UNIT I

INTRODUCTION TO MANAGEMENTS AND

ORGANIZATIONS

DEFINITION
According to Harold Koontz, “Management is an art of getting things done through and with the
people in formally organized groups. It is an art of creating an environment in which people can
perform and individuals and can co-operate towards attainment of group goals”.

LEVELS OF MANAGEMENT
The three levels of management are as follows

The Top Management

It consists of board of directors, chief executive or managing director. The top
management is the ultimate source of authority and it manages goals and policies for an
enterprise. It devotes more time on planning and coordinating functions.

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The role of the top management can be summarized as follows –
a. Top management lays down the objectives and broad policies of the enterprise.
b. It issues necessary instructions for preparation of department budgets,
procedures, schedules etc.
c. It prepares strategic plans & policies for the enterprise.
d. It appoints the executive for middle level i.e. departmental managers. e.
It controls & coordinates the activities of all the departments.
f. It is also responsible for maintaining a contact with the outside world. g.
It provides guidance and direction.
h. The top management is also responsible towards the shareholders for the
performance of the enterprise.

Middle Level Management

The branch managers and departmental managers constitute middle level. They are
responsible to the top management for the functioning of their department. They devote more
time to organizational and directional functions. In small organization, there is only one layer
of middle level of management but in big enterprises, there may be senior and junior middle
level management. Their role can be emphasized as –
a. They execute the plans of the organization in accordance with the policies and
directives of the top management.
b. They make plans for the sub-units of the organization.
c. They participate in employment & training of lower level management.
d. They interpret and explain policies from top level management to lower level.
e. They are responsible for coordinating the activities within the division or
department.
f. It also sends important reports and other important data to top level
management.
g. They evaluate performance of junior managers.
h. They are also responsible for inspiring lower level managers towards better
performance.

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Lower Level Management
Lower level is also known as supervisory / operative level of management. It consists of
supervisors, foreman, section officers, superintendent etc. According to R.C. Davis,
“Supervisory management refers to those executives whose work has to be largely with
personal oversight and direction of operative employees”. In other words, they are
concerned with direction and controlling function of management. Their activities include
a. Assigning of jobs and tasks to various workers.
b. They guide and instruct workers for day to day activities.
c. They are responsible for the quality as well as quantity of production.
d. They are also entrusted with the responsibility of maintaining good relation in the
organization.
e. They communicate workers problems, suggestions, and recommendatory
appeals etc to the higher level and higher level goals and objectives to the
workers.
f. They help to solve the grievances of the workers.
g. They supervise & guide the sub-ordinates.
h. They are responsible for providing training to the workers.
i. They arrange necessary materials, machines, tools etc for getting the things
done.
j. They prepare periodical reports about the performance of the workers.
k. They ensure discipline in the enterprise.
l. They motivate workers.
m. They are the image builders of the enterprise because they are in direct contact
with the workers.
SCIENCE OR ART
What is science?
The existence of a systematic body of knowledge with array of principles
 Based on scientific enquiry
 Principle should be verifiable
 Reliable basis for predicting future events.
Management as a discipline fulfills the science criterion. The applications of these principles helps
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any practicing manager to achieve the desired goals. Management is a dynamic subject in that it
has heavily from economics ,psychology, sociology, mathematics and Engineering.
Science classified in to two types. They are exact science and inexact science. In case of
management, it is an inexact science because
 Every organization human resources are different attitudes, aspirations and
perceptions. So standard results may not be obtained
 Readymade and standard solutions cannot be obtained
 Management is complex and unpredictable
 Every organization decisions are influenced by the environment.

What is an Art?
Art means applications of skill in finding a desired results. Art is the way of doing things
skillfully. Management is an art because of following
 Management process involves the use of practical knowledge and personal
skills
 Management is creative
 Application of practical knowledge and certain skills helps to achieve
concrete results
 Management is both- science and an art
 Management is a science because it contains general principles. It is also an
art because it requires certain personal skills to achieve desired results
Management is both- science and an art
Management is a science because it contains general principles. It is also an art because it requires
certain personal skills to achieve desired results.

