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SCDL - PGDBA - Finance - Sem 1- Principles and Practices of Management

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Principles and practice of management for Semester I of SCDL 2003 Batch Finance

Principles and Practices of Management

Principles and Practices Of Management

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Principles and Practices of Management

PART - A Q1. Management is a combination of Arts, Science & Profession Explain fully. Ans. Before writing a write up on Management is a combination of Arts, Science & Profession I would like to write something about the management. Management Management is to create a team which accomplishes pre-determined goals with more efficiently in a prescribed time period as planned/decided. Management actually is planning, organizing, directing, controlling & coordinating supported by leadership, communication, motivation and morale. Now I would like to start Management as Art and afterwards I will write about management as science and profession in detail. Management as an Art 1. It requires conceptual, technical, human relationship & decisionmaking skills. a) Conceptual Skills: Ability to see the big picture to recognize significant elements & to understand relationship among the elements. b) Technical Skills: Is knowledge of & proficiency in activities involving methods, procedures & pressures e.g., Mechanic works with tools & Superior show knows how to use these tools to teach them. c) Human Relations: is ability to work with people; it is a cooperative effort; teamwork; create an environment where people feel secure & free to express their opinions. d) Decision: Ability to solve problems in ways that will benefit the enterprise. 2. It requires knowledge: Learning & acquiring knowledge from various subjects such as Marketing, Finance, Production, etc.

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Principles and Practices of Management 3. Art is creative: As a discipline in function of creativity. We notice this creativity in facing challenges of competition. Introduction of new product, advertising campaigns etc. 4. Art is Personalized: Every person has different ways & means of performing Art. Similarly every individual has different type of management, we categorize them as Democratic, Autocratic, Patternistic, Beaurocratic etc. 5. Art is Performance: Performance indicators such as profit, growth & development, market share can only understood management as a concept. Managing as practice is an Art; the organized knowledge underlying the practice may be referred to as Science Management as Science 1. 2. 3. 4. 5. Science is a body of organized knowledge. Science is developed over a period of time. Science establishes cause & effect relationship. Science has predictive power. Rules / Regulations in Science varied from time to time. Old rules are challenged & new rules are established. 6. Science is of two types: perfect science like physics/chemistry/maths and social science as management. Above rules also apply to the management as social science which consists of history of management thought. Management as a subject developed over a period of time. Generalizations in management e.g. if you spend more money on advertisement sales may go up. If you keep employees happy there may not be any labour strikes. This word may happen/may not happen make management social science. Management as a Profession Before discussing about management as a profession it is better to know about what actually the profession means. Any discipline to be called as profession must fulfill following conditions e.g. like medicine, law. a) It requires definite period of learning. b) It has centralized rule making authority. Page 3

Principles and Practices of Management c) d) e) f) It has enforceable code of conduct. It needs certificate of practice. Membership through acquired qualification approval. Social commitment/obligation/accountability.

If we compare above features with that of management, we get confusing signals. 1. Anybody can become a manager does not require any specific qualification or definite period of learning. 2. It has no centralized rule making authority. There are number of parent bodies in specialized functional areas. 3. These parent bodies can publish desirable code of conduct but that cannot be enforced by law in management. 4. There are many business that are managed/controlled/owned by various business families in India such as Tatas, Ambanis, Birlas, individuals born in business families get ownership right/management right mainly due to law of inheritance. It is irrespective of qualification they hold. 5. Management as a discipline does not require any certificate of practice. There is no legal definition of the term manager. 6. Managers do have social commitment/ obligation/accountability. This is the part of social responsibilities of management. These responsibilities are desirable & not enforceable under law. Management as Profession Management as a subject is a dynamic, so the term Profession or Professional Manager has got different connotation. This approach is very close to practice of management. This approach clarifies the role of professional manager as well as who can be called as professional manager. At the outset, it must be made clear that professional manager is a mindset that signifies: 1. Separation of ownership from management. 2. Knowledge based decision instead of intuition and individual based decision making. 3. It based on the experience & expertise of past manager in the requisite field. Page 4

Principles and Practices of Management 4. Professional manager are objective/focused/performance oriented. 5. They help organizations in chalking out corporate strategies. 6. They help in meeting competitive challenges of business. 7. Specialization in every field, technological advancement, globalization of business results into appointment of qualified managers at every level. They can be called as professional manager. 8. Professional managers are creative/dynamic. 9. They follow management based on worldwide experiences & information. 10.They apply theories of management to solve emerging organizational problems. From the above you will clearly notice that management is a combination of Art, Science and Profession.

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Principles and Practices of Management

Q2. Planning cannot eliminate risk, but minimize it. Explain this statement with reference to the limitations of planning. Also write a note on the various strategies adopted by Indian companies to stay ahead of competition. Ans. Management functions begin with forecasting. It is the scientific process of looking forward which is based on past performance, current analysis & future trends. Planning is based on forecasting. Planning is defined as a long look ahead, broad look around and a searching look within. Actually planning is based on answering following questions. a) What is to be done? b) Why to do it? c) How to do it? d) Where to do it? e) Who will do it? f) When to do it? Planning is an imperative in uncertain environment. It actually makes company competitive, it helps the company to face future challenges, it gives direction & helps in formulating specific strategies & due to these characters it also anticipate risk factors & eliminates waste. It cannot fully eliminate risk. But its risk can be minimized if the information is authentic and reliable to that particular organization. Its risk also depends upon the internal & external variable which are beyond the control of the planner. Strategies can be called the Action Component of planning. It is a competitive planning. Indian companies have adopted various strategies for survival & facing the threats from competition & also to stay ahead of the competition. Following are the examples of recent corporate strategies: 1. 2. 3. 4. 5. 6. 7. 8. 9. Joint ventures, Alliances, Tie-ups. Take-over, Acquisitions. Reverse mergers, mergers & amalgamations. Demerger. Core competence. Diversification. Harvesting. Disinvestments. Brand-building etc.

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Principles and Practices of Management The purpose of strategies then is to determine & communicate, through a system of major objectives & policies, a picture of the kind of enterprise that is envisioned. Strategy introduces a word called vision which is essentially a dream with a deadline. It is a look beyond the present to see what the future can be. Vision statement should have the following components: a) An ability to inspire people to work for the organization. b) It should be precise & objective. c) It should be worthiness, which creates a lasting impact. d) It should be achievable & realizable. e) It should be clear & understandable detail. Indian corporates show the vibrate dreams of their leaders. The tractor of Mahindra & Mahindra Company has declared the vision to be the worlds biggest tractor manufacturers by 2003. Powerful visions if communicated always produce powerful results. An organization without a vision is like a ship without a rudder. Mission: It is derived from the vision statements. It elicits an emotional, motivational response. It is easily understood & can be transformed into individual action. Has a major able, attainable goal. It is simple, honest & frank & is fully believed. Mission is an action-oriented & enduring expression of how a company wants to accomplish visions. A corporate example of a mission statement of PepsiCos is PepsiCos mission is to increase the value of our shareholders investment. We do this through sales growth, cost controls & wise investment of resources. Hence mission statement ends up company at its final destination-success. Statement of vision and mission are not just elements of future planning. They also provide benchmarks for an historic view. Managers will find it difficult to develop a future strategy for a business without correctly articulating its vision and mission. Vision & mission must be combined with corporate values so as to have the realization of the organizational goals.

