Check the system for Equity Rewards or outcomes should be perceived by an
employee as equaling the inputs they give.
• Don’t Ignore Money: It is easy to get so caught up in settling goals or providing
opportunities for participation that one can forget that money is a major reason why
must people work, “Money still serves as a best motivator”.
• Create conditions where workers energies are not expanded totally in meeting their
basic needs.
• Create a climate for inter dependent work rather than dependency. An effective
manager encourages people to work independently or in a team, interdependently.
He only provides guidance when needed and by that he also helps them satisfy their
social needs of belonging affection and security.
• Create a competitive climate through recognition of good work
• Create a productive climate through personal example.
• Create a climate of approach and problem solving rather than avoidance.
• Motivate individually through guidance and counselling.

Motivation at Different Levels:

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At the top you will be dealing with people — senior people and therefore, people issues will
fill your day and success or failure will be your leadership area. So how do you motivate
your senior managers? This is the level at which, ‘inspirational “as opposed to ‘mechanical’
leadership has a very definite part to play. Whether you are successful in that, and thus in
motivating your senior managers, will depend very largely upon how you have prepared
yourself for the top position and the attributes you have acquired in the process.

• communicate continuously to all points of the compass

• listen
• avoid needless confrontation
• recognize and deal with stress in yourself and others
• pick winners
• enthuse people — what is called ‘charisma’
• make people laugh (but only if you can do it naturally)

In the Middle

The role of the senior managers is to guide middle managers in translating business policies
and directives into acceptable and feasible work commitments, objectives and targets. The
senior managers should clarify the following with middle managers —their
• duties and responsibilities
• objectives and targets
• performance levels, i.e. standards of quality, quantity, cost and completion dates
• resource level — manpower, machines and money
• levels of authority and accountability
• relationships with other middle managers ‘working groups
• scope for personal action, and when to call for help The middle manager will repeat
the senior manager’s actions with individual first line managers by agreeing their
objectives and targets and preparing break up actions, plans and work programmes.

The senior manager will

• leave the middle manager the maximum scope for getting on with the work
unhindered but will be readily available for consultation and guidance.
• encourage the middle manager to delegate and devolve to the full, learning when to
check and when to trust
• equip the middle manager with efficient means of monitoring work flow which
detect early signs of developing trouble which can be nipped in the bud, i.e.
‘exception reporting’.
• encourage middle managers to be decisive, developing their own management style
• discourage ‘perfectionism’ which escalates costs and stresses subordinates
• only judge mistakes often all the facts are established, giving constructive criticism
and remedial guidance in strict privacy.
• after judgment consider mistakes as closed chapters, except for avoiding repetitions
• do a periodic review with each middle manager making a ‘stock take’ of the
adequacy of resources and support system

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• let middle managers know exactly how they stand
• each the principle of creative thinking and problem solving much earlier than the
problem can find ‘the middle manager
• give credit publicity when credit is due

At the Frontline
• ‘Motivation at the front line’ — quite a difficult subject but a vital issue
• Motivating at frontline can be aided if they are treated as people: even though it is
an incredibly rotten job, it is essential that they realise just how important their role
is in the operation as a whole, and for the supervisor to gain their respect.
• To create a good working atmosphere, and get the wash-up area working as a team
• Genuinely show politeness and respect that person’s intelligence who is doing
worthwhile job.
• Showing concern and interest in their problems and difficulties, but still firm and
putting them under pressures; e.g. deadlines and time limits, can bean extreme
effective motivator

How to Motivate Your Subordinates Action checklist (some ideas)

* Exercise Leadership
# provide vision and direction
# understand your job and those of subordinates
# adjust the support you give to the skills and needs of subordinates
# establish a climate of fairness

* Understand the psychological contracts Understand of your people

# Know what their expectations are dfds=know what their expectations are
# take steps to help them meet them take steps to help them meet them
# think about ways of designing their jobs to create a better fit with expectations
* Establish two — way Communication # listen as well as tell
# share ideas and thoughts to encourage two-way communication
# create a climate in which people feel free to communicate

* Treat people with respect

# recognize effort
# never undermine their dignity
# courteous
# be aware of individual differences

* Give people the chance to develop

# allow personal growth
# be willing to delegate
# provide opportunities for training
# be willing to enrich jobs
# but be aware that each person is an individual and what you do must match his/her

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Intrinsic Versus Extrinsic Motivation

The Qualitative result of people’s activities would be extremely high if they were primarily
motivated by the interest, enjoyment, satisfaction and challenge of the endeavour itself.
This is what psychologists refer to as Intrinsic motivation’.

Conversely, if they are applying themselves to a task due to any ‘extrinsic Motivation” in
that they perceive the possibility of achieving other goals through accomplishment of a task
— like the satisfaction of physiological, safety, belongingness or recognition needs — the
quality of performance can be expected to be of a relatively inferior level.

Research data has supported the conclusion that intrinsic motivation leads to relatively
superior performance as against extrinsic motivation. Moreover, it has been demonstrated
that the introduction of extrinsic motivation negatively affects the level of intrinsic
motivation previously present.

The Pygmalion Effect or The Self Fulfilling Prophecy

• The essence of the Pygmalion effect lies with the fact that the expectation of a result
most often leads to that result actually being achieved. The research findings had
proved the following :

1. What Managers expect of their subordinates and the way they treat them largely
determine their performance and career progress.

2. A unique characteristic of superior managers is their ability to create high

performance expectations that subordinates can fulfil

3. Less effective managers fail to develop similar expectations and as a consequence, the
productivity of their subordinates suffers;

4. Subordinates, more often than not, appear to do what they believe is expected of
them; and

5. The highest output is achieved by job holders whose expect — and insist upon — high
performance (come on, have it in you to do better than that supervisors I know you

Knowledge of the Pygmalion effect has existed for some years now, inviting managers to
first correct their attitudes and beliefs about others and then worry about what else needs
to be done to ensure great performance from them.

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TOTAL QUALITY MANAGEMENT

Introduction

• Total - made up of the whole

• Quality - degree of excellence a product or service provides
• Management - act, art or manner of planning, controlling, directing,.... Therefore,
TQM is the art of managing the whole to achieve excellence.

The concept of TQM

• Produce quality work the first time.

• Focus on the customer.
• Have a strategic approach to improvement.
• Improve continuously.
• Encourage mutual respect and teamwork.

Various Definitions

• Total quality management (TQM) has been defined as an integrated organizational

effort designed to improve quality at every level.

The process to produce a perfect product by a series of measures require an

organized effort by the entire company to prevent or eliminate errors at every stage
in production is called total quality management.

• According to international organization for standards defined TQM as, “TQM is a

management approach for an organization, centered on quality, based on the
participation of all its members and aiming at long-term success through customer
satisfaction and benefits to all members of the organization and to the society.

Characteristics of TQM

• Committed management.
• Adopting and communicating management.
• Closer customer relations.
• Closer provider relations.
• Benchmarking.
• Increased training.
• Open organization
• Employee empowerment.
• Flexible production.
• Process improvements.
• Process measuring

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The three aspects of TQM

Counting -Tools, techniques, and training in their use for analysing, understanding, and
solving quality problems

Customers -Quality for the customer as a driving force and central concern.

Culture-Shared values and beliefs, expressed by leaders, that define and support quality.

Principles of tqm

1. Produce quality work the first time and every time.

2. Focus on the customer.
3. Have a strategic approach to improvement.
4. Improve continuously.
5. Encourage mutual respect and teamwork

The key elements of the TQM

• Focus on the customer.

• Employee involvement
• Continuous improvement

Focus on the customer

It is important to identify the organization’s customers.

• External customers consume the organization’s product or service.

• Internal customers are employees who receive the output of other employees.

Employee Involvement

• Since the quality is considered the job of all employees, employees should be
involved in quality initiatives.
• Front line employees are likely to have the closest contact with external customers
and thus can make the most valuable contribution to quality.
• Therefore, employees must have the authority to innovate and improve quality.

Continuous improvement

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CONTINUOUS IMPROVEMENT

• The quest for quality is a never-ending process in which people are continuously
working to improve the performance, speed and number of features of the product
or service.
• Continuous improvement means that small, incremental improvement that occurs
on a regular basis will eventually add up to vast improvement in quality.
• TQM is the management process used to make continuous improvements to all
functions.
• TQM represents an ongoing, continuous commitment to improvement.
• The foundation of total quality is a management philosophy that supports meeting
customer requirements through continuous improvement.

Continuous Process Improvement.

• View all work as process – production and business.

• Process – purchasing, design, invoicing, etc.
• Inputs – process – outputs.
• Process improvement – increased customer satisfaction.
• Improvement – 5 ways:
o reduce resources,
o reduce errors,
o meet expectations of downstream customers,
o make process safer,
o make process more satisfying to the person doing

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The TQM System

BENEFITS OF TQM:

• Improved quality.
• Employee participation.
• Team work.
• Working relationships.
• Customer satisfaction.
• Employee satisfaction.
• Productivity.
• Communication.
• Profitability.
• Market share.

Advantages of TQM

• Improves reputation- faults and problems are spotted and sorted quicker.
• Higher employee morale- workers motivated by extra responsibility ,team work and
involvement indecisions of TQM
• Lower cost.
• Decrease waste as fewer defective products and no need for separate.

Disadvantages of TQM

• Initial introduction cost.

• Benefits may not be seen for several years.
• Workers may be resistant to change.

Benefits of TOTAL QUALITY MANAGEMENT

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• Financial benefits include lower costs, higher returns on sales and investment, and
the ability to charge higher rather than competitive prices.
• Improved access to global markets, higher customer retention levels, less
• Time required to develop new innovations, and a reputation as a quality firm.

• Total quality management (tqm) is one such approach that seeks to improve quality
and Performance which will meet or exceed customer expectations.

TOTAL QUALITY MANAGEMENT

• SEVEN BASIC QUALITY TOOLS

Introduction

• Quality tools are more specific - tools which can be applied to solving problems in
improving quality in organizations, manufacturing, or even in individual processes.
• They were first emphasized by Kaoru Ishikawa, professor of engineering at Tokyo
University and the father of “quality circles “

SEVEN BASIC QUALITY TOOLS

• A histogram is a bar graph that shows frequency data.