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MANAGERIAL ROLES AND SKILLS
Henry Mintzberg identified ten different roles, separated into three categories. The categories he
defined are as follows

a) Interpersonal Roles
The ones that, like the name suggests, involve people and other ceremonial duties. It can be
further classified as follows
• Leader – Responsible for staffing, training, and associated duties.
• Figurehead – The symbolic head of the organization.
• Liaison – Maintains the communication between all contacts and informers that compose
the organizational network.

b) Informational Roles
Related to collecting, receiving, and disseminating information.
• Monitor – Personally seek and receive information, to be able to understand the
organization.
• Disseminator – Transmits all import information received from outsiders to the members
of the organization.

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• Spokesperson – On the contrary to the above role, here the manager transmits the
organization’s plans, policies and actions to outsiders.
c) Decisional Roles
Roles that revolve around making choices.
• Entrepreneur – Seeks opportunities. Basically they search for change, respond to it, and
exploit it.
• Negotiator – Represents the organization at major negotiations.
• Resource Allocator – Makes or approves all significant decisions related to the allocation
of resources.
• Disturbance Handler – Responsible for corrective action when the organization faces
disturbances.

EVOLUTION OF MANAGEMENT

The practice of management is as old as human civilization. The ancient civilizations of

Egypt (the great pyramids), Greece (leadership and war tactics of Alexander the great) and Rome
displayed the marvelous results of good management practices.
The origin of management as a discipline was developed in the late 19 th century. Over
time, management thinkers have sought ways to organize and classify the voluminous
information about management that has been collected and disseminated. These attempts at
classification have resulted in the identification of management approaches. The approaches of
management are theoretical frameworks for the study of management. Each of the approaches of
management are based on somewhat different assumptions about human beings and the
organizations for which they work.
The different approaches of management are
a) Classical approach,
b) Behavioral approach,
c) Quantitative approach,
d) Systems approach,
e) Contingency approach.
The formal study of management is largely a twentieth-century phenomenon, and to some degree

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the relatively large number of management approaches reflects a lack of consensus among
management scholars about basic questions of theory and practice.

1.5.a)THE CLASSICAL APPROACH:

The classical approach is the oldest formal approach of management thought. Its roots pre-date
the twentieth century. The classical approach of thought generally concerns ways to manage
work and organizations more efficiently. Three areas of study that can be grouped under the
classical approach are scientific management, administrative management, and bureaucratic
management.
1.5.a)(i)Scientific Management
Frederick Winslow Taylor is known as the father of scientific management. Scientific
management (also called Taylorism or the Taylor system) is a theory of management that
analyzes and synthesizes workflows, with the objective of improving labor productivity. In other
words, Traditional rules of thumb are replaced by precise procedures developed after careful
study of an individual at work.
1.5.a)(ii)Administrative management
Administrative management focuses on the management process and principles of
management. In contrast to scientific management, which deals largely with jobs and work at
the individual level of analysis, administrative management provides a more general theory of
management. Henri Fayol is the major contributor to this approach of management thought.
1.5.a)(iii)Bureaucratic management
Bureaucratic management focuses on the ideal form of organization. Max Weber was
the major contributor to bureaucratic management. Based on observation, Weber concluded
that many early organizations were inefficiently managed, with decisions based on personal
relationships and loyalty. He proposed that a form of organization, called a bureaucracy,
characterized by division of labor, hierarchy, formalized rules, impersonality, and the selection
and promotion of employees based on ability, would lead to more efficient management. Weber
also contended that managers' authority in an organization should be based not on tradition or
charisma but on the position held by managers in the organizational hierarchy.

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1.5 b) THE BEHAVIORAL APPROACH:
The behavioral approach of management thought developed, in part, because of perceived
weaknesses in the assumptions of the classical approach. The classical approach emphasized
efficiency, process, and principles. Some felt that this emphasis disregarded important aspects of
organizational life, particularly as it related to human behavior. Thus, the behavioral approach
focused on trying to understand the factors that affect human behavior at work.
1.5 b) (i)Human Relations.
The Hawthorne Experiments began in 1924 and continued through the early 1930s. A
variety of researchers participated in the studies, including Elton Mayo. One of the major
conclusions of the Hawthorne studies was that workers' attitudes are associated with
productivity. Another was that the workplace is a social system and informal group influence
could exert a powerful effect on individual behavior. A third was that the style of supervision
is an important factor in increasing workers' job satisfaction.
1.5 b) (ii)Behavioral Science.
Behavioral science and the study of organizational behavior emerged in the 1950s and
1960s. The behavioral science approach was a natural progression of the human relations
movement. It focused on applying conceptual and analytical tools to the problem of
understanding and predicting behavior in the workplace.
The behavioral science approach has contributed to the study of management through
its focus on personality, attitudes, values, motivation, group behavior, leadership,
communication, and conflict, among other issues.