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Principles and Practices of Management Q4. Define delegation of authority. What are the problems in delegation? Explain the principles of effective delegation. Ans. To delegate is to give, offer, confer and allot a part of authority to subordinate. Authority is right to act or decide. As simple as delegation of authority appears to be, studies have shown that many managers fail because of poor delegation. Delegation is necessary for an organization to exist. Just as no one person in an enterprise can do all the tasks necessary for accomplishing a group purpose, so is it impossible, as an enterprise grows, for one person to exercise all the authority for making decisions. There is a limit to the number of persons managers can effectively supervise & make decisions for. Once this limit has been passed, authority must be delegated to subordinates, who will make decisions within the area of their assigned duties. Authority is delegated when a superior give a subordinate discretion to make decisions. Delegation becomes must because a) Structure of authority/accountability exists. b) Superiors need to concentrate on important and vital issues. Degrees of Delegation As mentioned delegation is a network of authority relationship established. This delegation has basically five degrees zero, low, moderate, high, and fifth degree. a) Low degree of Delegation: Low degree of delegation is that in which superior states a particular task to his subordinate & tell him to investigate on that task & report back. b) Moderate degree of Delegation: Moderate degree of delegation is that in which superior states a particular task to his subordinate & tell him to investigate on that task & report back with an action plan. c) High degree of Delegation: High degree of delegation is that in which superior states a particular task to his subordinate & tell him to investigate on that task, make an action plan, formulate the plan and then report back with the results and reasons. 1. Clarifying the assignment Clarifying the assignments is the initial steps for an effective delegation process. There are two steps which clarifying the assignment has to follow.

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Principles and Practices of Management a. What to be delegated: a superior should always be clear as to what is to be delegated to the subordinate. He should see to it that the subordinate has the perfect knowledge & skill to perform the delegation. b. Whom to be delegated: This is the important point while considering the clarifying the assignment. It should be seen the subordinate to whom the authority is being delegated has a perfect motivation and zeal to do a particular job. Until & unless a subordinate has these two qualities the efficiency of the work is null. 2. Specify the subordinates range of discretion It should be always clear for a subordinate as to the parameters he has to work in the boundaries & the limitations for the delegation should be clear so that subordinate knows where to work & how to perform there. 3. Allow the subordinate to participate If the superior allows participating more, he will be much clear about the knowledge & their skills that his subordinates excels in and it will be easier for him to decide as to which part of authority should be delegated to him. On the whole it will increase the employee motivation. 4. Inform others that a delegation has occurred Different people have different personalities and as a result different approaches. When a delegation occurs in an organization all those who are affected by the delegation should always be informed so that they get to know that under whom they have to perform the job and clearly see as to the way their superior wants a particular job to be done so that they mould themselves in the same manner. 5. Establish feedback control This is a most important factor. Superior should always establish feedback control so that subordinates report back to them periodically, give them time to report back, monitor their progress. In this manner superior can identify the problems faced by his subordinates & look for the solutions. Due to this delegation in the organization it reduces the work load of superiors permitting them to concentrate on key areas. It also helps subordinate to grow & develop. Due to this delegation it helps in exercising effective control over the activities of subordinates & also Page 9

Principles and Practices of Management provides satisfaction to subordinates in terms of recognition and this also results in prompt decision-making. Problems in Delegation 1. Some managers believe in fallacy i.e., if we want it done right, do it yourself. 2. Managers lacking required confidence & trust in subordinates might not be interested in delegating the authority. 3. Low self-confidence & more over confidence amongst the managers may create a bottleneck in a process of delegation. 4. Fear amongst managers that they will lose status & position. 5. Poor examples set by superiors who do not delegate may discourage the managers to delegate further. Principles of Effective Delegation 1. Explain the degree of delegation (as explained above). 2. Select appropriate subordinates to delegate the authority. 3. Keep line of communication open. There should be a free flow of information between superior & subordinate so that subordinate can take decisions & to interpret properly the authority delegated. 4. Superior should train the subordinate; motivate them to get the results effectively. 5. Managers should be ever watchful for means of rewarding both effective delegation and effective assumption of authority financial and non-financial. 6. Delegation should be accompanied by techniques for ensuring that the authority is properly used. But if controls are to enhance delegation, they must be relatively broad and be designed to show deviations from plans, rather than interfering with routine actions of subordinate. 7. Dont delegate and disappear. 8. Dont follow practices of Delegation on Paper that should be implemented otherwise it is of no use rather it wastes energy and paper. 9. Believe in feedback, interaction & result orientation of delegation. 10.Last but not least follow Principle of Exception. Subordinate should approach superior only in case of exceptional matter, urgent matter, discretionary matter requiring your attention & authentication. For all other routine matters subordinate should function independently.

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Principles and Practices of Management

Q6. Write Detailed notes on (A) Delegation of Authority. (B) Barriers to Communication & Principles of effective communication. Ans. (A)Delegation of Authority To delegate is to give, offer, confer and allot a part of authority to subordinate. Authority is right to act or decide. As simple as delegation of authority appears to be, studies have shown that many managers fail because of poor delegation. Delegation is necessary for an organization to exist. Just as no one person in an enterprise can do all the tasks necessary for accomplishing a group purpose, so is it impossible, as an enterprise grows, for one person to exercise all the authority for making decisions. There is a limit to the number of persons managers can effectively supervise & make decisions for. Once this limit has been passed, authority must be delegated to subordinates, who will make decisions within the area of their assigned duties. Authority is delegated when a superior give a subordinate discretion to make decisions. Delegation becomes must because a) Structure of authority/accountability exists. b) Superiors need to concentrate on important and vital issues. Degrees of Delegation As mentioned delegation is a network of authority relationship established. This delegation has basically five degrees zero, low, moderate, high, and fifth degree. a) Low degree of Delegation: Low degree of delegation is that in which superior states a particular task to his subordinate & tell him to investigate on that task & report back. b) Moderate degree of Delegation: Moderate degree of delegation is that in which superior states a particular task to his subordinate & tell him to investigate on that task & report back with an action plan. c) High degree of Delegation: High degree of delegation is that in which superior states a particular task to his subordinate & tell him to investigate on that task, make an action plan, formulate the plan and then report back with the results and reasons. 1. Clarifying the assignment

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Principles and Practices of Management Clarifying the assignments is the initial steps for an effective delegation process. There are two steps which clarifying the assignment has to follow. a) What to be delegated: a superior should always be clear as to what is to be delegated to the subordinate. He should see to it that the subordinate has the perfect knowledge & skill to perform the delegation. b) Whom to be delegated: This is the important point while considering the clarifying the assignment. It should be seen the subordinate to whom the authority is being delegated has a perfect motivation and zeal to do a particular job. Until & unless a subordinate has these two qualities the efficiency of the work is null. 2. Specify the subordinates range of discretion It should be always clear for a subordinate as to the parameters he has to work in the boundaries & the limitations for the delegation should be clear so that subordinate knows where to work & how to perform there. 3. Allow the subordinate to participate If the superior allows participating more, he will be much clear about the knowledge & their skills that his subordinates excels in and it will be easier for him to decide as to which part of authority should be delegated to him. On the whole it will increase the employee motivation. 4. Inform others that a delegation has occurred Different people have different personalities and as a result different approaches. When a delegation occurs in an organization all those who are affected by the delegation should always be informed so that they get to know that under whom they have to perform the job and clearly see as to the way their superior wants a particular job to be done so that they mould themselves in the same manner. 5. Establish feedback control This is a most important factor. Superior should always establish feedback control so that subordinates report back to them periodically, give them time to report back, monitor their progress. In this manner superior can identify the problems faced by his subordinates & look for the solutions.

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Principles and Practices of Management Due to this delegation in the organization it reduces the work load of superiors permitting them to concentrate on key areas. It also helps subordinate to grow & develop. Due to this delegation it helps in exercising effective control over the activities of subordinates & also provides satisfaction to subordinates in terms of recognition and this also results in prompt decision-making. (B) Barriers to communication communication & principles of effective

It is probably no surprise that managers frequently cite communication break-downs as one of their most important problems. Barriers can exist in the sender, in the transmission of the message, in the receiver, or in the feedback. Specific communication barriers are mentioned below: a) Lack of Planning: Good communication seldom happens by chance. Too often people start talking and writing without first thinking, planning and staffing the purpose of message. Yet giving the reasons for a directive, selection the most appropriate channel and choosing proper timing can greatly improve understanding and reduce resistance to change. b) Unclarified Assumptions: Often overlooked, yet very important, are the uncommunicated assumptions that underlie messages. A customer may send a note stating that she will visit a vendors plant. Then she may assume that the vendor will meet her at the airport, reserve a hotel room, arrange for transportation, and set up a full scale review of the program at the plant. But the vendor may assume that the customer is coming to town mainly to attend a wedding and will make a routine call at the plant. These unclarified assumptions will result in confusion and the loss of goodwill. c) Semantic Distortion: Another barrier to effective communication is semantic distortion, which can be deliberate or accidental. An advertisement states we sell for less is deliberately ambiguous; it raises the question less than what? Words may evoke different responses. To some people the word government may mean interference or deficit spending; to others, the same word may mean help, equalization and justice. d) Poorly expressed messages: No matter how clear the idea in the mind of the sender of communication, it may still be marked by poorly chosen words, omissions, lack of coherence, poor organization of ideas, etc. This lack of