• Histograms provide the easiest way to evaluate the distribution of data

PARETO CHART - The Pareto Chart is a histogram ordered by the frequency of result
occurrences, showing how many results were generated by the type or category of the
identified cause.

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• The relative position of the occurrences is used to guide corrective actions.
• The corrective actions must initially focus on the problems that are causing the
majority of defects.

CAUSE AND EFFECT DIAGRAM-

• It shows how several causes relate themselves to problems or potential effects.

• Also known as Ishikawa Diagram or Fishbone Diagram.

FLOW CHARTING -

• A flowchart is any chart that depicts how several elements interact with each other
• Here are a few flowcharting techniques that are usually used in quality management
• Cause and Effect Diagram
• Systems or Process Flowcharts

CONTROL CHARTS

• Control charts present the results of a process over time.

• They are used to determine if the process is under control
• They are used to monitor any type of variable output.
• Can be used to monitor
• Cost and schedule variances;
• Volume and frequency of changes;
• Errors in the project documentation

CHECKLIST

• It is a list with previously defined options that are used as a guide to control risks.
• It allows a thorough evaluation in a short period of time

SCATTER DIAGRAMS

Scatter Diagrams are used to study and identify the possible relationship between the
changes observed in two different sets of variables.

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Supply Chain Management

Supply chain management (SCM) represents the management of the entire set of
production, manufacturing/transformations, distribution and marketing activities which a
consumer is supplied with a desired product. The practice of SCM encompasses the
disciplines of economics; marketing, logistics and organizational behaviour to study how
supply chains are organized and how institutional arrangements influence industry
efficiency, competitions and profitability.

Supply Chain Management – An overview

SCM provides a means to conceptualize management of the changes required in the system
to efficiently respond to consumer needs, based on integration and coordination of the
efforts of all the business units involved in the production and delivery processes. Managing
supply chains requires an integral approach in which chain partners jointly plan and control
the flow of goods, information, technology and capital from 'farm to fork', meaning from
the suppliers of raw materials to the final consumers and vice versa.

Managing supply chains requires an integral approach in which chain partners jointly plan
and control the flow of goods, information, technology and capital from 'farm to fork',
meaning from the suppliers of raw materials to the final consumers and vice versa. Supply

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chain management results in lower transaction costs and increased margins. Because of the
many activities and aspects involved it demands a multidisciplinary approach and
sustainable trade relations. Supply chain partnerships are based on interdependence, trust,
open communication and mutual benefits. Interest in supply-chain management (SCM) in
the agribusiness sector emerged as recently in the 1990s, but has grown rapidly as a result
of a number of internal and external pressures, and is now a key area of research and
commercial activity in the sector.

The advantages of the supply chain management approach are numerous. Some important
advantages are:
• Reduction of product losses in transportation and storage.
• Dissemination of technology, advanced techniques,
• Capital and knowledge among the chain partners.
• Better information about the flow of products, markets and technologies.
• Transparency, Tracking & tracing to the source.
• Better control of product safety and quality.
• Large investments and risks are shared among partners in the chain.

Stages of Supply chain

In general, supply chain may involve a variety of stages.

The supply chain stages include;
o Customers o Retailers
o Wholesalers/Distributors
o Manufacturers
o Component / Raw material suppliers

Figure 1: Supply chain of Detergent

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Figure 1. represents the detergent supply chain starting from Raw materials (timber
company, paper manufacturer, Packaging company, Chemical supplier, plastic producer),
Manufacturer (P&G, HUL), Whole saler (More/ Big bazaar), Retailer(Kannan departmental
store/ More) and finally customer.

Process view of a supply chain A supply chain is a sequence of processes and flows that
take place within and between different stages and combine to fill a customer need for a
product. There are two different ways to view the processes performed in a supply chain.

1. Cycle view : The processes in a supply chain are divided into a series of cycles, each
performed at the interface between two successive stages of a supply chain.

2. Push/pull view : The processes in a supply chain are divided into two categories
depending on whether they are executed in response to a customer order or in anticipation
of customer orders. Pull processes are initiated by a customer order whereas push
processes are initiated and performed in anticipation of customer orders.

Cycle view of supply chain processes All supply chain processes can be broken down into
the following four process cycles.

• Customer order cycle

• Replenishment cycle
• Manufacturing cycle
• Procurement cycle

Customer Order Cycle The customer order cycle occurs at the customer / retailer interface
and includes all processes directly involved in receiving and filling the customer’s order.
Typically, the customer initiates this cycle at a retailer site and the cycle primarily involves
filling customer demand. The retailer’s interaction with the customer starts when the
customer arrives or contact is initiated and ends when the customer receive the order.

• Customer arrival
• Customer order entry
• Customer order fulfilment
• Customer order receiving

Replenishment Cycle

The Replenishment cycle occurs at the retailer/distributor interface and includes all
processes involved in replenishing retailer inventory. It is initiated when a retailer places an
order to replenish inventories to meet future demand. A replenishment cycle may be
triggered at a supermarket that is running out of stock of detergent or at a mail order firm

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that is low on stick of a particular shirt. The replenishment cycle is similar to the customer
order cycle except that the retailer is now the customer. The objective of the replenishment
cycle is to replenish inventories at the retailer at minimum cost while providing high product
availability. The processes involved in the replenishment cycle
• Retail order trigger
• Retail order entry
• Retail order fulfilment
• Retail order receiving

Manufacturing Cycle
The manufacturing cycle typically occurs at the distributor/manufacturer (or
retailer/manufacturer) interface and includes all processes involved in replenishing
distributor (or retailer) inventory. In this case the manufacturing cycle is anticipating
customer demand (referred to as a push process). The processes involved in the
manufacturing cycle include the following.
• Order arrival from the finished-goods warehouse, distributor, retailer, or customer
• Production scheduling
• Manufacturing and shipping
• Receiving at the distributor, retailer, or customer

Procurement Cycle

The procurement cycle occurs at the manufacturer/supplier interface and includes all
processes necessary to ensure that materials are available for manufacturing to occur
according to schedule. During the procurement cycle, the manufacturer order components
from suppliers that replenish the component inventories.

Push / Pull View of Supply Chain Processes

Pull processes, execution is initiated in response to a customer order. With push processes,
execution is initiated in anticipation of customer orders. Therefore, at the time of execution
of a pull process, customer demand is known with certainty whereas at the time of
execution of a push process, demand is not known and must be forecast. Pull processes may
also be referred to as reactive processes because they react to customer demand. Push
processes may also be referred to as speculative processes because they respond to
speculated (or forecasted) rather than actual demand. For example in Dell (build-to-order
computer manufacturer), the beginning of PC assembly represents the push/pull boundary.
All processes before PC assembly are push processes and all processes after and including
assembly are initiated in response to a customer order and are thus pull processes.
Whereas, in [Link], a mail order company that receives customer orders through its
telemarketing center or Website. It executes all processes in the customer order cycle after
the customer arrives. All processes that are part of the customer order cycle are thus pull

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processes. One clear distinction between the two supply chains discussed earlier is that the
Dell supply chain has fewer stages and more pull processes than the [Link] supply chain.

Drivers of Supply Chain Performance

Four key drivers of supply chain performance are facilities, inventory, transportation and
information. These drivers not only determine the supply chain’s performance in terms of
responsiveness and efficiency, but also determine whether strategic fit is achieved across
the supply chain.

Inventory Inventory is nothing but raw materials, work in process and finished goods within
a supply chain. Inventory is an important supply chain driver and it is one of the factors that
decide the supply chain’s efficiency and responsiveness.

Transportation Transportation entails moving inventory from one point to another point in
the supply chain. Transportation choices have a large impact on supply chain responsiveness
and efficiency.

Facility These are locations where raw materials, finished goods are stored or fabricated
and distributed. The two major types of facilities are production sites and storage sites.
Whatever the function of the facility, decisions regarding location, capacity and flexibility of
facilities have a significant impact on the supply chain’s performance.

Information consists of data and analysis concerning facilities, inventory, transportation,

and customers throughout the supply chain. Information is potentially the biggest driver of
performance in the supply chain as it directly affects each of the other drivers

Distribution in the supply chain Management

Distribution refers to the steps taken to move and store a product from the supplier stage to
the customer stage in the supply chain. Distribution occurs between every pair of stages in
the supply chain. Distribution is a key driver of the overall profitability of a firm because it
directly impacts both the supply chain cost and the customer experience. Distribution
related costs form about 10.5 percent of the U.S. economy and about 20 percent of the cost
of manufacturing. For commodity products, distribution forms an even higher fraction of
the product cost. In India, the outbound distribution cost of cement is about 30 percent of
the cost of production and selling cement. Wal-Mart and 7-Eleven Japan, have built the
success of their entire business around outstanding distribution design and operation. In the
case of Wal-Mart distribution allows them to provide good availability or relatively common
products at very low cost. In the case of 7-Eleven distribution allows them to provide a very
high level of customer responsiveness at a reasonable cost.

Factors influencing distribution network design

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• Customer needs
• Cost of meeting customer needs
• Response time: It is the time between when a customer places an order and receives
delivery
. • Product variety: It is the number of different products/configurations that a customer
desires from the distribution network.
• Product availability: Availability is the probability of having a product in stock when a
customer order arrives
• Customer experience: It is purely experiential aspects like customer satisfaction and
customer delight.
• Order visibility: It is the ability of the customer to track their order from placement to
delivery
• Return ability: It is the ease with which a customer can return unsatisfactory merchandise
and the ability of the network to handle such returns.

Forecasting in Supply Chain

The forecast of demand forms the basis for all strategic and planning decisions in a supply
chain. Throughout the supply chain, all push processes are performed in anticipation of
customer demand whereas all pull processes are performed in response to customer
demand. For push processes, a manager must plan the level of production. For pull
processes, a manager must plan the level of available capacity and inventory. In both
instances, the first step a manager must take is to forecast what customer demand will be.