1.5 c) THE QUANTITATIVE APPROACH:

The quantitative approach focuses on improving decision making via the application of
quantitative techniques. Its roots can be traced back to scientific management.
1.5 c)(i) Management Science (Operations Research)
Management science (also called operations research) uses mathematical and statistical
approaches to solve management problems. It developed during World War II as strategists
tried to apply scientific knowledge and methods to the complex problems of war. Industry began
to apply management science after the war. The advent of the computer made many management
science tools and concepts more practical for industry
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1.5 c) (ii) Production And Operations Management.
This approach focuses on the operation and control of the production process that
transforms resources into finished goods and services. It has its roots in scientific management
but became an identifiable area of management study after World War II. It uses many of the
tools of management science.
Operations management emphasizes productivity and quality of both manufacturing and
service organizations. W. Edwards Deming exerted a tremendous influence in shaping modern
ideas about improving productivity and quality. Major areas of study within operations
management include capacity planning, facilities location, facilities layout, materials requirement
planning, scheduling, purchasing and inventory control, quality control, computer integrated
manufacturing, just-in-time inventory systems, and flexible manufacturing systems.

1.5 d) SYSTEMS APPROACH:

The simplified block diagram of the systems approach is given below.

The systems approach focuses on understanding the organization as an open system that
transforms inputs into outputs. The systems approach began to have a strong impact on
management thought in the 1960s as a way of thinking about managing techniques that would
allow managers to relate different specialties and parts of the company to one another, as well
as to external environmental factors. The systems approach focuses on the organization as a
whole, its interaction with the environment, and its need to achieve equilibrium

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e) CONTINGENCY APPROACH:
The contingency approach focuses on applying management principles and processes
as dictated by the unique characteristics of each situation. It emphasizes that there is no one
best way to manage and that it depends on various situational factors, such as the external
environment, technology, organizational characteristics, characteristics of the manager, and
characteristics of the subordinates. Contingency theorists often implicitly or explicitly criticize
the classical approach for its emphasis on the universality of management principles;
however, most classical writers recognized the need to consider aspects of the situation when
applying management principles.

MANAGEMENT
Beginning Dates Emphasis
APPROACHS

CLASSICAL APPROACH

Traditional rules of thumb are replaced by precise

Scientific
1880s procedures developed after careful study of an
Management
individual at work.
Gives idea about the primary functions of
Administrative
1940s management and The 14 Principles of
Management
Administration

Bureaucratic Replaces traditional leadership and charismatic

1920s
Management leadership with legal leadership

BEHAVIORAL APPROACH

Human
1930s workers' attitudes are associated with productivity
Relations

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Behavioral Gives idea to understand human behavior in the
1950s
Science organization.

QUANTITATIVE APPROACH

Management
Science Uses mathematical and statistical approaches to
1940s
(Operation solve management problems.
research)
Production This approach focuses on the operation and
and Operations 1940s control of the production process that transforms
Management resources into finished goods and services

RECENT DEVELOPEMENTS

Considers the organization as a system that

SYSTEMS
1950s transforms inputs into outputs while in constant
APPROACH
interaction with its' environment.

Applies management principles and processes as

CONTINGENCY
1960s dictated by the unique characteristics of each
APPROACH
situation.

CONTRIBUTION OF TAYLOR AND FAYOL

F.W. Taylor and Henry Fayol are generally regarded as the founders of scientific
management and administrative Management and both provided the bases for science and art
of management.