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Principles and Practices of Management clarity and precision, which can be costly, can be avoided through greater care in encoding the message. Communication Barriers in the International Environment: Communication in the international environment becomes even more difficult because of different languages, cultures, and etiquette. Translating slogans is very risky. To overcome communication barriers in the international environment large corporates have taken a variety of steps e.g. large staff of translators, provides extensive language training etc. Loss by Transmission and Poor Retention: In a series of transmissions from one person to the next, the message becomes less and less accurate. Poor retention of information is another serious problem. Thus, necessity of repeating the message and using several channels is rather obvious. Poor Listening and Premature Evaluation: There are many talkers but few listeners. Everyone probably has observed people entering a discussion with comments that have no relation to the topic. One reason may be that these persons are pondering their own problems such as preserving their own egos or making a good impression on other group members instead of listening to the conversation. Impersonal communication: As the events in the Perspective indicate, real improvement of communication often requires not expensive and sophisticated (and impersonal) communication media but the willingness of superiors to engage in face-to-face communication. Distrust, Threat and Fear: Distrust, threat, and fear undermine communication. In a climate containing these forces, any message will be viewed with skepticism. Distrust can be the result of inconsistent behavior by the superior, or it can be due to past experiences in which the subordinate was punished for honestly reporting unfavorable, but true, information to the boss. Insufficient Period for Adjustment to Change: Changes affect people in different ways, and it may take time to think through the full meaning of a message. Consequently, for maximum efficiency, it is important not to force change before people can adjust to its implications. Information Overload: One might think that more and unrestricted information flow would help people overcome communication problems. However, changes are that attention will be given first to matters that are easy to Page 14








Principles and Practices of Management handle, while more difficult but perhaps critical messages are ignored. People respond to information overload by simply escaping from the task of communication. l) Other Communication Barriers: Besides the mentioned barriers to effective communication, there are many others. In selective perception people tend to perceive what they expect to perceive. In communication this means that they hear what they want to hear and ignore other relevant information. Still other barriers to communication are differences in status and power between the sender and the receiver of communication. Barriers also resulting from illiteracy, ignorance, superstition in a country like India. Principles of Effective Communication Effective communication is the responsibility of all persons in the organization, managers as well as non-managers, who work toward a common aim. Whether communication is effective can be evaluated by the intended results. The following guidelines can help overcome the barriers to communication: 1. Senders of messages must clarify in their minds what they want to communicate. This means that one of the first steps in communicating is clarifying the purpose of message and making a plan to achieve the intended end. 2. Effective communication requires that encoding and decoding be done with symbols that are familiar to the sender and receiver of the message. Thus the manager should avoid unnecessary technical jargon. 3. The planning of the communication should not be done in a vacuum. Instead, other people should be consulted and encouraged to participate: to collect the facts, analyze the message, and select the appropriate media. 4. It is important to consider the needs of the receivers of the information. Whenever appropriate, one should communicate something that is of value to them, in the short run as well as in the more distant future. 5. There is a saying that the tone makes the music. Similarly, in communication the tone of voice, the choice of language, and the congruency between what is said and how it is said influence the reactions of the receiver of the message. 6. Too often information is transmitted without communicating, since communication is complete only when the message is understood by the receiver. And one never knows whether communication is understood unless the sender gets feedback. Page 15

Principles and Practices of Management This is accomplished by asking questions, requesting a reply to a letter, and encouraging receivers to give their reactions to the message. 7. The function of communication is more than transmitting information. It also deals with emotions that are very important in interpersonal relationships between superiors, subordinates, and colleagues in an organization. 8. Effective communicating is the responsibility not only of the sender but also of the receiver of the information. Thus, listening is an aspect that needs additional comment. 9. Remember the various barriers to communication avoid mental blocks, closed mind, ego problems. 10.Speak to the point and avoid communication garbage.

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Principles and Practices of Management Q7. Define Decision-making. Prepare list of factors that affect decision-making process. Ans. Decision-making is defined as selection of a course of action from among alternatives; it is at the core of planning. A plan cannot be said to exist unless a decision a commitment of resources, direction or reputation has been made. Decision making as a process and function of management is very vital as many critical aspects of management depend upon the right decision at the right time. It is an intellectual process involving the following steps: a) b) c) d) e) f) g) Identify the problem. Collect information from all possible sources. Develop alternatives. Compare and evaluate these alternatives. Decision making stage of making a choice among alternatives. Implementation and communication of decisions. Follow-up and review.

Factors Affecting the Decision Making Process 1. Information It must be available, authentic, adequate, reliable must be available at the right time. It must be analysed and presented in the right manner. 2. Time Factor Decision must be taken at the right time. 3. External Environmental Factors As decision making is always interactive with the environment, various environmental factors influence decision making such as economic, political, social, cultural, technical, ethical, legal, global factors. 4. Internal Factors Rules, regulations, procedures within the organization or administrative restrictions also affect decision making. 5. Personality of the Decision Maker or Subjectivity The decision making process has a lot to do with who is the decision maker, his attitudes, perceptions, values, style of functioning, the nature of personality and overall way of thinking. 6. Participation, Acceptance and Implementation Elements of how decisions are taken, how far they are accepted and

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Principles and Practices of Management how they are to be implemented also contribute in the decision making process. 7. Precedent In a bureaucratic set up this becomes a ruling factor as questions like Have we done this before?, Is there a precedent of taking such decisions? are often asked before taking decision. 8. Experience of a Decision Maker As it is said that experience is the best teacher, maturity in business experience of a manager go a long way in taking effective decisions. 9. Power to Decide Many times, people know what is wrong in the organization, but often they do not have the power to decide and act. That is how the concept of empowerment is evolved which talks about decision making to the lowest possible level. 10.Escalation of Commitment: After a decision has been taken, it is often felt that the decision is going in a wrong way, but more than half of the work is completed. Therefore, there comes a point of no return and the decision has to be completed in spite of negative feedback. 11.Bounded Rationality Constructing simplified models that extract the essential features from the problems without capturing all their complexities. The decision maker settles for the early solution that is good enough. In Laymans language, decision maker finds out the earliest available alternatives, takes certain things for granted and acts on it. The decision maker takes generalized judgmental shortcuts which are also called heuristics. For e.g. if two students from a particular management institute show exemplary performance in the job, the judgmental shortcut is every student from this institute is good, and vice-versa. 12.Problem Perception: Problems that are visible catch a decision makers decision. These problems become the first to be acted upon or a priority. For e.g., if at the time of the chief executive officers (CEO) visit, workers start agitating, then this agitation becomes the main problem for the CEO because it is visible for him.

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Principles and Practices of Management PART B

Q8. Services Sector is Indias new economy critically comment. What are the general management challenges in Service Sector? (Support your answer with corporate examples). Ans. Service is popularly defined as The Art and Science of managing the experiences and exceptions of others. A service is intangible i.e., this is not a physical transfer of goods, yet it provides satisfaction to the customer. Good service makes the customer feel good. It is provided by people not by machines. The key features of services are: 1. Intangibility: This is not a physical transfer of goods. For e.g., Hotels offer comfort, airlines offer travel etc. 2. Simultaneous production and consumption: The services are created and delivered on the spot. For e.g. the consultancy services of a doctor. 3. Non-Inventorial: Services cannot be stalked as inventory and delivered at a later stage. For e.g. a room in a hotel is vacant would mean loss of revenue which cannot be made good later. 4. Low Entry Barriers: Services are a good opportunity for new entrepreneurs as they require little investment and hence they also lead to a high degree of competition as the entry barriers in the service sector are low. 5. Environment Factors: The influence of the various environment factors can be felt strongly in the service sector, just as in case of the manufacturing sector. Now a days Service sector is contributing more than the half of the national income. But its contribution to the employment generation has been less than proportionate. The share of service sector has grown considerably in Gross Domestic Product from 35% to 47% (approximately). The total employment has also gone up but not in the proportion of market share as per the 1999-2000 RBI report. One out of two Indians earn his livelihood by providing services. This is because services is the most diverse sector of the economy, consisting of neurosurgeons, college professors and housemaids. Though the services sector has expanded relentlessly in the past decade, three related events of the 1990s gave it a pre-eminence.