Following are the forecasting of critical factors to be considered for Different departments
in the company

• Production : Scheduling, inventory control, aggregate planning, purchasing,

• Quality Marketing : Sales-force allocation Test market, Target market, market
segmenting
• Finance : Plant/machinery investment, budgetary planning,
• Personnel : Workforce planning, hiring, layoffs. Retrenchment, Redeployment
• Mature products with stable demand are usually easiest to forecast. Eg, milk or
paper.
• Forecasting is difficult during either supply of raw materials or the demand for the
finished product is highly variable. Eg: fashion goods and many high-tech products.

Good forecasting is very important in these cases because the time window for sales is
narrow and if a firm has over or under produced, it has little chance to recover. For a
product with a long life cycle, in contrast, the impact of a forecasting error is less significant.

Characteristics of Forecasting

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1. Forecasts are always wrong and should thus include both the expected value of the
forecast and a measure of forecast error. To understand the importance of forecast error,
consider two car dealers. One of them expects sales to range between 100 and 1900
whereas the other expects sales to range between 900 and 1,100. Even though both dealers
anticipate average sales of 1,000 the sourcing policies for each dealer should be very
different given the difference in forecast accuracy.
2. Long-term forecasts are usually less accurate than short-term forecasts; that is long-term
forecasts have a larger standard deviation of error relative to the mean than short-term
forecasts. For example, if a store manager places an order by 10 AM., the order is delivered
by 7 PM on the same day. The manger thus has to forecast what will sell that night less than
twelve hours before the actual sale. The forecast in this case is likely to be more accurate
than if the store manager had to forecast demand one week in advance.

3. Aggregate forecasts are usually more accurate than disaggregate forecasts as they tend to
have a smaller standard deviation of error relative to the mean. For example, it is easy to
forecast the Gross Domestic Product (GDP) of the United States for a given year with less
than a 2 percent error. However, it is much more difficult to forecast yearly revenue for a
company with less than a 2 percent error, and it is even harder to forecast revenue for a
given product with the same degree of accuracy.

The key difference between the three forecasts is the degree of aggregation. The GDP is an
aggregation across many companies and the earnings of a company are an aggregation
across several product lines. The greater the degree of aggregation, the more accurate the
forecast.

Forecasting Methods

Forecasting methods are classified according to the following four types

Qualitative : Qualitative forecasting methods are primarily subjective and rely on human
judgement. They are most appropriate when there is little historical data available or when
experts have market intelligence that is critical in making the forecast.

Time Series: Time series forecasting methods use historical demand to make a forecast.
They are based on the assumption that past demand history is a good indicator of future
demand.
Casual : Casual forecasting methods assume that the demand forecast is highly correlated
with certain factor in the environment (e.g., the state of the economy, interest rates, etc.).
For example, product pricing is strongly correlated with demand.
Simulation : Simulation forecasting methods imitate the consumer choices that give rise to
demand to arrive at a forecast.

A company must be knowledgeable about numerous factors that are be related to the
demand forecast.
• Past demand

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• Lead time of product
• Planned advertising or marketing efforts
• Economic factors
• Price discounts
• Competitors

Purchasing & Inventory Management

Purchasing is also known as procurement, is the process by which companies acquire raw
materials, components, products, services and other resources from suppliers to execute
their operations. According to Alford and Beary “Purchasing is the procuring of materials,
supplies, machine tools and services required for the equipment, maintenance and
operation of a manufacturing plant”. Sourcing is the entire set of business processes
required to purchase goods and services. Sourcing processes include the selection of
suppliers, design of supplier contracts, product design collaboration, procurement of
material, and evaluation of supplier performance.

Objectives of purchasing

• To procure needed material at a competitive price of the right quality, quantity and at
right time.
• Regular and continuous supply
• To suggest better substitute
• To assist in fixing probable price and delivery
• Create goodwill-dealing with supplier
• To render assistance in standardization, make or buy decisions

Purchase Parameters

Eight Rights (8R's) of purchasing

1. Right quality Methods of providing specification are –brand or trade name, commercial
standard, performance standard, blue print, samples etc.

2. Right quantity It is influenced by replenishment methods and buying methods. Buying

methods
• Hand to mouth
• Scheduled buying
• Forward buying
• Contract buying

3. Right price
• It minimize the overall cost
• To arrive at the right price the following techniques are employed : Negotiation is used
Tender system Learning curve

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4. Right time
Right time implies that time at which the goods requested should be received while lead
time refers to the time between the communication of the need for an item to be
purchased by the indentor till the item is actually received and is made available for
consumption.

5. Right source Right source aspect involves decision as to:

• The kind of items to be purchased directly from the manufacturers
• From which dealers
• From which open market
• Also requires the analysis of transportation costs and distance incurred

6. Right place of delivery

• Items have to be supplied directly to the consuming units, which may be located at far
distance from the headquarters.
• The place of delivery should be clearly mentioned in the supply order.
7. Right procedure

• Right procedure to be adopted and developed for the pre-purchase, ordering and post
purchase systems.

8. Right contract
• It is legal document that binds the selling company with the buying company.

• Various terms and conditions about insurance, sales tax, excise, customs, breach of
contract, settlement of dispute etc

Types of purchasing

I) Contract purchasing All purchases are made under contracts, usually formal of needed
material, frequently spread over a period of time. Ex: Purchasing clocks, air conditioner, and
computer.
Characteristics
• Contract for future requirement
• Cycle time may be a week, fortnight, or a month
• The buying department usually takes sufficient time to secure competitive bids and
negotiation on other term of contract.

ii) Kardex system This system is widely used by the purchase officers and following
information can be obtained from it.
• What should be purchased?
• From whom purchase should be made?
• At what rate?
• When the material to be delivered?
• Has it been delivered?
• Whether payment has been made?

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• For each item of purchase, a separate card is maintained to keep record of a
purchase order till receipt of material. When requisitioner sends an indent it is
entered in the card along with the details of enquiry and quotations and last date of
receipt, etc. When the order is placed, then details of the purchase order are
recorded in another card, such as:
a. Order Number
b. Date
c. Quantity
d. Rate accepted
e. Delivery period
f. The name of the supplier
This above information is very useful, if a repeat order is required to be placed.

II) Blanket orders It refers to the purchase of variety of items from a single source, usually a
middle man. Ex ; Hard ware, electrical supplies, stationery, small cutting tools etc.

III) Tender purchasing Types of tender a. Single tender b. Closed tender c. Open tender d.
Global tender

IV) Seasonal purchasing Buying of the annual requirements of an item during its season Ex :
Fruits like orange, apple, and mango

V) Sub-contracting It is the work placed with outside supplier to manufacturer a particular

item as per the specification of the main contractor for economic reasons or to augment the
existing manufacturing facilities. Sub contracting will play major role during ¾ Big order time
¾ Company concentrates on certain items and buys the rest from out side ¾ Get certain
operations like electro plating, heat treatment, rough blanking etc.

VI) Group purchasing This refers to buying of items of trial value in a single purchase order •
Minimum & maximum levels are fixed for each item • Stocks will be reviewed periodically •
Items are classified into few basic groups and these groups are dependent on the source of
purchase.

VII) Purchasing by Requirements Purchases are made whenever a need arises and that too
only the quantity required is purchased. This method is suitable for made to order jobs
goods used infrequently, etc.

VIII) E-Purchasing The Internet is a valuable tool for marketing and selling to customers
across town or around the world. It also provides an abundance of buying and cost saving
opportunities. According to a recent survey of professional purchasers by Purchasing Online
magazine, the web offers a wide range of significant purchasing benefits.

Auction Hubs

Different types of auctions are

• Commodity auctions (oil, natural gas, electricity),
• Independent auctions (first-run and surplus manufacturing goods), and

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• Private auctions (geared toward re-sellers and dealers, rather than end users).

Examples E-Bay at [Link], [Link]

Advantages
• Achieve a dramatically higher level of procurement efficiency and cost savings
• Shift employees' focus from paperwork to productivity -Realize your goal of a completely
paperless purchasing environment
• Use information more efficiently by integrating enhanced transaction data with our
existing system
• Mitigate risk by setting detailed purchasing parameters for individual buyers
• Maximize vendor contracts and gain from economies of scale
• Achieve faster cycle times throughout the organization

Inventory Management
A lot or batch size is the quantity that a stage of the supply chain either produces or
purchases at a given time. Consider, for example, a computer store that sells an average of
for printers a day. The store manager, however, orders 80 printers from the manufacturer
each time he places an order. The lot or batch size in this case is 80 printers. Given daily
sales of four printers, it takes an average of twenty days before the store sells the entire lot
and purchases a replenishment lot. The computer store holds an inventory of printers
because the manager purchased a lot size larger than the store’s daily sales.

Cycle inventory is the average inventory in the supply chain due to either production or
purchases in lot size that are larger than those demanded by the customer.

Cycle inventory is primarily held to take advantage of economies of scale and reduce cost
within the supply chain. Increasing the lot size or cycle inventory often decreases the cost
incurred by different stages of a supply chain. To understand how the supply chain achieves
these economies of scale, we must first identify supply chain costs that are influenced by
the lot size.

Supplier scoring and assessment

When comparing suppliers, many firms make the fundamental mistake of focusing only on
the quoted price, ignoring the fact that suppliers may differ on other important dimensions
that impact the total cost of using a supplier.
The following factors other than quoted price considered are:

• Replenishment lead time

• On-time performance
• Supply flexibility
• Delivery frequency / minimum lot size
• Supply quality
• Inbound transportation cost
• Pricing terms
• Design collaboration capability

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• Exchange rates, taxes and duties
• Supplier viability
Supplier selection and contracts Supplier selection should be based on total cost of using a
supplier and not just the purchase price. Before selecting suppliers, a firm must decide
whether it will use single sourcing or will have multiple suppliers from which to source the
product. Single sourcing is used to guarantee the supplier sufficient business when the
supplier has to make a significant buyer-specific investment.

The buyer-specific investment can take the form of plant and equipment designed to
produce a part that is specific to the buyer or could take the form of expertise that needs to
be developed.

Single sourcing is also used in the automotive industry for parts such as seats that must
arrive in the sequence of production. Coordinating such sequencing would be impossible
with multiple sources.