Taylor's Scientific Management

Frederick Winslow Taylor well-known as the founder of scientific management was the first to
recognize and emphasis the need for adopting a scientific approach to the task of managing an

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enterprise. He tried to diagnose the causes of low efficiency in industry and came to the
conclusion that much of waste and inefficiency is due to the lack of order and system in the
methods of management. He found that the management was usually ignorant of the amount of
work that could be done by a worker in a day as also the best method of doing the job. As a
result, it remained largely at the mercy of the workers who deliberately shirked work.
He therefore, suggested that those responsible for management should adopt a scientific
approach in their work, and make use of "scientific method" for achieving higher efficiency.
The scientific method consists essentially of
(a) Observation
(b) Measurement
(c) Experimentation and
(d) Inference.
He advocated a thorough planning of the job by the management and emphasized the necessity of
perfect understanding and co-operation between the management and the workers both for the
enlargement of profits and the use of scientific investigation and knowledge in industrial
work. He summed up his approach in these words:
• Science, not rule of thumb
• Harmony, not discord
• Co-operation, not individualism
• Maximum output, in place of restricted output
• The development of each man to his greatest efficiency and prosperity.

Elements of Scientific Management:

The techniques which Taylor regarded as its essential elements or features may be classified as
under:
1. Scientific Task and Rate-setting, work improvement, etc.
2. Planning the Task.
3. Vocational Selection and Training
4. Standardization (of working conditions, material equipment etc.)
5. Specialization
6.Mental Revolution.
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Scientific Task and Rate-Setting (work study):
Work study may be defined as the systematic, objective and critical examination of all the
factors governing the operational efficiency of any specified activity in order to effect
improvement.

Work study includes.

(a) Methods Study:
The management should try to ensure that the plant is laid out in the best manner and is
equipped with the best tools and machinery. The possibilities of eliminating or combining
certain operations may be studied.
(b) Motion Study:
It is a study of the movement, of an operator (or even of a machine) in performing an
operation with the purpose of eliminating useless motion.
(c) Time Study (work measurement):

The basic purpose of time study is to determine the proper time for performing the operation.
Such study may be conducted after the motion study. Both time study and motion study help in
determining the best method of doing a job and the standard time allowed for it.
(d) Fatigue Study:
If, a standard task is set without providing for measures to eliminate fatigue, it may either be
beyond the workers or the workers may over strain themselves to attain it. It is necessary,
therefore, to regulate the working hours and provide for rest pauses at scientifically determined
intervals.
(e) Rate-setting:

Taylor recommended the differential piece wage system, under which workers performing the
standard task within prescribed time are paid a much higher rate per unit than inefficient workers
who are not able to come up to the standard set.

2 Planning the Task:

Having set the task which an average worker must strive to perform to get wages at the
higher piece-rate, necessary steps have to be taken to plan the production thoroughly so that
there is no bottlenecks and the work goes on systematically.
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Selection and Training:
Scientific Management requires a radical change in the methods and procedures of
selecting workers. It is therefore necessary to entrust the task of selection to a central
personnel department. The procedure of selection will also have to be systematised. Proper
attention has also to be devoted to the training of the workers in the correct methods of work.
Standardization:
Standardization may be introduced in respect of the following:
(a) Tools and equipment:
By standardization is meant the process of bringing about uniformity. The management must
select and store standard tools and implements which will be nearly the best or the best of
their kind.
(b) Speed:

There is usually an optimum speed for every machine. If it is exceeded, it is likely to result
in damage to machinery.

(c) Conditions of Work:

To attain standard performance, the maintenance of standard conditions of ventilation,
heating, cooling, humidity, floor space, safety etc., is very essential.
(d) Materials:

The efficiency of a worker depends on the quality of materials and the method of handling
materials.
Specialization:
Scientific management will not be complete without the introduction of specialization. Under this
plan, the two functions of 'planning' and 'doing' are separated in the organization of the plant.
The `functional foremen' are specialists who join their heads to give thought to the planning
of the performance of operations in the workshop. Taylor suggested eight functional foremen
under his scheme of functional foremanship.
(a) The Route Clerk:
To lay down the sequence of operations and instruct the workers concerned about it.
(b) The Instruction Card Clerk:
To prepare detailed instructions regarding different aspects of work.

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(c) The Time and Cost Clerk:
To send all information relating to their pay to the workers and to secure proper returns of
work from them.
(d) The Shop Disciplinarian:

To deal with cases of breach of discipline and absenteeism.

(e) The Gang Boss:
To assemble and set up tools and machines and to teach the workers to make all their
personal motions in the quickest and best way.
(f) The Speed Boss:

To ensure that machines are run at their best speeds and proper tools are used by the
workers.