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Principles and Practices of Management 1. An explosion in information technology (IT). 2. A slower growth and painful restructuring manufacturing industry and 3. A virtual stagnation in agriculture.



As a consequence, India seems to leap from agriculture to services, by passing the industrial evolution, unlike most other economies. Hence, Service is Indias new economy The growth of services sector is good, but the failure of the industry to grow is bad. The reasons for the stunted industrial growth, like restrictive licensing system, a closed economy, anti-employment laws etc do not exists for services. For most hi-tech service industries, the two ingredients of are: a. Labour b. Knowledge Both labour and knowledge is abundant in India. But this sector cannot keep growing by itself. Services need efficient telecom, transport, roads and power as much as industry and agriculture. The country has to invest more and better in human resources. India has under invested in education. The quality of human capital varies from world class computer professionals to complete illiterate. The government's projections of the growth of GDP in 2002-2003 are being revised by various government departments. Within two months of the start of the new fiscal year (which occurs in April), the then finance minister Yashwant Sinha had announced that GDP was likely to grow by 6 to 6.5 per cent this year. This figure was always highly suspect, for it required agriculture to grow by 4.5 per cent, industry to grow by 5.5 per cent and the services sector to grow by 6.5 to 7.5 per cent. A more conservative and far more respected set of estimates were those of the Centre for Monitoring the Indian Economy (CMIE), which projected 4.1 per cent - 2 per cent in agriculture, 4 per cent in industry and 6 per cent in services. However, the 6 per cent estimate had been cooked up by the Reserve bank of India, no less. So it became the government's new mantra. This figure was trotted out confidently by the prime minister.

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Principles and Practices of Management

Reasons for the Service Sector grown? The failures of countries to preserve an advantage in manufacturing. This is because technological development that increase manufacturing productivity pass with increasing rapidity across national borders, hence it becomes harder for any country to gain a competitive advantage just by making things and this advantage will have to come from design, marketing, branding and distribution. There has been a marked tendency to distribute specialized knowledge and high technology-embedded capital for labour in goods producing process. For e.g. only 5% of IBMs employees are involved in physical production and only 10% of the purchase price of the PC goes to actual manufacturing. Contracting out is another reason for expansion of services. Many firms, which were traditionally performing services activities in-house now, find it more efficient to hire these to service producing firms. Firms prefer to buy-in particular skills that requires rather than expensive labour that is not fully utilized. As income per capita rises, agriculture loses its primacy, giving way first to a rise in the industrial sector, then to the rise in service sector. The service sector produces intangible goods, some well known government, health, education and some quite new modern communication, information & business services tends to require relatively less natural capital and more human capital than producing agricultural or industrial goods. As a result demand has grown for more educated workers, prompting countries to invest more in education an overall benefit to their people. Another benefit of the growing service sector is that by using fewer natural resources than agriculture or industry, it puts less pressure on local, regional, and global environment. Conserving natural capital & building up human capital may help global development become more environmentally & social sustainable. For example in the service sector, India's foreign equity caps are a disincentive to foreign investment. Foreign insurance companies are eager to enter India's virtually vacant market, but New Delhi requires them to form joint ventures with local firms and limit their investment to 26 percent. Because of a 45-year government monopoly on insurance, only a few Indian firms are experienced enough to enter a

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Principles and Practices of Management joint venture with an foreign insurance company. Even fewer possess the financial wherewithal to provide the 74 percent investment necessary to start a new business. If an agreement could be reached to lift the foreign equity cap, more foreign investors would be able to enter the market, providing better insurance coverage for Indians in the process. Four As of Service Sector 1. Accountability: There are many services which have emerged recently, but the big question is Is the Indian society ready to accept such services? For e.g. professionally managed old-age homes or day care centers and even wedding management services. As our social and cultural fabric is different, it may take some time to accept such services. 2. Awareness: As the services sector is new to our economy, many individuals and sections in society are not aware of the number of services being offered in their towns and cities, such as, maintenance of housing societies, payment of all taxes and bills, or reestablishment service for an executive who has been transferred from one city to another. 3. Affordability: Services as a concept being intangible and many times taken for granted, people are not yet ready to pay a price for it. So any services offered must be affordable. 4. Availability: Services have a wide spectrum of activities. For e.g. in Delhi, some entrepreneurs started with mobile Maruti maintenance service where the concept is that Maruti Van acts as mobile service station. But, looking at the distances to be covered in Delhi and the traffic jams, reach ability and availability of services is the big question. A simple example would be childrens day care centers or crches not just being acceptable to people but also their availability closer to home. Management Challenges in the Service Sector a. General Management Challenges 1. 2. 3. 4. 5. 6. Communicating the concept (How to put across the idea of a particular service that is being offered). Branding. Packaging. Differentiating Factors. Revenue Model (How many will be generated? Do we have sustainable income model? Who are our customers) Product, Price, Place, Promotion.

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Principles and Practices of Management 7. Pace, People and their experiences (The speed at which services are to be launched, adopting as per time, and managing the experiencing of people).

b. Functional Management Challenges 1. Human resources (How to advertise the service? How to retain them? How to train and develop them?) 2. Marketing and advertising (How to advertise the service? How to do a market research? How to work on customers feedback?) 3. Finance and taxation (How to raise the required capital? Time factor and break-even point, Accounting challenges, Taxation implications in terms of budgetary provisions). Looking at the earlier information in this section, it can be said that services sector is our new economy consisting of Information Communicating and Entertainment Companies or Technology Media and Telecommunication Companies. Though India has leapfrogged into contribution towards our GDP suggests: services sector, its major

1. Services will provide jobs for tomorrow. 2. There will be unprecedented growth of a number of services. 3. It will require a new set of management practices to be successful. 4. There is a tremendous scope for creativity in this sector. 5. With a most talented manpower in India, this sector is the strength of our economy to show the world that Indians have arrived on the global scene.

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Principles and Practices of Management Q9. Write a detailed note no Retailing Sector in India Growth prospects & various challenges.Ans. Retailing consists of those business activities, which are involved, in the sale of goods or services to consumers for their personal, family or household use. It is the final stage in the distribution process for goods and services from manufacturers to final consumers Retailing involves - Interpreting needs of the consumers - Developing good assortments of merchandise - Presenting them in an effective manner so that consumers find it easy and attractive to buy. Retailing differs from marketing in the sense that it refers to only those activities, which are related to marketing goods and/or services to final consumers for personal, family or household use. Whereas marketing, according to American Marketing Association, refers to "the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives." Organizational buyers purchase in order to perform a task or sell a product effectively, efficiently and at a profit. They could be industrial buyers or intermediary buyers. Industrial buyers are those who purchase goods and services to be used in or to aid manufacturing process. Intermediary buyers are those (i.e. wholesalers and retailers) who buy merchandise for resale. Retailers include street vendors, local supermarkets, department stores, restaurants, hotels, barbershops, airlines and even bike and car showrooms. Still retailing may or may not involve the use of a physical location. Mail and telephone orders, direct selling to consumers in their homes and offices and vending machines - all fall within the purview of retailing. In addition to it, retailing may or may not involve a "retailer." Manufacturers, importers, non-profit firms and wholesalers are acting as retailers when they sell goods and/or services to final consumers. Whatever the form of retailing, a retail marketing strategy defines the execution of the marketing process and facilitation of customer satisfaction. This retail marketing strategy involves selecting a retail target market (i.e. the carefully/exactly identified group of final consumers that a retailer seeks to satisfy) and then implementing the corresponding retail marketing mix (i.e. a combination of product, price, promotion and distribution strategies that will satisfy the retail target market). The elements of the marketing mix encompass the facets shown in the table below. The table depicts consumer service as the crux of the whole activity.