Contracts for Product Availability and Supply Chain Profits

Many shortcomings in supply chain performance occur because the buyer and supplier are
two different entities, each trying to optimize their own profits. Actions taken by the two
parties in the supply chain thus result in profits that are lower than what could be achieved
if the supply chain were to coordinate its actions with a
common objective of maximizing supply chain profits.

Three contracts that increase overall profits by making the supplier share some of the
buyer’s demand uncertainty are as follows:
1. Buyback or return contracts
2. Revenue-sharing contracts
3. Quantity flexibility contracts

Buyback Contracts A buyback or return clause in a contract allows a retailer to return

unsold inventory up to a specified amount, at an agreed upon price. For example, the
supplier to the music store may agree to buy back discs that have not sold at $3 per disc.
This lowers the loss to the retailer for each unsold disc form $5 to $2. The supplier absorbs
the $3 per unsold disc as a reduction in margin. The presence of the buyback clause makes it
optimal for the retailer to order more discs, resulting in higher product availability and
higher profit for both the retailer and the supplier.

Buyback contracts are most effective for products with a low variable cost. materials,
supplies, machine tools and services required for the equipment, maintenanceand
operation of a manufacturing plant”.

Warehouse Management
1 Storage
Storage is an important marketing function, involves holding & preserving goods
from the time they are produced until they are needed for consumption. therefore,

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storage add the time utility to products.

Traditional storage methods

• Kothi or Mud pots – Unburnt clay mixture with straw and cow dung
• Kuthla – Mud brick, straw and cow dung
• Thekka – Rectangular made up of gunny or cotton wound around wooden
support
• Metal drums – Iron sheets
• Gunny bags

2 Warehouse
A warehouse is a commercial building or premises designed and built for the
purpose of bulk storage of raw materials or finished or partly finished goods which can
be used in future. First commercial warehouse was started in Venice, USA in 1928. In
India, first warehouse was setup in the year 1956 at Bihar

Warehousing Infrastructure Empowering the Agriculture Sector -Warehouses must be

designed to accommodate the loads of the materials to be stored, the associated handling
equipment, the receiving and shipping operations and associated trucking, and the needs of
the operating personnel. India is witnessing a spurt in warehousing infrastructure with the
archaic supply chain management facilities going for a makeover and capacity addition.
There is an element of dynamism and the online commodity futures market is hastening the
change.

Need of Warehousing Infrastructure

• Storage of food grains, fresh vegetables and fruits, meat, seafood and other food stuffs
from the farmers to the retailers.
• Moving forward to the macro level, better storage will provide more food security by
meting the unseasonal demand, avoiding the import of food grains and other items.
• To preserve, to store and to protect the commodities
• Avoid pests and dusts
• By producing Warehouse receipts loans can be taken

Types of Warehousing Different types of agricultural commodities need different storage

facilities. While some need to maintain an optimum temperature and moisture, others may
need to be kept free from insect and pest attacks and so on. The types of warehousing are
as follows (Archarya and Agarwal, 2001)

Based on ownership
• Private : Owned by private parties
• Public: Owned by the government, eg. CWC and SWC
• Bonded: Licensed by the government and is constructed nearby airports/seaports.
It accepts imported goods till the payment/custom clearance is done by the importer

Based on the type of commodities stored

• General : It is an ordinary warehouse to store general items, e.g. food grains

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• Special commodities warehousing : It is made to store specific commodities, e.g., Tobacco,
Cotton, Wool, etc.
• Refrigerators: It stores perishable commodities, where the temperature is maintained
between 30-50 degrees or even less.

Cold Storage-“Cold storage warehouse” shall mean any place artificially cooled to or below
a temperature above zero of 45 degrees Fahrenheit in which articles of food are placed and
held for thirty days or more
• First cold storage warehouse established in New York in 1865 for fish
• In India cold storage order was passed in 1964.
In India the first cold storage was established in 1892 at Calcutta

Criteria for Good Warehousing

Following are the different criteria for good warehousing:

• Maximum utilization of space
• Freeze and chilled environment (Preferably)
• Sophisticated handling equipment
• Light-colored roofs and energy-efficient operational equipments
• Wide distribution network and access to nearby roads, ports and railways.
• Safety measures for hazardous material.

Agencies Involved In India,

the Central Warehousing Corporations (CWC), State Warehousing Corporations (SWC) and
Food Corporation of India (FCI) are involved in storing the major agri-commodities.

The private parties like ITC, Cash and Carry are coming up in this sector. The government is
also encouraging the private parties to participate in this process.

Transportation Transportation refers to the move movement of product from one location
to another as it makes its way from the beginning of a supply chain to the customer’s hands.
Transportation plays a key role in every supply chain because products are rarely produced
and consumed in the same location. With the growth in e-commerce and the associated
home delivery of products, transportation costs have become even more significant in
retailing

Factors affecting transportation decisions

There are two key players in any transportation that takes place within a supply chain.
• The shipper is the party that requires the movement of the product between two points in
the supply chain.

• The carrier is the party that moves or transports the product. For example, when Maruti
car(MUL) uses ABT parcel service to ship its cars from the factory to the customer, Maruti
car (MUL) is the shipper and ABT parcel service is the carrier.

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Factors affecting carrier decisions

1. Vehicle related cost

2. Fixed operating cost
3. Trip-related cost
4. Quantity-related cost
5. Overhead cost

Factors affecting shippers’ decisions

1. Transportation cost
2. Inventory cost
3. Facility cost
4. Processing cost
5. Service level cost

7.6.2 Modes of transportation and their performance characteristics

Supply chains use a combination of the following modes of tra nsportation :

o Air
o Package carriers
o Truck
o Rail
o Water
o Pipeline
o Intermodal

Design options for a transportation network

Direct Shipping Network With this option, the retail chain structures, its transportation
network to have all shipments come directly from suppliers to retails stores. With a direct
shipment network, the routing of each shipment is specified and the supply chain manager
only needs to decide on the quantity to ship and the mode of transportation to use. The
major advantage of a direct shipment transportation network is the elimination of
intermediate warehouses and its simplicity of operation and coordination.

Direct Shipping with Milk Runs A milk run is a route in which a truck either delivers product
from a single supplier to multiple retailers or goes from multiple suppliers to a single
retailers. Direct shipping provides the benefit of eliminating intermediate warehouses,
whereas milk runs lower transportation cost by consolidating shipments to multiple stores
on a single truck. For example, Toyota uses milk runs form suppliers to support its just in
time manufacturing system in both Japan and the United States. In Japan, Toyota has many
assembly plants located close together and thus uses milk runs from a single supplier to
many plants. In the United States, however, Toyota uses milk runs from many suppliers to
its assembly plants.

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Bullwhip effect- Supply chain coordination improves if all stages of the chain take actions
that together increase total supply chain profits. Supply chain coordination requires each
stage of the supply chain to take into account the impact its actions have on other stages. A
lack of coordination occurs either because different stages of the supply chain have
objectives that conflict or because information moving between stages gets delayed and
distorted.

Different stages of a supply chain may have objectives that conflict if each stage has a
different owner. Many firms have observed the bullwhip effect in which fluctuations in
orders increase as they move up the supply chain from retailers to wholesalers to
manufacturers to suppliers. The bullwhip effect distorts demand information within the
supply chain, with different stages having a very different estimate of what demand looks
like. The result is a loss of supply chain coordination.

Procter & Gamble (P&G) has observed the bullwhip effect in the supply chain for Pampers
diapers. The company found that raw material orders form P&G to its suppliers fluctuated
significantly over time. Further down the chain, when sales at retail stores were studied, it
was found that the fluctuations, while present, were small. It is reasonable to assume that
the consumers of diapers (babies) at the last stage of the supply chain used them at a
steady rate. Although consumption of the end product was stable, orders for raw material
were highly variable, increasing costs and making it difficult for supply to match demand.
The bullwhip effect reduces the profitability of a supply chain by making it more expensive
to provide a given level of product availability.

E- Supply Chain Management - All processes within its supply chain can be categorized into
three main areas: processes focused downstream, processes focused internally and
processes focused upstream.

We use this classification to define the three macro supply chain processes as follows:
1. Customer Relationship Management (CRM): Processes that focus on downstream
interactions between the enterprise and its customers.
2. Internal Supply Chain Management (ISCM): Processes that focus on internal operations
within the enterprise. Note that the software industry commonly calls this “supply chain
management” (without the word “internal”) even though the focus is entirely within the
enterprise. In our definition, supply chain management includes all three macro processes
CRM, ISCM and SRM.

3. Supplier Relationship Management (SRM): Processes that focus on upstream interactions

between the enterprise and its suppliers. We must also note that there is a fourth important
software building block that provides the foundation upon which the macro processes rest.

We call this category the transaction management foundation (TMF), which includes basic
ERP systems (and its components such as financials and human resources), infrastructure
software, and integration software. TMF software is necessary for the three-macro
processes to function and to communicate with each other.

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Agri supply Chain Management -India stands second in Fruit production after Brazil and
also second in vegetables production after China. With increase in per capita income and
changing food habits the demand for fruits and vegetables will increase in the future. Tamil
Nadu with its varied agro climatic regions produces different kinds of fruits and vegetables
in large quantities. Around 4.6 million tonnes of fruits and 4.8 million tonnes of vegetables
are produced in Tamil Nadu. Post harvest losses and volatile prices

The post harvest loss in fruits and vegetables is estimated to be around 35-40 per cent of
the production. Infrastructure facilities for post harvest handling like precooling,
refrigerated transport, grading, packing, cold storage etc. are not adequate and results in
considerable post harvest losses in horticultural produces.

Tamil Nadu Horticulture Development Mission set up in 2003 aims at providing adequate
infrastructure for post-harvest management and marketing. Due to inadequate linkages
with markets and lack of processing facilities, farmers do not get good price for fruits and
vegetables. Presence of large number of intermediaries and absence of linkages lead to loss
of value both for farmers and consumers. The farmer’s share in consumer rupee varies from
40-60 per cent in the case of vegetables. Further the degree of perishability, variety and
quality, and various market imperfections, market infrastructure etc also influence the
marketing costs and price levels of fruits and vegetables.