(g) The Repair Boss:

To ensure that each worker keeps his machine in good order and maintains cleanliness around
him and his machines.
(h) The Inspector:

To show to the worker how to do the work.

Mental Revolution:
At present, industry is divided into two groups – management and labour. The major
problem between these two groups is the division of surplus. The management wants
the maximum possible share of the surplus as profit; the workers want, as large share in the
form of wages. Taylor has in mind the enormous gain that arises from higher productivity.
Such gains can be shared both by the management and workers in the form of increased
profits and increased wages.

Henry Fayol's 14 Principles of Management:

The principles of management are given below:
Division of work:
Division of work or specialization alone can give maximum productivity and efficiency. Both

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technical and managerial activities can be performed in the best manner only through division
of labour and specialization.
Authority and Responsibility:
The right to give order is called authority. The obligation to accomplish is called
responsibility. Authority and Responsibility are the two sides of the management coin. They
exist together. They are complementary and mutually interdependent.

Discipline:

The objectives, rules and regulations, the policies and procedures must be honoured by each
member of an organization. There must be clear and fair agreement on the rules and
objectives, on the policies and procedures. There must be penalties (punishment) for non-
obedience or indiscipline. No organization can work smoothly without discipline - preferably
voluntary discipline.
4 Unity of Command:
In order to avoid any possible confusion and conflict, each member of an organization must
received orders and instructions only from one superior (boss).
Unity of Direction:

All members of an organization must work together to accomplish common objectives.

Emphasis on Subordination of Personal Interest to General or Common Interest:
This is also called principle of co-operation. Each shall work for all and all for each. General
or common interest must be supreme in any joint enterprise.
Remuneration:
Fair pay with non-financial rewards can act as the best incentive or motivator for good
performance. Exploitation of employees in any manner must be eliminated. Sound scheme of
remuneration includes adequate financial and nonfinancial incentives.
Centralization:

There must be a good balance between centralization and decentralization of authority and
power. Extreme centralization and decentralization must be avoided.

Scalar Chain:
The unity of command brings about a chain or hierarchy of command linking all members
of the organization from the top to the bottom. Scalar denotes steps.
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1 . 7 . 1 0 Order:
Fayol suggested that there is a place for everything. Order or system alone can create a
sound organization and efficient management.

Equity:
An organization consists of a group of people involved in joint effort. Hence, equity (i.e.,
justice) must be there. Without equity, we cannot have sustained and adequate joint
collaboration.
Stability of Tenure:
A person needs time to adjust himself with the new work and demonstrate efficiency
in due course. Hence, employees and managers must have job security. Security of income
and employment is a pre-requisite of sound organization and management.
Esprit of Co-operation:
Esprit de corps is the foundation of a sound organization. Union is strength. But unity
demands co-operation. Pride, loyalty and sense of belonging are responsible for good
performance.
Initiative:
Creative thinking and capacity to take initiative can give us sound managerial planning and
execution of predetermined plans.

Types of Business Organizations

When organizing a new business, one of the most important decisions to be made is choosing
the structure of a business.

Sole Proprietorships
The vast majority of small business starts out as sole proprietorships are very dangerous. These
firms are owned by one person, usually the individual who has day-to-day responsibility for
running the business. Sole proprietors own all the assets of the business and the profits
generated by it. They also assume "complete personal" responsibility for all of its liabilities or
debts. In the eyes of the law, you are one in the same with the business.
1.8.a1 Merits:
• Easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control, within the law, to make all decisions.

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• Sole proprietors receive all income generated by the business to keep or reinvest.
• Profits from the business flow-through directly to the owner's personal tax return.
• The business is easy to dissolve, if desired.

a2 Demerits:
• Unlimited liability and are legally responsible for all debts against the business.
• Their business and personal assets are 100% at risk.
• Has almost been ability to raise investment funds.
• Are limited to using funds from personal savings or consumer loans.
• Have a hard time attracting high-caliber employees, or those that are motivated by the
opportunity to own a part of the business.
• Employee benefits such as owner's medical insurance premiums are not directly deductible
from business income (partially deductible as an adjustment to income).