Retailing Industry in India Even though India has well over 5 million retail outlets of all sizes and styles (or non-styles), the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term. This presents international retailing specialists with a great opportunity. It was only in the year 2000 that the global management consultancy AT Kearney put a figure to it: Rs. 400,000 crore (1

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Principles and Practices of Management crore = 10 million) which will increase to Rs. 800,000 crore by the year 2005 an annual increase of 20 per cent. Retailing in India is thoroughly unorganized. There is no supply chain management perspective. According to a survey b y AT Kearney, an overwhelming proportion of the Rs. 400,000 crore retail market is UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is organized. As much as 96 per cent of the 5 million-plus outlets are smaller than 500 square feet in area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India's per capita retailing space is thus the lowest in the world (source: KSA Technopak (I) Pvt Ltd, the India operation of the US-based Kurt Salmon Associates). Just over 8 per cent of India's population is engaged in retailing (compared to 20 per cent in the United States). There is no data on this sector's contribution to the GDP. From a size of only Rs.20, 000 crore, the ORGANISED retail industry will grow to Rs. 160,000 crore by 2005. The TOTAL retail market, however, as indicated above will grow 20 per cent annually from Rs. 400,000 crore in 2000 to Rs. 800,000 crore by 2005 (source: survey by AT Kearney) Given the size, and the geographical, cultural and socioeconomic diversity of India, there is no role model for Indian suppliers and retailers to adapt or expand in the Indian context. The first challenge facing the organized retail industry in India is: competition from the unorganized sector. Traditional retailing has established in India for some centuries. It is a low cost structure, mostly owner-operated, has negligible real estate and labour costs and little or no taxes to pay. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector. In contrast, players in the organized sector have big expenses to meet, and yet have to keep prices low enough to be able to compete with the traditional sector. High costs for the organized sector arises from: higher labour costs, social security to employees, high quality real estate, much bigger premises, comfort facilities such as air-conditioning, back-up power supply, taxes etc. Organized retailing also has to cope with the middle class psychology that the bigger and brighter a sales outlet is, the more expensive it will be. The above should not be seen as a gloomy foreboding from global retail operators. International retail majors such as Benetton, Dairy Farm and Levis have already entered the market. Lifestyles in India are changing and the concept of "value for money" is picking up. Page 25

Principles and Practices of Management India's first true shopping mall complete with food courts, recreation facilities and large car parking space was inaugurated as lately as in 1999 in Mumbai. (this mall is called "Crossroads"). Local companies and local-foreign joint ventures are expected to more advantageously position than the purely foreign ones in the fledgling organized India's retailing industry. These drawbacks present opportunity to international and/or professionally managed Indian corporations to pioneer a modern retailing industry in India and benefit from it. The prospects are very encouraging. The first steps towards sophisticated retailing are being taken, and "Crossroads" is the best example of this awakening. More such malls have been planned in the other big cities of India. An FDI Confidence Index survey done by AT Kearney, retail industry is one of the most attractive sectors for FDI (foreign direct investment) in India and foreign retail chains would make an impact circa 2003.

The customers of the 21st century would expect to pick his/her own products from an array of choices rather than asking the local kirana wallas to deliver a list of monthly groceries. Thus the way of distribution of products has gained importance in the past decade. What is the reason that big groups like Tatas, ITC, Piramal Enterprises and S.Kumars are putting huge amounts of money into retailing? The answer is very simple. Now, just a couple large organized retailers are in the market whose turnover crosses Rs. 100 crore. And in this sector anything above 25 crore counts you as a major player. Shopper's Stop: Shopper's Stop launched its Mumbai branch in 1991 with their men's line soon followed by women's and children clothes. The concentration was on "one room, one ambience, and one experience" and its success resulted in opening new branches in Bangalore and Hyderabad. Cashing on in the current consumerist trend, the shop not only offers products but also offers an avenue to channelize operations. For customers who cannot afford a John Miller or Wendell Rodericks original once a year moderately priced truck show is held at Shopper's Stop. Challenges Ahead For Retailing Organized retailing is not a bed of roses for the big players also. In addition to the advent of Internet, various issues glare at retailing. Some of them are Human Resource: Big retail shops do not confine their target segments for employees to undergraduates. Shoppers Stop broke the myth of MBAs not wanting to go into the retailing career. Cross Roads and Spencer also hire MBAs to manage their chains. However there still exists a gap between the supply and demand of professionals. Mr.

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Principles and Practices of ManagementGoenka, chairman RPG Group, hopes that one of the greatest challenges facing modern retailing in India is the availability of trained personnel. In order to address the problem RPG Group has set up a national retail Institute in Chennai, which, offers a variety of courses in retail management for frontline, supervisory and managerial post. Retaining the human resources is also a major challenge for these big retailers. The bigwigs like Crossroads offer high compensation and create a cohesive environment that makes an employee proud to be a part of such big retail chains. Space and Infrastructure: To establish a retail shop/ Mall, the real estate and the infrastructure are very vital. The expenditure and availability on both the accounts do hinder the growth of the retail chain. The land ceiling restrictions and other state restrictions on land use have prevented the growth of efficient retailing in the cities. An average investment of about Rs. 5 crore is required to establish a mall and that explains the rush of big companies into this business. Small and individual retailers find it difficult to pour in that much of investment. In addition to the initial investment, to combat e-tailing, expenditure has to be incurred on technological side. This makes the retail projects less attractive for the individual players. Consumer Mindset Towards Discount Stores: In India the concept of discount stores like Wall-Mart, at which genuine, defect free international brands are available at 50% discount, is yet to catch on. Still, the major section of customers is conservative and choosy and prefers to go to a known retail shop than opt for a discount store. Very few discount stores like SM2, Mumbai are at present operational. Its reach is confined to major cities. Breaking the conventional mindset of the Indian consumers that discount stores do not sell inferior goods will take some time. Rural Market- How To Penetrate? Penetration into the rural market is what big retailers have to concentrate on for growth. Attracting rural markets will be different from that of the urban market. For example detergent cakes are preferred to powder and coconut oil in bottle to sachets in the rural areas. The rural consumer are different from the urban consumers as they are more price sensitive and their quantity of consumption would be less as their share of wallet for shopping along with entertainment is delineated. Food and agricultural inputs dominate the rural consumers list and whatever is left would be used to fulfill aspiration needs. Customers in the rural area are not urbanites without money. He has a distinct identity and value system. One more challenge in the rural market is that shopping habits vary according to seasons. During harvest time, the spending of a rural consumer increases compares to other times. However, penetration of television, increasing literacy levels, mobility between rural and urban areas and telecommunication (STD Services) have increased their awareness towards branded products and entertainment. Customized retail shops would be a big success in the rural areas too if the right strategies are adopted.