This indicates the need for effective and efficient supply chain management arrangement.
Price volatility is a major cause for concern for the farmers. Cold storage facilities were
created as a means to overcome some of these problems encountered by the farmers.

Traceability in Food and Agribusiness- The term 'traceability’ has become so widely used in
recent times in various industries that it is timely to examine the concept, particularly in
relation to agriculture and food. Agricultural traceability simply refers to the collection,
documentation, maintenance, and application of information related to all processes in the
supply chain in a manner that provides guarantee to the consumer and other stakeholders
on the origin, location and life history of a product as well as assisting in crises management
in the event of a safety and quality breach.

With respect to a food product, traceability represents the ability to identify the farm where
it was grown and sources of input materials, as well as the ability to conduct full backward
and forward tracking to determine the specific location and life history in the supply chain
by means of records. It contributes to the demonstration of the transparency of the supply
chain through the use of verifiable records and labeling.

Traceability adds value to the overall quality management system by providing the
communication linkage for identifying, verifying and isolating sources of noncompliance to
agreed standards and customer expectations.

Issues in supply chain management

The first issue in supply chain management is the relationship between members of the
chain. This issue is informed by a substantial business and management literature on

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strategic alliances, but by relatively little literature on the process in relation to agriculture
and agribusiness.

Relationship issues to be considered include:

• Sharing long term development goals and seasonal business planning,
• the relationships between operational staff within the businesses on issues such as timing
, amount, ripeness and temperature of deliveries,
• the development of shared quality and safety standards and how they will be measured
and monitored;
the information systems to track product and standards.
The relationship may include shared access to inventory control systems and to sales
performance data.

At the farmer level a key preliminary step is often the development of relationships
between individual farmers to create a trading entity with capacity to supply sufficient
quantity and continuity to be a credible supply chain member. This may be championed by a
farmer, by another member of the chain, or by an external facilitator or manager.

Hence the technical and professional issues in supporting the operation of supply chains
may include facilitating:
• the development of relationships between farmers to allow their participation
• the development of relationships between members of the supply chain
• information flows between members of the supply chain
• establishing common standards between members of the supply chain
• optimising performance within each level of the supply chain and in the linkage processes.

Promotion activities needed in Agri-Chain Development

• Public private partnership in needed.
• Investing in transportation, communication and electricity.
• Subsidies or co-financing supply for high -risk investments.
• Ensure the availability of (production, price, industry) information and statistics to
facilitate market activity and to monitor market progress.

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Reading Material

Unit VI

Roadmap for business start-up: project planning formulation and report preparation;
financing of enterprise, opportunities for agri entrepreneurship and rural enterprise.

Meaning of Project

The very foundation of an enterprise is the project. Hence, the success or failure of an
enterprise largely depends upon the project. In simple words, a project is an idea or plan
that is intended to be carried out. The dictionary meaning of a project is that it is a scheme,
design, a proposal of something intended or devised to be achieved.

Definitions of ‘Project’
Newman [Link]. define that “a project typically has a distinct mission that it is designed to

achieve and a clear termination point, the achievement of the mission”.

Gillinger defines project “as the whole complex of activities involved in using resources to
gain benefits”.

Now, a project can be defined as a scientifically evolved work plan devised to achieve a
specific objective within a specified period of time. Here, it is also important to mention that
while projects can differ in their size, nature, objectives, time duration and complexity, yet
they partake of the following three basic attributes

1. A Course of Action
2. Specific Objectives and
3. Define Time Perspective
4. Every project has a starting point, an end point with specific objectives.

Project can also be defined as a single use plan to achieve a certain objective of introducing
something unique or a change and ensure that progress is maintained in line with the
objective, generally in terms of time, cost, and various technical and quality performance
parameters.

Following are the important aspects of a project:

• Starting date
• Specific goals and conditions
• Defined responsibilities
• Budget

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• Planning
• Fixed end date
• Parties involved

Project Characteristics

The various characteristics of the project are

• Fixed set of objectives: The project starts when the objective(s) is finalized. The
project comes to an end as soon as the objectives are attained.
• Tenure: Project is never a continuous activity, it has to come to an end. Its life
span is fixed.
• Team work: It needs a team to accomplish various activities.
• Unique: All projects are unique in themselves, no two projects are exactly
similar.
• Life cycle: Like all living organisms, project starts slowly (definition phase), then
starts building up in size (planning phase), then reaches peak (implementation
phase) before finally getting terminated.
• Made to order: The customer always decides the objective and informs the
constraints like time and cost.

Classifications of project

Project classification is a natural corollary to the study of project idea. Different authorities
have classified projects differently. Following are the major classifications of projects

1. Quantifiable and Non-Quantifiable Projects

Project for which a plausible quantitative assessment of benefits can be made are called
„quantifiable projects‟. Projects concerned with industrial development, power generation,
mineral development fall in this category. On the contrary, non-quantifiable project are
those in which a plausible quantitative assessment cannot be made. Projects involving
health education and defense are the examples of non-quantifiable projects.

2. Sectorial Projects
According to this classification, a project may fall in any one of the following sectors

i. Agriculture and Allied Sector

ii. Irrigation and Power Sector
iii. Industry and Mining Sector
iv. Transport and Communication Sector
v. Social Services Sector
vi. Miscellaneous Sector

The project classification based on economic sectors is found useful in resource allocation
more especially at macro levels.

3. Techno-Economic Projects

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Projects classification based on techno-economic characteristics fall in this category. This
type of classification includes factors intensity-oriented classification, causation-oriented
classification and magnitude-oriented classification.

These are discussed as follows

i. Factor Intensity-Oriented Classification: Based on factor intensity classification,

projects may be classified as capital intensive or labour intensive. If large investment
is made in plant and machinery, the projects will be termed as „capital intensive‟.
On the contrary, projects involving large number of human resources will be termed
as„labour intensive‟.

ii. Causation-Oriented Classification: Where causation is used as a basis of

classification, projects may be classified as demand based or raw material based
projects. The very existence of demand for certain goods or services makes the
project demand-based and the availability of certain raw material, skills or other
inputs makes the project raw material-based.

iii. Magnitude-Oriented Classification: In case of magnitude-oriented classification, based

on the size of investment involved in the projects, the projects are classified into large scale,
medium-scale and small-scale projects.

Project classification based on techno-economic characteristics is found useful in facilitating

the process of feasibility appraisal of the project.

Selection of Project

The fact remains that in spite of increasing literature on entrepreneurship development,

comparatively little is known about how an entrepreneur identifies and selects a project.
Hence, it is somewhat difficult to state in any categorical manner as to how an intending
entrepreneur should proceed to select his/her project. As a matter of fact, project selection
is not a nebulous idea. It is a well outlined game pain. There is a definite procedure of
selecting a project. Basically, project selection consists of two main steps:

1. Project Identification
2. Project Selection

1. Project Identification

If you ask any one intending entrepreneur what project he/she will select, the obvious
answer would be “a project having a good market”. But, the question is how without
knowing the product could one determine the market? Whose market will one find out
without knowing item, i.e. product? Idea generation about a few projects provides a way
out of above tangle.

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Idea Generation

Project selection process starts with the generation of a product idea. In order to select the
most promising project, the entrepreneur needs to generate a few ideas about the possible
projects he/she can undertake. The project ideas can be discovered from various internal
and external sources. These may include:

i. Knowledge of potential customer needs.

ii. Watching emerging trends in demands for certain products.
iii. Scope for producing substitute product.
iv. Going through certain professional magazines catering to specific interests like
electronics, computers, etc.
v. Success stories of known entrepreneurs or friends or relatives.
vi. Making visits to trade fairs and exhibitions displaying new products and services.
vii. Meeting with the Government agencies.
viii. Ideas given by the knowledge persons.
ix. Knowledge about the Government policy, concession and incentives, list of items
reserved for exclusive manufacture in small-scale sector, and
x. A new product introduced by the competitor.

All of these sources putting together may give a few ideas about the possible projects to be
among which the project must be selected. This is also described as „opportunity scanning
and identification‟. After going through the above process, imagine that you have been able
to get five project ideas as a result of above analysis. These five projects ideas are:

1. Nut and bolt manufacturing (industry)

2. Lakhani Shoes (industry)
3. Photocopying unit (service-based industry)
4. Electro-type writer servicing (service-based industry)
5. Polythene bags and for textile industry (ancillary industry)

From above list, now one project idea will be finally selected going through the following
selection process.

2. Project Selection

Project selection starts from where project identification ends. After having some project
ideas, these are analyzed in the light of existing economic conditions, the government policy
and so on. A tool generally used for this purpose is, what is called in the managerial jargon,
SWOT analysis. The intending entrepreneur analyses his/ her strengths and weaknesses as
well as opportunities/competitive advantages and threats/challenges offered by each of the
project ideas. On the basis of this analysis, the most suitable idea is finally selected to
convert it into an enterprise. The process involved in selecting a project out of some
projects is also described as the “zeroing in process”.

What follows form above analysis is that there is a time interval involved in between project
identification and project selection. But, it some cases, there may be almost no time gap

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between any two. An imaginary case can illustrate it.

Fig. 1 : Model of Project Identification and Selection (PIS) Process

The ABC of a business plan:

i. What is a business plan

ii. Why a business plan
iii. Who reads the business plan
iv. How to prepare a business plan
v. What is expected from the investor/lender Different types of business plans
vi. Format and organization of a business plan Planning period
vii. Content and structure of a business plan

Why a Business Plan? Not everyone who starts and runs a business begins with a business
plan, but it certainly helps to have one. If you are seeking funds from a venture capitalist,
you will certainly need a comprehensive business plan that is well thought out and contains
sound business reasoning.

The best way to show bankers, venture capitalists, and angel investors that you are worthy
of financial support is to show them a great business plan. Make sure that your plan is clear,
focused and realistic. Then show them that you have the tools, talent and team to make it
happen.