Partnerships
In a Partnership, two or more people share ownership of a single business. Like proprietorships,
the law does not distinguish between the business and its owners. The Partners should have a
legal agreement that sets forth how decisions will be made, profits will be shared, disputes will
be resolved, how future partners will be admitted to the partnership, how partners can be bought
out, or what steps will be taken to dissolve the partnership when needed. Yes, its hard to think
about a "break-up" when the business is just getting started, but many partnerships split up at
crisis times and unless there is a defined process, there will be even greater problems. They
also must decide up front how much time and capital each will contribute, etc.
1.8.b1 Merits:
• Partnerships are relatively easy to establish; however time should be invested in developing
the partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners' personal taxes.
• Prospective employees may be attracted to the business if given the incentive to become a
partner.

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1.8.b2 Demerits:
• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnerships have a limited life; it may end upon a partner withdrawal or death.

Corporations
A corporation, chartered by the state in which it is headquartered, is considered by law to be a
unique "entity", separate and apart from those who own it. A corporation can be taxed; it can be
sued; it can enter into contractual agreements. The owners of a corporation are its
shareholders. The shareholders elect a board of directors to oversee the major policies and
decisions. The corporation has a life of its own and does not dissolve when ownership changes.
1.8.c1 Merits:
• Shareholders have limited liability for the corporation's debts or judgments against the
corporations.
• Generally, shareholders can only be held accountable for their investment in stock of the
company. (Note however, that officers can be held personally liable for their actions, such as
the failure to withhold and pay employment taxes.)
• Corporations can raise additional funds through the sale of stock.
• A corporation may deduct the cost of benefits it provides to officers and employees.
• Can elect S corporation status if certain requirements are met. This election enables
company to be taxed similar to a partnership.
1.8.c2 Demerits:
• The process of incorporation requires more time and money than other forms of
organization.
• Corporations are monitored by federal, state and some local agencies, and as a result may
have more paperwork to comply with regulations.
• Incorporating may result in higher overall taxes. Dividends paid to shareholders are not
deductible form business income, thus this income can be taxed twice.

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Joint Stock Company:
Limited financial resources & heavy burden of risk involved in both of the previous forms of
organization has led to the formation of joint stock companies these have limited dilutives.
The capital is raised by selling shares of different values. Persons who purchase the shares are
called shareholder. The managing body known as; Board of Directors; is responsible for policy
making important financial & technical decisions.
There are two main types of joint stock Companies.
(i) Private limited company.
(ii) Public limited company
(i) Private limited company: This type company can be formed by two or more persons. Te
maximum number of member ship is limited to 50. In this transfer of shares is limited to
members only. The government also does not interfere in the working of the company.
(ii) Public Limited Company: Its is one whose membership is open to general public. The
minimum number required to form such company is seven, but there is no upper limit. Such
company’s can advertise to offer its share to genera public through a prospectus. These public
limited companies are subjected to greater control & supervision of control.

1.8.d1 Merits:
• The liability being limited the shareholder bear no Rick& therefore more as make persons
are encouraged to invest capital.
• Because of large numbers of investors, the risk of loss is divided.
• Joint stock companies are not affected by the death or the retirement of the shareholders.
1.8.d2 Disadvantages:
• It is difficult to preserve secrecy in these companies.
• It requires a large number of legal formalities to be observed.
• Lack of personal interest.

Public Corporations:
A public corporation is wholly owned by the Government centre to state. It is established usually
by a Special Act of the parliament. Special statute also prescribes its management pattern
power duties & jurisdictions. Though the total capital is provided by the Government, they have
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separate entity & enjoy independence in matters related to appointments, promotions etc.
1.8.e1Merits:
• These are expected to provide better working conditions to the employees & supported to
be better managed.
• Quick decisions can be possible, because of absence of bureaucratic control.
• More Flexibility as compared to departmental organization.
• Since the management is in the hands of experienced & capable directors & managers,
these ate managed more efficiently than that of government departments.
1.8.e2 Demerits:
• Any alteration in the power & Constitution of Corporation requires an amendment in the
particular Act, which is difficult & time consuming.
• Public Corporations possess monopoly & in the absence of competition, these are not
interested in adopting new techniques & in making improvement in their working.