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Principles and Practices of ManagementE-Tailing The retailing community has accepted and realized the fact that the consumers want to choose between the variety of brand and value for money is their topmost priority. The big retailers have to deliver a consistent branded experience. Crossroads in Mumbai is an endeavor to achieve the same, though its target segments the upper and upper middle class. Technology has made a difference in retailing also. E-tailing (through internet) is considered to be eroding the store retailing slowly. Is it the real picture? With the concept of B2C (Business to Consumer Transactions over internet) coming up at a fast pace, an intimate two-way access is emerging between the retailer and the customers. Customized products are offered to the customers. For instance while one buys a book through Amazon.com, a synopsis of the book, its reviews, its prominent readers and other books of the same author are some of the information provided to the customers. Within minutes of placing an order, one gets a confirmation thus saving time and satisfying the customer. The penetration level of the internet is increasing at a pace that the reach would be equivalent to what television took about 40 years and that cable about 15 years. In online services and the web, the retailers seek out the customers unlike the traditional model where the customer goes to the store and locates the product. The busy life-style of the consumers in this hectic era, tilts the preference needle towards the online retail model. However, B2C success depends on the behavioral and attitudinal changes in customers. First, the customers have to be familiar with Internet and have to be informed about buying on the net. Then, the customers have to build the mentality to trust the e-sellers and be convinced on the products quality. The KSA customer 2000 study showed that only 1% have ever used net shopping though 40% are aware of it. But 10% of the representatives do not trust the quality in net shopping. This shows e-tailing (stand alone) has a long way to go in India. The major advantage of the retailers in India is that, most of the products operate on the push factor than pull factor. In order to popularize their products the manufacturers have to attract the customers to feel the products, physical existence and this is enabled by the retailers. Instead of viewing e-commerce as a threat for retailing the big retailers can embrace technology and provide value added and personalized services to the customers. In the recent times, companies like ARCHIES have used technology to their advertisement and increased their sales. By promoting, Fathers day, mothers, sisters, friendship, valentines, and even egg and Love at first sight days, Archies has been successful in pulling crowd in their galleries all over India. The big retailers can learn the lesson from Archies. A recent KSA Technopark survey finding showed that Apparels and Consumer durables occupy the top slot in priority for shopping in India. Apparels and Consumer durables and for that matter even footwear are those products which gives satisfaction when you feel it. How can the big retailers use technology in this? Technology is so flexible that it can coexist with business anywhere. The big retailers have to have their websites to combat the competition from e-tailing. For instance for clothing, the big retailers can show the variety and design offered by them through the net. A virtual experience can be provided and the customer can have n option whether to visit the shop or shop from home. If the virtual round through the shop is irresistible, the customer will definitely come to the shop for an experience at least. Thus, in this era of Information Technology store and retailers have to become technology savvy to satisfy customer preferences. The consumer mercantile activities grouped into three phases, prepurchase preparation, purchase consummation and post-purchase interaction have to

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Principles and Practices of Managementbe properly incorporated with technology. The model below explains the activities in the three phases of mercantile procedures.

Product / Service search and information gathering Comparison of shopping and product selection Placement of Order

Pre-Purchase Interaction

Authorization of payment

Purchase Consummation

Receipt of Product

Customer Service & Support Fig: Consumer Mercantile Activities

Post Purchase Interaction

In the product/ service search, the retailers can give search for basic products and the brands available with the retailer, the price and discounts if any. In case of customer specific information like size and colours, the available colours size and a preview of the same can be displayed to attract the customers. Comparison of the prices between the products and unique features and attributes can make the customer more informed and aware. The mode of receipt of money and the two-way communication i.e. between the customer and retailer will ensure better customer service. This will also ensure that the big retailers will not loose their customers who cannot visit their store but would prefer goods from that particular retailer. In case of purchase consummation, placement of order would be ensured if the customer were satisfied with the product range. An immediate confirmation for order placement would also give a sense of satisfaction to the customer. Proper dispatch of the product and acknowledgement of the receipt of payment would involve the customer in the process and provide him a sense of belonging.

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Principles and Practices of ManagementThe after sales service plays a vital role in customer satisfaction and loyalty. By providing the details and clauses for return of products, if such a situation arises, and personalized greeting cards to the customers would ensure a personal touch and would motivate the customers to refer the store to his/ her friends to visit the shop. Even though adopting e-tailing along with store retailing would involve larger investment and expenditure, the big retailers have to do so in order to sustain the onslaught of technology. With the customer, especially the upper class becoming more techno- savvy, the retailers need to formulate such strategies to retain and expand its customer base.

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Principles and Practices of Management Q.11 Event Management is the biggest challenges for Professional Manager discuss fully. Ans. Since ancient times human race has been engaged in mass activities the cause of which varied, to encourage the feeling of brotherhood, for recreation or just for beer and skittles. These activities include entertainment in sports. All these activities enhanced the feeling of brotherhood and sense of belongingness in the society. A new sector has emerged in modern times that have taken care of all these emotions and that sector is know to be as Event Management. An event management company works on an event from is very conceptualization and works till the execution of the same. Any mass gathering under the sun can be considered as an event be it a birthday party or republic day parade. To make it memorable one has to work on the details. To take care of all these things and to perform them professionally even management companies come in the picture. According to Kotler Events are the occurrences designed for marketing interests, it is among one of the third generation non personal marketing tools. Event management companies involve themselves in the planning, organizing, and execution of an event, which could include a product or a brand launch, an exhibition, a concert or even a conference. Events are basically an extended form of advertising, allowing brands to associate directly with the consumer. Event is a form of interactive advertising. Event Management as an industry in India is nascent, and in an unstructured form. Leading event management companies in India are Wizcraft, DNA Networks, CineYug, Pinnacle, Midas events etc. These companies have their specific areas of specializations like entertainment, sports events, celebrity management, corporate management, corporate events etc. These companies handle most of the big events like Filmfare awards, Femina Miss India Pageant, Zee Cine Awards, Sansui handled by government authorities. The biggest concourse under the sun Kumbhmela is again handled by Allahabad municipal corporation. In India in every city one can easily find hundreds of event management companies. For example in Pune there are 215 big and small event management companies operating with different specializations. Most of the leading ad agencies in India also have a separate event section that ad events, Vin event, Thompson Contact are the event management arms of Lintas Mumbai, Vigennet, Ogilvy and mathers and HTA respectively. Page 31

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Even leading television channels have separate event sections that works for the promotion for the programme aired by their network. For example ZEE Television has ZEE events as a separate arm for its event programming.

Various areas of operations are: 1. 2. 3. 4. Concerts. Corporate events (Brand launch etc). Celebrity management. Television events (Awards nights like Filmfare, Channel[V] Music Awards etc). 5. Exhibitions. 6. Sporting events. 7. Artist Management. 8. High profile weddings, Birthday parties. 9. Parties at Discos, Night Clubs. 10.Talent Bank. 11.Direct Sales promotions. The various steps taken by an event management company during the events are concept evaluation, concept building and to formulate the communication strategy. For different events we need different professionals, talent bank, technical back up and depending on the place one may require logistics and liaisons with local companies also. For various sections handled by any event management company skilled professionals are required. So this sector can cater to a vast stratum of skilled professionals. Various departments of a company are client servicing, creative, production, administration, logistics, and talent bank. So people from different backgrounds can work in an event management company, all they need to have is organizational skills i.e., intelligent creativity. Event management is among one of the fastest growing third generation marketing tools. It is practiced along with various other tools like public relations. This sector is considered to be a one off industry in India. The true potential of this sector is yet to be realized. New opportunities are coming up in various other sectors like television broadcasting and production. They have realized that events have become an important promotional tool in their marketing kit. At such

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Principles and Practices of Management times it becomes increasingly professionally managed. important that the events be

New opportunities that are coming up are offers like one made by ZEE Television Networks for the entire leading event management companies of India to work with its event section to promote the programme aired on the network. Leading advertising agencies in India also have separate event handling sections that along with other instruments provide very good mix for integrated marketing. A very nascent segment of big ticket entertainment business, the live entertainment and event management industry has the potential to gross more than Rs. 3350 Crore in less than five years from now, says a report prepared by the Federation of Indian Chamber of Commerce and Industry (FICCI). Almost a decade ago the industry was estimated at only Rs. 20 Crore in size, but has grown to become a Rs. 200 to Rs. 250 Crore industry today. The live concert circuit is probably the fastest growing segment of the business. As per the industry estimates, it has grown more than 200 % between 1995 and 1999. The last three years have witnessed a spate of International Artists coming to India to perform in live events. With Indian Films and film celebrities always being close to the heart of Indians, wherever they may be located, there is a huge potential for the event management industry to organize live shows abroad. The last few years have seen a plethora of such shows in Countries like the US, UAE, UK and South Africa, where there is a large non resident Indian presence. These shows have evoked tremendous response not only from the Indians settled there but also from Pakistanis, Sri-Lankan, and UAE residents. Shows already organized in the US featuring leading film artists have been a complete sell-out, with people craving for more. The UAE with a large concentration of South Indian population has been a favourite stop over for South Indian Film Artists who have always performed to a full house. Moreover, with the growing expatriate population in countries like Australia, Canada and New Zealand, there is a huge untapped potential for shows/events to be organized abroad with Indian Cinema Actors. Problems Faced The industry is facing the following problems: Page 33