Your business plan is like your calling card, it will get you in the door where you’ll have to
convince investors and loan officers that you can put your plan into action. Once you have
raised the money to start or expand your business, your plan will serve as a road map for
your business. It is not a static document that you write once and put away. You will refer it

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often, making sure you stay focused and on track, and meet milestones. It will change and
develop as your business evolves

Reasons for writing a business plan include

• Support a loan application

• Raise equity funding
• Define and fix objectives and programs to achieve those objectives
• Create regular business review and course correction
• Define a new business
• Define agreements between partners
• Set a value on a business for sale or legal purposes
• Evaluate a new product line, promotion, or expansion

What makes a successful business plan?

• A well thought out idea
• Clear and concise writing
• A clear and logical structure
• Illustrates management’s ability to make the business a success
• Shows profitability

A business plan

is a comprehensive, written description of the business of an enterprise. It is a detailed

report on a company's products or services, production techniques, markets and clients,
marketing strategy, human resources, organization, requirements in respect of
infrastructure and supplies. It covers objectives, strategies, sales, marketing and financial
forecasts.

A business plan has many functions, from securing external funding, to measuring success
within your business, so preparing a business plan is an important step when starting a
business. A business plan is a living document that will help you monitor your performance.
It will need updating. and changing as your business grows. Whether you use it in-house or
for external finance, it should still take an objective and honest look at your business. Failing
to do this could mean that you and others have unrealistic expectations of what can be
achieved and when.

What a business plan should include:

• how you are going to develop your business

• when you are going to do it
• who's going to play a part
• how you will manage the finances

It's important to be clear about these areas in your business plan if you're looking for
finance, funding or investment. The process of building your plan will also focus your mind

6
on how your new business will need to operate to give it the best chance of success.
Your plan should also include:

• An executive summary - An overview of the business you want to start. It's vital. Many
lenders and investors make judgments about your business based on this section of the plan
alone.

• A short description of the business opportunity - Who you are, what you plan to sell or
offer, why and to whom.

• Your marketing and sales strategy - Why you think people will buy what you want to sell
and how you plan to sell to them.

• Your management team and personnel - Your credentials and the people you plan to
recruit to work with you.

• Your operations - Your premises, production facilities, your management information

systems and IT.

• Financial forecasts - This section translates everything you have said in the previous
sections into numbers.

In addition to these sections, a business plan should also have a cover, title page and table
of contents. Length of the business plan Depending on what you’re using it for, a useful
business plan can be any length, from a few pages to, in the case of an especially detailed
plan describing a complex enterprise, more than 100 pages. A typical business plan runs 15
to 20 pages, but there’s room for wide variation from that norm. Much will depend on the
nature of your business. If you have a simple concept, you may be able to express it in very
few words. On the other hand, if you’re proposing a new kind of business or even a new
industry, it may require quite a bit of explanation to get the message across. The purpose of
your plan also determines its length. If you want to use your plan to seek millions in seed
capital to start a risky venture, you may have to do a lot of explaining and convincing. If
you’re just going to use your plan or internal purposes to manage an ongoing business, a
much more abbreviated version should be fine.

Updating your Business Plan: a checklist

Here are seven reasons to think about updating your business plan. If even just one applies
to you, it’s time for an update.
1. A new financial period is about to begin. You may update your plan annually, quarterly or
even monthly if your industry is a fast changing one.
2. You need financing, or additional financing. Lenders and other financiers need an
updated plan to help them make financing decisions.
3. There’s been a significant market change. Shifting client tastes, consolidation trends
among customers and altered regulatory climates can trigger a need for plan updates.

7
4. Your firm develops or is about to develop a new product, technology, service or skill. If
your business has changed a lot since you wrote your plan the first time around, it’s time for
an update.
5. You have had a change in management, new managers should get fresh information
about your business and your goals.
6. Your company has crossed a threshold, such as moving out of your home office, crossing
the Rs 1 million sales mark or increasing the manpower.
7. Your old plan doesn’t seem to reflect reality any more.

May be you did a poor job last time; may be things have just changed faster than you
expected. But if your plan seems irrelevant, redo it. Business plans tend to have a lot of
elements in common, like cash flow projections and marketing plans. And many of them
share certain objectives as well, such as raising money or persuading a partner to join the
firm. But business plans are not all the same any more than all businesses are.

Depending on your business and what you intend to use your plan for, you may need a very
different type of business plan from another entrepreneur. Plans differ widely in their
length, their appearance, the detail of their contents, and the varying emphasis they place
on different aspects of the business. The reason that plan selection is so important is that it
has a powerful effect on the overall impact of your plan. You want your plan to present you
and your business in the best, most accurate light. That’s true no matter what you intend to
use your plan for, whether it’s destined for presentation at a venture capital conference, or
will never leave your own office or be seen outside internal strategy sessions

Types of Plans

Business plans can be divided roughly into four separate types.

Miniplan. A miniplan may consist of one to 10 pages and should include at least cursory
attention to such key matters as business concept, financing needs, marketing plan and
financial statements, especially cash flow, income projection and balance sheet. It’s a great
way to quickly test a business concept or measure the interest of a potential partner or
minor investor. It can also serve as a valuable prelude to a full-length plan later on. Miniplan
is not intended to substitute for a full-length plan. Do not send a miniplan to an investor
who’s looking for a comprehensive one.

The Working Plan: A working plan is a tool to be used to operate your business. It has to be
long on detail but may be short on presentation. As with a miniplan, you can probably
afford a somewhat higher degree of candor and informality when preparing a working plan

A plan intended strictly for internal use may also omit some elements that would be
important in one aimed at someone outside the firm. You probably don’t need to include an
appendix with resumes of key executives, for example. Nor would a working plan especially
benefit from, say, product photos. Internal consistency of facts and figures is just as crucial
with a working plan as with one aimed at outsiders. You don’t have to be as careful,
however, about such things as typos in the text, perfectly conforming to business style,
being consistent with date formats and so on.

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Presentation Plan: If you take a working plan, with its low stress on cosmetics and
impression, and twist the knob to boost the amount of attention paid to its looks, you’ll
wind up with a presentation plan. This plan is suitable for showing to bankers, investors and
others outside the company.

Essentials
• Almost all the information in a presentation plan is going to be the same as that of a
working plan, although it may be styled somewhat differently. For instance, one should use
standard business vocabulary, omitting the informal jargon, slang and shorthand that’s so
useful in the workplace and is appropriate in a working plan. Remember, these readers
won’t be familiar with your operation. Unlike the working plan, this plan isn’t being used as
a reminder but as an introduction.
• Among investors’ requirements for due diligence is information on all competitive threats
and risks. Even if you mention some of only peripheral significance, you need to address
these concerns by providing the information.
• The big difference between presentation and working plans is in the details of appearance
and polish. A working plan may be run off on the office printer and stapled together at one
corner. A presentation plan should be printed by a high quality printer, probably using color.
It must be bound expertly into a booklet that is durable and easy to read. It should include
graphics such as charts, graphs, tables and illustrations.
• It’s essential that a presentation plan be accurate and internally consistent. A mistake here
could be construed as a misrepresentation by an unsympathetic outsider.

Meaning of Project Report

A project report is like a road map. It is an operating document. Project report or business
plan is a written statement of what the entrepreneur proposes to take up. It is a kind of
guide frost or course of action what the entrepreneur hopes to achieve in his business and
how is he going to achieve it.

Formulation of a Project Report

Normally, small-scale enterprises do not include sophisticated technique which is used for
preparing project reports to large-scale enterprise. Within the small-scale enterprises too,
all the information may not be homogeneous for all units. In fact, what and how much
information will be given in the project report depends upon the size of the unit as well as
nature of the production. A general set of information given in any project report is listed by
Vinod Gupta in his study on “Formulation of a Project Report”. Project formulation divides
the process of project development into seven distinct and sequential stages. These stages
are

1. General Information
2. Project Description
3. Market Potential

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4. Capital Costs and Sources of Finance
5. Assessment of Working Capital Requirements
6. Economic and Social Variables
7. Project Implementation
8. The nature of information to be collected under each one of these stages has been
given below

1. General Information
The information of general nature given in the project report includes the following:

a. Bio-data of Promoter: Name and address of entrepreneur; the qualifications, experience

and other capabilities of the entrepreneur; if these are partners; state these characteristics
of all the partners individually.

b. Industry Profile: A reference of analysis of industry to which the project belongs, e.g., past
performance, present status, its organization, its problems etc.

c. Constitution and Organization: The constitution and organizational structures of the

enterprise, in case of partnership firm, its registration with the Registrar of Firms,
application for getting Registration Certificate from the Directorate of Industries/District
Industry Centre.

d. Product Details: Product utility, product range, product design, advantages to be offered
by the product over its substitutes, if any.

2. Project Description

A brief description of the project covering the following aspects is given in the project
report.

a. Site: Location of enterprise, owned or leasehold land, industrial area, No objection

Certificate from the Municipal Authorities if he enterprise location falls in the residential
area.

b. Physical Infrastructure: Availability of the following items of infrastructure should be

mentioned in the project report.

c. Raw Material: Requirement of raw material, whether inland or imported, sources of raw
material supply.

d. Skilled Labour: Availability of skilled labour in the area, arrangements for training
labourers in various skills.

e. Utilities: These include

1. Power: Requirement of power, load sanctioned, availability of power.

2. Fuel: Requirement for fuel items such as coal, coke, oil or gas, state of their availability.
3. Water: The sources and quality of water should be clearly stated in the project report.

10
f. Pollution Control-The aspects like scope of dumps, sewage system and sewage
treatment plant should be clearly stated in case of industries producing emissions.
[Link] System-Availability of communication facilities, e.g., telephone, telex etc.
should be stated in the project report.
h. Transport Facilities-Requirements for transport, mode of transport, potential means of
transport, distances to be covered, bottlenecks etc., should be stated in the business plan.
i. Other Common Facilities-Availability of common facilities like machine shops, welding
shops and electrical repair shops etc. should be stated in the report.
j. Production Process-A mention should be made for process involved in production and
period of conversion from raw material into finished goods.
k. Machinery and Equipment-A complete list of items of machinery and equipments
required indicating their size, type, cost and sources of their supply should be enclosed with
the project report.
[Link] of the Plant-The installed licensed capacity of the plant along with the shifts
should also be mentioned in the project report.

m. Technology Selected-The selection of technology, arrangements made for acquiring it

should be mentioned in the business plan.

n. Research and Development-A mention should be made in the project report regarding
proposed research and development activities to be undertaken in future.