Government Companies:
A state enterprise can also be organized in the form of a Joint stock company; A government
company is any company in which of the share capital is held by the central government or
partly by central government & party by one to more state governments. It is managed b the
elected board of directors which may include private individuals. These are accountable for its
working to the concerned ministry or department & its annual report is required to be placed
ever year on the table of the parliament or state legislatures along with the comments of the
government to concerned department.
1.8.f1 Merits:
• It is easy to form.
• The directors of a government company are free to take decisions & are not bound by
certain rigid rules & regulations.

f2 Demerits:
• Misuse of excessive freedom cannot be ruled out.
• The directors are appointed by the government so they spend more time in pleasing their
political masters & top government officials, which results in inefficient management.

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CLASSIFICATION OF ENVIRONMENTAL FACTORS
On the basis of the extent of intimacy with the firm, the environmental factors may be classified
into different types namely internal and external.

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INTERNAL ENVIRONMENTAL FACTORS
The internal environment is the environment that has a direct impact on the business. The
internal factors are generally controllable because the company has control over these factors. It
can alter or modify these factors. The internal environmental factors are resources,
capabilities and culture.
i) Resources:
A good starting point to identify company resources is to look at tangible, intangible and human
resources.
Tangible resources are the easiest to identify and evaluate: financial resources and physical assets
are identifies and valued in the firm’s financial statements.
Intangible resources are largely invisible, but over time become more important to the firm than
tangible assets because they can be a main source for a competitive advantage. Such
intangible recourses include reputational assets (brands, image, etc.) and technological assets
(proprietary technology and know-how).
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Human resources or human capital are the productive services human beings offer the firm in
terms of their skills, knowledge, reasoning, and decision-making abilities.
ii) Capabilities:
Resources are not productive on their own. The most productive tasks require that resources
collaborate closely together within teams. The term organizational capabilities are used to refer
to a firm’s capacity for undertaking a particular productive activity. Our interest is not in
capabilities per se, but in capabilities relative to other firms. To identify the firm’s capabilities
we will use the functional classification approach. A functional classification identifies
organizational capabilities in relation to each of the principal functional areas.
iii) Culture:
It is the specific collection of values and norms that are shared by people and groups in an
organization and that helps in achieving the organizational goals.

EXTERNAL ENVIRONMENT FACTORS

It refers to the environment that has an indirect influence on the business. The factors are
uncontrollable by the business. The two types of external environment are micro environment
and macro environment.

MICRO ENVIRONMENTAL FACTORS

These are external factors close to the company that have a direct impact on the organizations
process. These factors include:
i) Shareholders
Any person or company that owns at least one share (a percentage of ownership) in a company is
known as shareholder. A shareholder may also be referred to as a "stockholder". As organization
requires greater inward investment for growth they face increasing pressure to move from
private ownership to public. However this movement unleashes the forces of shareholder
pressure on the strategy of organizations.
ii) Suppliers
An individual or an organization involved in the process of making a product or service available
for use or consumption by a consumer or business user is known as supplier. Increase in raw

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material prices will have a knock on affect on the marketing mix strategy of an organization.
Prices may be forced up as a result. A closer supplier relationship is one way of ensuring
competitive and quality products for an organization.

iii) Distributors
Entity that buys non-competing products or product-lines, warehouses them, and resells them
to retailers or direct to the end users or customers is known as distributor. Most distributors
provide strong manpower and cash support to the supplier or manufacturer's promotional
efforts. They usually also provide a range of services (such as product information, estimates,
technical support, after-sales services, credit) to their customers. Often getting products to the
end customers can be a major issue for firms. The distributors used will determine the final price
of the product and how it is presented to the end customer. When selling via retailers, for
example, the retailer has control over where the products are displayed, how they are priced
and how much they are promoted in-store. You can also gain a competitive advantage by using
changing distribution channels.

iv) Customers
A person, company, or other entity which buys goods and services produced by another person,
company, or other entity is known as customer. Organizations survive on the basis of meeting
the needs, wants and providing benefits for their customers. Failure to do so will result in a
failed business strategy.

v) Competitors

A company in the same industry or a similar industry which offers a similar product or service is
known as competitor. The presence of one or more competitors can reduce the prices of goods and
services as the companies attempt to gain a larger market share. Competition also requires
companies to become more efficient in order to reduce costs. Fast-food restaurants McDonald's
and Burger King are competitors, as are Coca-Cola and Pepsi, and Wal-Mart and Target.