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A. Entertainment tax rates, which forms a big chunk needs to be rationalized across the country. Presently different states levy different tax rates, with southern states levying lower taxes. Funds thus saved can be re-invested in more Events, which will help generate more revenues for the Government. B. Apart from the tax rates, the payment of entertainment tax also poses a major problem to the organizers. Currently the tax has to be paid before the tickets of the events are sold and the relevant department stamps the tickets for the tax paid is lost, if the tickets remain unsold. The Government should only levy tax on the exact number of tickets sold. C. In addition to the entertainment tax, an event management company is also required to pay service tax. A clear case of double taxation, the service tax element should be withdrawn. D. For holding such events a large number of permissions need to be sought. These include permissions from the Police Departments (for use of loud speakers, traffic etc), Customs (in the event of foreign artists being used) local municipal corporation and Central Government among others. This imposes unusual hardship on event management companies as well as the artists. The industry feels that instead the Government should introduce the facility of single window clearance, which will expedite and reduce the time taken for such permissions from the current one month to a few days. E. Professional charges by organizations like Indian Performers Right Society or IRPS and Indian Music Industry or IMI are unjustified arbitrary, almost amounting to dual form of taxation, allege industry sources. Inclusion of Even Management in to the list of services to be taxed is really discouraging. Let us hope that excellence Professionalism Prevails & that this sector will show spring action to handle this below.

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Principles and Practices of Management Q.13 What are the problems faced by Indian Business families after 1991? (Beginning of liberation in India) What is their strategic response for the same? Ans. After 1991 in this complex age of new liberalized economy, such business families also face common problems like a. b. c. d. e. f. Transnational attack. Stiff Competition. Low Profiles. Fickle Consumers. Unproductive Labor. Falling Share Values etc.

In spite of these, everyone of them has expanded its range of business activities. This is so because 12.These corporates have a sound a knowledge of the tastes of Indian Consumers. 13.These corporates are much more practically savvy and they know how to maintain political links. However, these family owned business also face major fears: 1. Splits like a clash between father and son or other members of the family leading to division of the company e.g. the Birla Groups division into many companies after the death of Mr. G.D.Birla. 2. Successful planning to get the right person at the right place after the business pioneer retires or expires. The rules have changed after liberalization and the successor needs to have the right qualification or the corporate needs to outsource a person from outside the company, thus restricting the familys control on the business. 3. Lack of focus where the companies need to focus more on their areas of core competence and selling of non-revenue generating companies. For e.g. Tata selling TOMCO to HLL. 4. Transnational Attack: Foreign companies are more focused, organized, able to bear shots and they pose a threat because of their global threats of product and service quality. 6. LPG (Liberalization, privatization and globalization): Todays Entrepreneurs are having such huge opportunities only because of multinationals but the timing of globalisation can be debated on. According to Mr. Shashikant Ruia (CEO, Essar Group) The way the Page 35

Principles and Practices of Management country was opened upto foreign competition was unfair, but it has to be faced upto by the family business with a new set of strategies. 7. Difficulties with restructuring: The changed circumstances required a great amount of change, but for most of these business houses change was painful, expensive and forced. Very few could change from within, due to lack of initiative taking ability. 8. Take Overs: Since most of the Indian Companies are neither technically nor financially sound, they are always under the threat of takeovers. 9. HR Issues: Retaining the Indian Brain is a major difficulty of Indian Companies. They have to: a. Tap the untapped human resources. b. Give them industry standards pay packages and other remuneration. c. Emphasis on overall personality development through training and exposure. d. Offer them a proper career path. e. Delegate authority to them. f. Give them space to work. 10. Lack of professional management and clashes between professional CEOs and family members who control the business. Separation of ownership from management is always a debatable issue in such companies, though the need for appointing a professional manager is widely accepted, problems arise in terms of clashes of styles and approaches towards running the company. Today however these families have to change their approach in order to remove the redundancy in the system and in view of the liberalization in market place, Indian business houses have to undergo radical strategic operational and financial transformation and most importantly, they must rewrite the role of the family. The families have realized that the family and the business are essentially two separate institutional systems with distinctive rules governing the respective behaviors they have began to appreciate this distinction. They have also made certain vital changes over their future role to make the family business survive. Some of the major strategies adopted by the Business families: 1. Raising their capital state to a comfort zone so that the fears of take over can be kept at bay: preliberalisation, many families were running the business with a low capital state of 15 to 20% which made Page 36

Principles and Practices of Management them vulnerable for takeovers, post liberalization, families like Tatas, Ambanis, Singhanias have raised their stake to 26% on above and in many cases as high as 45 to 50% to gain complete control over the management of the company. 2. Consolidation of business by selling of non viable and non care business such as Raymonds sold their steel division to Thyssen of Germany and cement division to Lafarge of France. Even Tata Steel sold their cement division to Lafarge to concentrate on Steel business. 3. Appointment of Professional Manager: Business families have realized that business should run by experts and specialists and the concept capital stake and managerial stake should be clearly defined. So many business houses are taking back seats and professional managers are running the show. 4. Attention and Investment in research and development : So far R&D was neglected by Indian Business Houses. But companies have realized that creativity, innovation, new product launch, improvement in quality bringing down costs are the survival strategies of tomorrow. So business families have started spending more on R&D. For e.g. Ranbaxy Pharmaceuticals, Dr. Reddys Lab, Mahindra and Mahindra. 5. Joint Ventures and Tie Ups: With globalization and government rules and regulations, moving ahead requires strategies like joint ventures, For e.g. Hero and Honda of Japan, Bajaj having technical collaboration with Kawasaki of Japan etc. 6. Technology upgradation and managing the pace of change: Technology today is moving at the speed of internet. Most of the companies have realized that managing understanding and adapting to changes are the challenges they have to face and business families are readying themselves for this. 7. Understanding the realities that economies are moving from sellers market to buyers market. Business families earlier took customers for granted. Post liberalization, the consumer has wider choice of products. Business families have adapted themselves to the new realities, and new product launch, customer relationship management, reliable after sales service have become the benchmarks of the new strategies. 8. Profit will not come from cornering licenses or Beaurocratic favours but by being competitive at the market place: This realization has resulted into giving weightage to the performance of managers over loyalty of managers towards families. Page 37

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9. Succession Planning: Professional management is an attitude and mindset. Many business families scions are educated, are trained abroad and they return to take over. They begin at the grass-root level to gain experience. A senior family member and trust professional manager acts as mentor for them. As soon as they are ready to take over, they enter the board room with confidence. In this entire shake up, some business families are emerged victorious and others have disintegrated or lost out. To conclude, it can be said that family owned business houses is an integral part of Indian Business Families. At every stage of liberalization, they face problems and challenges, but they are here to stay.

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Q14. Define Emotional Intelligence. Explain its importance for a manager. Ans. Definition of emotional intelligence (EI) is "the ability to process emotional information, particularly as it involves the perception, assimilation, understanding, and management of emotion." The Four branches of EI: 1. Perception Appraisal and Expression of Emotion Ability to identify emotion in one's physical states, feelings, and thoughts. Ability to identify emotions in other people, designs, artwork, etc. through language, sound, appearance, and behavior. Ability to express emotions accurately, and to express needs related to those feelings. Ability to discriminate between accurate and inaccurate, or honest vs. dishonest expressions of feeling. 2. Emotional Facilitation of Thinking Emotions prioritize thinking by directing attention to important information. Emotions are sufficiently vivid and available that they can be generated as aids to judgment and memory concerning feelings. Emotional mood swings change the individual's perspective from optimistic to pessimistic, encouraging consideration of multiple points of view. Emotional states differentially encourage specific problemsolving approaches such as when happiness facilitates inductive reasoning and creativity. 3. Understanding and Analyzing Emotions; Employing Emotional Knowledge Ability to label emotions and recognize relations among the words and the emotions themselves, such as the relation between liking and loving. Ability to interpret the meanings that emotions convey regarding relationships, such as that sadness often accompanies a loss. Ability to understand complex feelings: simultaneous feelings of love and hate or blends such as awe as a combination of fear and surprise. Ability to recognize likely transitions among emotions, such as the transition from anger to satisfaction or from anger to shame.