3. Market Potential
While preparing a project report, the following aspects relating to market potential of the
product should be stated in the report

a. Demand and Supply Position-State the total expected demand for the product and
present supply position. This should also be mentioned how much of the gap will be
filled up by the proposed unit.

b. Expected Price-An expected price of the product to be realized should be mentioned

in the project report.

c. Marketing Strategy-Arrangements made for selling the product should be clearly

stated in the project report.

d. After Sales Service-Depending upon the nature of the product, provisions made for
after-sales service should normally be stated in the project report.

4. Capital Costs and Sources of Finance

An estimate of the various components of capital items like land and buildings, plant and
machinery, installation costs, preliminary expenses, margin for working‟ capital should be
given in the project report. The present probable sources of finance should also be stated in
the project report. The sources should indicate the owner‟s funds together with funds
raised from financial institutions and banks.

5. Assessment of Working Capital

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The requirement for working capital and its sources of supply should be carefully and clearly
mentioned in the project report. It is always better to prepare working capital requirements
in the prescribed formats designed by limits of requirement. It will minimize objections from
the banker‟s side.

6. Economic and Social Variables

In view of the social responsibility of business, the abatement costs, i.e., the costs for
controlling the environmental damage should be stated in the project. Arrangements made
for treating the effluents and emissions should also be mentioned in the report.

Besides, the socio-economic benefits expected to accrue from the project should also be
stated in the report itself. Following are the examples of socio-economic benefits

a. Employment Generation
b. Import Substitution
c. Ancillarisation
d. Exports
[Link] Resource Utilization
f. Development of the Area

7. Project Implementation

Every entrepreneur should draw an implementation scheme or a time table for his project
to implementation project cost overrun. Delay in project implementation jeopardizes the
financial viability of the project, on one hand and props up the entrepreneur to drop the
idea to set up an enterprise, on the other. Hence there is need to draw up an
implementation schedule for the project and then to adhere to it.

Guidelines of Planning Commission’s for Formulating Project Report

In order to process investment proposal and arrive at investment decisions, the Planning
Commissions of India has also issued some guidelines for preparing/formulating realistic
industrial projects. So far as feasibility report is concerned, it lies in between the project
formulating stage and the appraisal and sanction stage. The project formulation stage
involves the identification of investment options by the enterprise and in consultation with
the Administrative Ministry, the Planning Commission and other concerned authorities.
Realizing the usefulness of these guidelines, we now are presenting these guidelines in a
summarized manner.

1. General Information: The feasibility report should include an analysis of the industry to
which the project belongs. It should deal with the past performance of the industry. The
description of the type of industry should also be given, i.e., the priority of the industry,
increase in production, role of the public sector, allocation of investment of funds, choice of
technique, etc. This should also contain information about the enterprise submitting the
feasibility report.

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2. Preliminary Analysis of Alternatives: This should contain present data on the gap
between demand and supply for the outputs which are to be produced, data on the capacity
that would be available from the projects that are in production or under implementation at
the time the report is prepared, a complete list of all existing plants in the industry, giving
their capacity and level of production actually attained, a list of all projects for which letters
of intents/licenses have been issued and a list of proposed projects. All options that are
technically feasible should be considered at this preliminary stage. The location of the
project as well as its implications should also be looked into. An account of the foreign
exchange requirements should also be taken. The profitability of different options should
also be given. The rate of return on investment should be calculated and presented in the
report. Alternative cost calculations vis-à-vis return should be presented.

3. Project Description: The feasibility should provide a brief description of the

technology/process chosen for the project. Information relevant to determining optimality
of the locations chosen should also be included. To assist in the assessment of the
environmental effects of a project, every feasibility report must present the information on
specific points, i.e., population, water, air, land, flora and fauna, effects arising out of
project‟s pollution, other environmental discretions etc. The report should contain a list of
the operational requirements of the plant, requirements of water and power, requirements
of personnel, organizational structure envisaged, transport costs, activity-wise phasing of
construction and factors affecting it.

4. Marketing Plan: It should contain the following items

i. Data on the marketing plan.

ii. Demand and prospective supply in each of the areas to be served.
iii. The method and data used for main estimates of domestic supply and selection of the
market areas should be presented. Estimates of the degree of price sensitivity should be
presented.
iv. It should contain an analysis of past trends in prices.

5. Capital Requirements and Costs: The estimates should be reasonably complete and
properly estimated. Information on all items of costs should be carefully collected and
presented.

6. Operating Requirements and Costs: Operating costs are essentially those costs which are
incurred after the commencement of commercial production. Information about all items of
operation cost should be collected; operating costs relate to the cost of raw materials and
intermediates, fuel, utilities, labour, repair and maintenance, selling expenses and other
expenses.

7. Financial Analysis: The purpose of this analysis is to present some measures to assess the
financial viability of the project. A proforma Balance Sheet for the project data should be
presented. Depreciation should be allowed for on the basis of specified by the bureau of
Public Enterprises. Foreign exchange requirements should be cleared by the Department of
Economic Affairs. The feasibility report should take into account income-tax rebates for

13
priority industries, incentives for backward areas, accelerated depreciation, etc. The
sensitivity analysis should also be presented. The report must analyze the sensitivity of the
rate of return of change in the level and pattern of product prices.

8. Economic Analysis: Social profitability analysis needs some adjustment in the data
relating to the costs and returns to the enterprise. One important type of investment
involves a correction in input and costs, to reflect the true value of foreign exchange, labour
and capital. The enterprise should try to assess the impact of its operations on foreign trade.
Indirect costs and benefits should also be included in the report. If they cannot be
quantified, they should be analyzed and their importance emphasized.

[Link] Aspects: The preceding three areas are deemed appropriate to almost
every new small enterprise. Notwithstanding, depending upon the size of the operation and
peculiarities of a particular project, other items may be considered important to be applied
out in the project report. To mention, probable use of minicomputers or other electronic
data processing services, cash flow statements, method of accounting etc., may be of great
use in some small enterprises.

Common Errors in Project Formulation

Project formulation is an important step but not so easy. However, the entrepreneurs often
make errors while formulating project reports and business plans. Here, we are highlighting
the errors widely noticed in project formulation:

1. Product Selection-It is noticed that some entrepreneurs commit mistakes by selecting a

wrong product for their enterprises. They select the product without giving due attention to
product related other aspects such as size of the product markets, its future demand,
competitive position, lifecycle, availability of required labour, raw material and technology.
Hence, when you are selecting a product, take a comprehensive view.

2. Capacity Utilization Estimates-The entrepreneurs usually make over optimistic estimates

of capacity utilization. Their estimates are based on completely false premises. The
estimates are made in complete disregard of present enterprise performance, prevailing
market conditions, competitive atmosphere, the technical snags, etc. A business plan
formulated as such falls prey to financial jugglery. Hence, avoid such temptation while
estimating capacity utilization for your enterprise.

3. Market Study-Product production is ultimately meant for eventual sale. Hence, market
study of the product assumes importance. Market study continues to be a grey area. But
there are some entrepreneurs who pass by this component of their business plan
completely. Based on their nebulous ideas and scantly and scattered information on
demand and supply of their proposed product, they conclude that market is just there
waiting to be trapped. This is wrong attitudinal block. Avoid it.

[Link] Selection-The requirement for technology differs from product to product

depending upon the nature of products. Swayed by the reported profit margins, the
entrepreneurs sometimes plan for a technology not possible to set up within limited

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financial resources. Thus, in the absence of technological feasibility, enterprise is fore
doomed to failure. Hence, make sure your technological feasibility.

5. Location Selection-The entrepreneur often makes two types of errors while selecting
location for their enterprises. First, they are completely swayed by the Government offer of
financial incentives and concessions to establish industries in a particular location. This
becomes their sole and overriding concern completely disregarding other factors like
market proximity, availability of raw materials, manpower and infrastructural facilities.
Second, the entrepreneurs select a location for their enterprises merely because it is their
home town or they own ancestral land there which is, however, not an appropriate
location. Make sure you do not fall prey to such temptations.

6. Selection of Ownership Form- Many enterprises fail merely because the ownership form
of enterprises is not suitable. Hence, select a suitable form of ownership taking a
comprehensive view of the factors affecting the selection of a form of ownership.

Here are the six steps to writing a successful business proposal:

i. Gather the Information You Need

ii. Define Project Objectives & Scope
iii. Estimate Your Labor & Costs
iv. Start Drafting Your Business Proposal
v. Edit Your Business Proposal
vi. Send Out Your Business Proposal & Follow Up

FINANCING OF AN ENTERPRISE

How to arrange money for your business also called as financing of an enterprise. Various
banks and financial institutions have different types of commercial loans and schemes. It
is essential to understand and select those schemes which can meet your requirements.

Different banks have different financial plans or schemes and those plans or schemes
have different terms and conditions. We should choose those schemes which are readily
available on easy terms for our business.

For approaching financial institutions starting point is project report . For the purpose of
seeking loans from banks or financial institutions ,it will be good if you can identify a
guarantor for your loan as financial institution may ask for it.

Financial institutions normally also ask for collateral against bank loan for business.

Taking loans- You can take loans from following entities-

- Banks

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- Non banking financial company
- micro finance Institute
- friends or relatives
- pradhan mantri or Prime Minister mudra yojana this is a special scheme
where the enterpreneurs can get loan without guarantor subject to
conditions
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How & Where to get loans under Pradhan Mantri MUDRA Yojana (PMMY)

[Link] is mudra loan ?

as per Department of financial services, ministry of science finance, government of India's
letter number 27, dated May 14 2015 loans given to non farm income generating enterprises
in manufacturing, trading and service whose credit needs are below Rs 10,00,000 by all the
public sector banks, regional rural banks, state cooperative banks and urban cooperative
banks will be known as mudra loans under the Pradhan Mantri Mudra Yojana (PMMY). All
such loans can be covered under refinance and or credit enhancement products of mudra.