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vi) Media
Positive or adverse media attention on an organisations product or service can in some cases
make or break an organisation.. Consumer programmes with a wider and more direct audience
can also have a very powerful and positive impact, forcing organisations to change their
tactics.

MACRO ENVIRONMENTAL FACTORS

An organization's macro environment consists of nonspecific aspects in the organization's
surroundings that have the potential to affect the organization's strategies. When compared to a
firm's task environment, the impact of macro environmental variables is less direct and the
organization has a more limited impact on these elements of the environment.
The macro environment consists of forces that originate outside of an organization and
generally cannot be altered by actions of the organization. In other words, a firm may be
influenced by changes within this element of its environment, but cannot itself influence the
environment. The curved lines in Figure 1 indicate the indirect influence of the environment on
the organization.
Macro environment includes political, economic, social and technological factors. A firm
considers these as part of its environmental scanning to better understand the threats and
opportunities created by the variables and how strategic plans need to be adjusted so the firm can
obtain and retain competitive advantage.

i) Political Factors
Political factors include government regulations and legal issues and define both formal and
informal rules under which the firm must operate. Some examples include:
• tax policy
• employment laws
• environmental regulations
• trade restrictions and tariffs
• political stability

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ii) Economic Factors
Economic factors affect the purchasing power of potential customers and the firm's cost of
capital. The following are examples of factors in the macro economy:
• economic growth
• interest rates
• exchange rates
• inflation rate

iii) Social Factors

Social factors include the demographic and cultural aspects of the external macro environment.
These factors affect customer needs and the size of potential markets. Some social factors
include:
• health consciousness
• population growth rate
• age distribution
• career attitudes
• emphasis on safety

iv) Technological Factors

Technological factors can lower barriers to entry, reduce minimum efficient production levels,
and influence outsourcing decisions. Some technological factors include:
• R&D activity
• automation
• technology incentives
• rate of technological change

CURRENT TRENDS AND ISSUES IN MANAGEMENT

The management functions are planning and decision making, organizing. leading, and
controlling — are just as relevant to international managers as to domestic managers.
International managers need to have a clear view of where they want their firm to be in the
future; they have to organize to implement their plans: they have to motivate those who work lot
them; and they have to develop appropriate control mechanisms.
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a) Planning and Decision Making in a Global Scenario
To effectively plan and make decisions in a global economy, managers must have a broad- based
understanding of both environmental issues and competitive issues. They need to understand
local market conditions and technological factor that will affect their operations. At the
corporate level, executives need a great deal of information to function effectively. Which
markets are growing? Which markets are shrinking? Which are our domestic and foreign
competitors doing in each market? They must also make a variety of strategic decisions about
their organizations. For example, if a firm wishes to enter market in France, should it buy a
localfirm there, build a plant, or seek a strategic alliance? Critical issues include understanding
environmental circumstances, the role of goals and planning in a global organization, and how
decision making affects the global organization.

b) Organizing in a Global Scenario

Managers in international businesses must also attend to a variety of organizing issues. For
example, General Electric has operations scattered around the globe.The firm has made the
decision to give local managers a great deal of responsibility for how they run their business. In
contrast, many Japanese firms give managers of their foreign operations relatively little
responsibility. As a result, those managers must frequently travel back to Japan to present
problems or get decisions approved. Managers in an international business must address the basic
issues of organization structure and design, managing change, and dealing with human resources.

c) Leading in a Global Scenario

We noted earlier some of the cultural factors that affect international organizations. Individual
managers must be prepared to deal with these and other factors as they interact people from
different cultural backgrounds .Supervising a group of five managers, each of whom is from a
different state in the United States, is likely to be much simpler than supervising a group of five
managers, each of whom is from a different culture. Managers must understand how cultural
factors affect individuals. How motivational processes vary across cultures, how the role of
leadership changes in different cultures, how communication varies across cultures, and how
interpersonal and group processes depend on cultural background.

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d) Controlling in a Global Scenario
Finally, managers in international organizations must also be concerned with control. Distances,
time zone differences, and cultural factors also play a role in control. For example, in some
cultures, close supervision is seen as being appropriate, whereas in other cultures, it is not Like-
wise, executives in the United States and Japan may find it difficult to communicate vital
information to one another because of the time zone differences. Basic control issues for the
international manager revolve around operations management productivity, quality, technology
and information systems.

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