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4. Reflective Regulation of Emotions to Promote Emotional and Intellectual Growth Ability to stay open to feelings, both those that are pleasant and those that are unpleasant. Ability to reflectively engage or detach from an emotion depending upon its judged informativeness or utility. Ability to reflectively monitor emotions in relation to oneself and others, such as recognizing how clear, typical, influential or reasonable they are. Ability to manage emotion in oneself and others by moderating negative emotions and enhancing pleasant ones, without repressing or exaggerating information they may convey. Emotional intelligence is defined as a persons self-awareness, selfconfidence, self-control, commitment and integrity, and a persons ability to communicate, influence, initiate change and accept change. Studies have shown that emotional intelligence impacts a leaders ability to be effective. Three of the most important aspects of emotional intelligence for a leaders ability to make effective decisions are self-awareness, communication and influence, and commitment and integrity. Managers who do not develop their emotional intelligence have difficulty in building good relationships with peers, subordinates, superiors and clients. Definition and Motive "When it comes to improving organizational effectiveness, management scholars and practitioners are beginning to emphasize the importance of a managers emotional intelligence". What influence does emotional intelligence have on the effectiveness of decisions made by a modern organizational leader? Emotional intelligence Emotional intelligence is a combination of competencies. These skills contribute to a persons ability to manage and monitor his or her own emotions, to correctly gauge the emotional state of others and to influence opinions. Goleman describes a model of five dimensions. Each area has its own set of behavioral attributes as follows. 2. Self-awareness is the ability to recognize a feeling as it happens, to accurately perform self-assessments and have self-confidence. It is the keystone of emotional intelligence (Goleman, 1995). 3. Self-management or self-regulation is the ability to keep disruptive emotions and impulses in check (self-control), maintain standards of honesty and integrity (trustworthiness), take responsibility for ones performance (conscientiousness),

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Principles and Practices of Management handle change (adaptability), and be comfortable with novel ideas and approaches (innovation). 4. Motivation is the emotional tendency guiding or facilitating the attainment of goals. It consists of achievement drive (meeting a standard of excellence), commitment (alignment of goals with the group or organization), initiative (acting on opportunities), and optimism (persistence reaching goals despite set backs). 5. Empathy is the understanding of others by being aware of their needs, perspectives, feelings, concerns, sensing the developmental needs of others. 6. Social skills are fundamental to emotional intelligence. They include the ability to induce desirable responses in others by using effective diplomacy to persuade (influence); listen openly and send convincing messages (communicate); inspire and guide groups and individuals (leadership); nurture instrumental relationships (building bonds); work with others toward a shared goal (collaboration, cooperation); and create group synergy in pursuing collective goals. These five characteristics will be shown to apply to a leaders ability to make effective decisions. Effective Leadership The term effective in this essay can be defined as (1) "getting the job done through high quantity and quality standards of performance, and (2) getting the job done through people, requiring their satisfaction and commitment". Major Findings Leaders who underestimated their leadership were positively linked to social self-confidence while leaders who overestimated their abilities were negatively related to sensitivity. The results also suggested "selfawareness may provide individuals with greater perceived control over interpersonal events and consequences in their lifetransformational leaders who are self-aware possess high levels of self-confidence and self-efficacy and provide orientation for followers". The authors suggest that self-awareness may enable leaders to understand the emotional implications of their own feelings and thoughts. Managers who maintain accurate self-awareness have more attributes of emotional intelligence and appear to be more effective to their superiors and subordinates. Interviews of three senior executives revealed that "managers who played the game according to established norms were looked upon favorably by superiors in performance evaluations and promotion considerations. However, those interviews also revealed that fast-track candidates and the darlings of senior management Page 41

Principles and Practices of Management are often seen as self-serving, duplicitous and uncaring by their subordinates". The high public self-consciousness aspect of emotional intelligence may be useful for managers who are interested in success (to maximize performance appraisal ratings), but "this does not guarantee high ratings of transformational leadership and effectiveness by ones subordinates". You can make a quick measure of your own Emotional Intelligence by answering these questions: (1) Are you aware of the subtleties of your own feelings? (2) Do you usually know what other people are feeling, even if they do not say so? (3) Does your awareness of what others are going through give you feelings of compassion for them? (4) Can you carry on doing the things you want to do under distressing circumstances, so they do not control your life? (5) When you are angry, can you still make your needs known in a way that resolves rather than exacerbates the situation? (6) Can you hang on to long-term goals, and avoid being too impulsive? (7) Do you keep trying to achieve what you want, even when it seems impossible and it is tempting to give up? (8) Can you use your feelings to help you to reach decisions in your life? People with high Emotional Intelligence will answer yes to these questions. However, self-assessment can only measure well for people who are self-aware. Therefore, the above test is only a good measure for those with the important Emotional Intelligence quality of selfawareness. There are objective psychometric instruments, but they are still in the development stage. Emotions at work Low emotional intelligence brings a plethora of negative emotions, like fear, anger and hostility. These use up a lot of energy, lower morale, absenteeism, apathy, and are an effective block to collaborative effort. Emotions give us great energy. Negative emotions create negative energy and positive emotions create positive energy. We all know the

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Principles and Practices of Management tight knot in the stomach that comes with anger and resentment, and the primitive urges it brings to wreak revenge, or at least discomfort, to the one we see as opposing us. We also know the excitement of being involved in developing some project, be it an ambitious new product, or winning a football match. It is obvious in the extremes that emotions have a huge effect. They also have a steady, day to day effect. It is easy to recognise low emotional intelligence in others. We are all guilty of sounding off about someone who gets our backs up, who bulldozes their way through opposition, so that somehow, their decision stands. We are not so quick to ponder on how we could exhibit high emotional intelligence. There are insensitive managers who try to bulldoze their staff. They think that steady criticism, backed by a loud voice and veiled threats of redundancy, will spur staff on to greater efforts. This is certainly emotionally unintelligent. The typical reaction is for people to start huffing and puffing in corners, and occasionally have a showdown shouting match. This is also emotionally unintelligent. The reasons for this behaviour stem from emotions. Being badly treated by the manager rouses anger, antagonism, fear, desire to get your own back, and a general feeling of ill will. The manager probably behaves like that because of similar feelings, caused by past experiences or they are mimicking how their boss behaves. The behaviour evokes bad reactions, which evoke bad behaviour. Once emotionally unintelligent behaviour starts, it creates a downward spiral of low morale, avoidance, and negative politics. This situation is common, and the deleterious effects are obvious to anyone who has been there. Good work is not compatible with knotted stomachs and anxious looking over the shoulder. Yet managers are slow to realise the value of emotional intelligence in the workplace. Logic is given more value. It is generally believed that a logical flow of information is the essential ingredient for new ideas. Emotions are supposed to be stowed away until the work is done. Exceptions might be made for artists and poets, as their creativity is considered emotional, but the "real work" comes from logic. This staid point of view does not seem valid when you see and feel inspiration. It comes with a whoosh, seemingly from nowhere. Suddenly, one thought locks into another, a new connection is made, and we feel what is pithily known as the "Aha" experience. There is a rush of excitement as we see a dozen possibilities all at once, and can Page 43

Principles and Practices of Management not wait to try them out. We write feverishly in case we forget, we rush into the next office to tell our colleagues. We phone up whoever we think can help us expand the ideas. Nothing will stop us. That is when ideas really develop. The careful step by step process gets ideas into action, but their first development comes from that heady rush of adrenaline. The logic is there in abundance, but it is fuelled by emotional fervour. Emotions have a part to play. The emotionally intelligent are aware of this. They are not constantly thinking about how they feel. They do not go to the extremes of letting it all hang out, or hiding everything. They express what they feel when appropriate, so that molehills do not grow into mountains. They listen and empathize, but do not drown people with sympathy. Sometimes there is a fine line between empathy and sympathy, between self-awareness and self-obsession, between confronting uncomfortable differences and nit picking. Part of emotional intelligence is making these judgments. What do you need for excellence in the job? There are a great many form

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