In addition to these banks NBFC and MIFA is operating across the country can also extend
credit to this segment for which they can avail financial assistance from mudra limited, subject
to their confirming to the approved eligibility criteria. Eligibility criteria for availing refinance
or financial assistance by institutions from mudra has been finalised and hosted at Madras
website. .

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To begin with based on eligibility criteria, mudra has enrolled 27 public sector banks, 17
private sector banks, 27 regional rural banks and 25 micro finance institutions as partner
institutions for channelizing assistance to the ultimate borrower.

3. Whom to approach for assistance under PMMY?

Borrowers, who wish to avail assistance under pradhan mantri mudra yojana can approach
the local branch of any of the above referred institution in their region. Section of assistance
shall be as per the eligibility norms of respective lending institution.

[Link] to contact for assistance?

Mudra has identified 97 nodal officers at various sit by regional offices or branch offices to
act as first contact persons for mudra. For information on mudra products and for any kind of
assistance, the borrower can either approach or contact mudra office at Mumbai or the
identified mudra nodal officers whose details are made available at mudra website.
The borrower may also visit mudra website -[Link]

OPPORTUNITIES FOR AGRI ENTREPRENEURSHIP AND RURAL ENTERPRISE

Opportunities for agripreneurship development: From very beginning to till now India has
been considered an agrarian economy. There are several mechanisms worked in the
Agripreneuship like forward and backward linkages with secondary and tertiary sectors i.e.
manufacturing and service sectors. Opportunities in agriculture and allied sectors can be
identified at different phases of agriculture process. Basically, the agripreneurial
opportunities are at Input stage, Farming stage, Value chain, output processing and marketing
stage and related services. Presently the scope and potential of Agripreneurial opportunities
is increasing as a result of globalization and more interconnected world market. There are
many potential opportunities for entrepreneurs. Agriculture process needs so many kinds of
inputs like seeds, fertilizers, pesticides and innovative and localized farm technology. So
above mentioned areas creates agripreneurial opportunities in the areas of developing and
producing these inputs. There are very promising opportunities for entrepreneurial process
in the areas like bio-pesticides, bio-fertilizers, vermicomposting, testing and amending soil
etc. The increasing focus on organic farming is opening still more [Link] is a lot
of scope for R&D with respect to seed development. Even these varieties of seeds are
expected to serve even in unfavorable climatic conditions. For realizing maximum revenue
and improving living conditions of our farming community, productivity of the crops should
be improved which is possible with good management practices along with good quality of
inputs. India is able to record only 50% of the average world production per hectare. Further,
there is a lot scope in the area of agro tech products. There is a gradual shift happening from
the usage of chemical intensive fertilizers and pesticides to natural manure and pesticides.
This gradual shift is again opening up huge potential and opportunities for production and
marketing of bio-pesticides, eco-friendly agrochemicals and natural manures. At the stage of
farming, the chief objective is to maximize the output and leveraging the advantage of
seasons. There is an opportunity to go innovative with regard to balance use of fertilizers and
pesticides, agrochemicals, adopting multiple cropping and crop rotation to protect and
preserves and enhance the quality of soil, using the agri -tech machines to reduce the cost of

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cultivation and drudgery of labor etc. In the postharvest stage, the opportunities are felt in
the areas of value chain, output processing and marketing. The changes happening in supply
chain management of agriculture produce are opening doors for new businesses. Agri
products processing units are booming up. There are opportunities in the area of distribution
and logistics. To specify, for agripreneurship development, there are opportunities in the
areas of farming vegetables, fruits, food grains, pulses, oil seeds etc., developing greenhouse
concept, herbal plantation, dairy and poultry development, animal husbandry, grading and
packaging of agri products, establishing food processing units, establishing cold storages,
sericulture, horticulture and many more.

Areas of agripreneurship :
Beekeeping: There is an immense scope of honey production and bee-keeping in the country
due to its wide area of flora and fauna. This is such a growing venture where even as illiterate
and resource poor men/women can start their own with no land required.
Animal Husbandry : India ranks 1st in milk and milk product production. Livestock
management and cattle rearing has been the part of our day to day life. Rearing of improved
breed and their proper’s management can give a good return to the farmers.
Fruit and vegetable preservation: Another major small industry which can be started very
easily is production of various fruits and vegetables preserved items viz., Potato chips, Potato
fingers, Potato pappad, Mango and Litchi Squashes, Jam, Jelly Marmalade, Mixed vegetable,
Tomato pickles, Tomato sauce, Ketchup etc.
Horticulture based enterprises: India is major producer of vegetables viz., Potato, Onion,
Eggplant, and Cauliflower. Bihar is known for its Shahi Litchi, other fruits grow are Mango,
Guava, Citrus, Banana, Papaya, Ber, Pineapple and Makhana. Flavor of its Spices, red Chilli
and Coriander spreads all over the country. Besides above mentioned enterprise there several
others which has huge potential to develop as agrientreprises like fisheries, Custom hiring,
Agriclinic etc
India is primarily agriculture oriented country and its economy is highly dependent on the
agrarian produce. Developments pertaining to different industries are being made on a
massive scale to change the country's economy. The agricultural input industry has immense
scope in India. The agricultural input industry mainly consists of industries pertaining to main
agricultural inputs viz., seed, fertilizer, pesticides or agro chemicals, farm machinery and food
processing. To get an overview of agricultural input industry in the country, it is essential to
understand seed industry, fertilizer industry, pesticide industry, farm machinery industry and
food processing industry.

An overview of the Indian seed industry

Seeds form the fundamental and crucial input for sustained growth in farm production, often
stimulating the use of new methods, machinery and yield-enhancing agro-inputs. India is the
fifth-largest seed market in the world with an estimated size of about US$1,500 million and
growing at 12–13% annually. Private companies give high importance to R&D, investing 5–
10% of their turnover in such activities. Unlike the public sector, where research is separate
from seed production and marketing, these functions are integrated in private firms. The
private sector has been focusing on development of hybrids/high-yield varieties, as these are
of a higher value and offer better margins. The private sector accounts for about 70% of the
total commercial seeds turnover. Most companies in the seed industry were primarily into

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agrochemicals and diversified into seeds, which has now become an important part of their
portfolios.

An overview of the Indian Fertilizer industry:

Indian Fertilizer industry is one of the vital industries for the Indian economy, since it
manufacturers a very critical raw material for agriculture. India fertilizer industry is one
industry with immense scopes in the future. It is extremely important for the fertilizer
industry India to have development in terms of technologically advance manufacturing
process and innovative new-age products. The first fertilizer manufacturing unit in India was
set up in the year 1906 at Ranipat in Chennai. The Indian fertilizer industry has played a pivotal
support role to the Indian agricultural industry. The growth in the use of chemical fertilizers
amongst farmers has been the secret of the nation’s so called green revolution of the late
sixties. The fertilizer industry in India has performed a vital role in enabling the necessary
increase in the use of plant nutrients for achieving the objectives of self sufficiency in food
grains production and accelerated and continuous agricultural growth.

Indian Pesticide or Agrochemical Industry

Agrochemicals also known as Pesticides are substance or mixture of substances that are used
to avert, destroy or control any kind of pests or unwanted type of plants or animals that cause
harm to crops or hampers the normal growth process of a crop. As per a Government of India
estimate of 2002, value of crop losses caused due to non-usage of pesticides was around Rs
90,000 crore. Thereon, assuming losses grew at an average 2%, total losses would have
amounted to Rs 101,355 crore in 2009, a staggering 2.2% of India's GDP. The pesticide
industry in India started with import of BHC in [Link] 1958 five basic pesticides were
manufactured in India. As of now , 44 technical grade pesticides having 110 formulations are
manufactured. Pesticides in India are manufactured by private sector as well as public sector
companies or corporations. There are 25 large units apart from 450 smaller ones
manufacturing Pesticides. Currently the level of production is 80,000 tonnes as against the
capacity of 1.07 lakh tones. Presently the average per hectare consumption of pesticides is
about 328 grams which is lower than the advanced countries USA- 1600 gms & Japan
2000gms/ hect. There has been rapid increase in the consumption of pesticides till 90’s. How
ever during 90’s a greater emphasis was given to IPM and biological control. There fore use
of pesticides has not increased further. Of the total PP chemicals used in India 80% constitute
insecticides, 12% fungicides and 5% herbicides. The state wise consumption of pesticides
indicates 33.6% of total consumption was in AP followed by Karnataka 16.2%. The crop wise
consumption indicates 50% is used in cotton followed by paddy -18% and vegetables-14%.
The studies have shown that for every one rupee spent on plant protection the crop worth
about Rs. four is protected which otherwise would have been lost due to pests & diseases.
The demand for PP chemicals is more compare to production as farmers are moving towards
market oriented farming system. Our country imports 40 types of pesticides. For regulating
the manufacture, import, sale and use of pesticides, the Insecticides Act, 1968 was operative
in the country. Every formulation has to be registered with MoA GOI. For marketing of
pesticides, the manufacturers appoint 69 distributors for each region either in co operative
or private sector and are supplied through dealers to farmers. Dealers may be from private
sector, Agro service centers, Agri-clinics or Agribusiness centers or cooperatives. Indian Farm
Machinery Industry There has been a progressive shift from Draft Animal Power (DAP) to
mechanical power in Indian agriculture because DAP and manual labour were not sufficient

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to cope with the workload of intensive agriculture. The use of mechanical power is becoming
indispensable for making an optimal use of other resources and timely completion of various
operations under intensive farming. Hence, mechanization has become a very crucial input to
further the development of agriculture. Power operated equipments like tractor drawn
mould board ploughs, cultivators, disc harrows, seed drill, farmers in most of the States. Self-
propelled and tractor operated combines, reaper harvester, potato and groundnut diggers
are also commercially available.

Diversification of agriculture needs introduction of new machines and the trend among the
farmers to use increasingly larger tractors will vastly expand the scope of custom hiring of
farm equipments because in future, multi-farm use will be the only way to keep the operating
cost of farm equipments at a reasonably low level.

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