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Business Enterprise
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Business Enterprise is a work organization especially created to produce goods and services
for the community
o Produces goods for the market and consumers
o Yield profits for owners or dividends for shareholders
o Generates services for employees in terms of jobs, careers, income, perks and welfare
Self-interest brings people together to join an enterprise. The enterprise provides a framework
for control and coordination of diverse skills necessary for achievement of the common goal
Have their headquarters in one country but their operations in many countries
Modern MNCs have a geocentric orientation. This means that the total
organization is viewed as an interdependent system operating in many
countries
Advantages
Can take advantage of business opportunities in different countries
Can raise money for its operations throughout the world
Able to establish their production facilities in countries where their
products can be produced most effectively and efficiently
Can recruit from a worldwide labour pool
Challenges
Increasing nationalism
To maintain good relations with the host country
Entrepreneur
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An entrepreneur is one who undertakes an economic venture, owns, organizes, promotes and
manages it and assumes the risk of business
Management refers to the executive action of planning, organizing, directing, controlling and
supervising any business with responsibility for results
Types of Entrepreneurs
o Small Scale Sector
o Sons of Industrialists
o Professional Managers
o Public Sector Executives
Structure of an Enterprise
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Informal Groups
Management
o Supervisors
o Middle management
o Top management
Board of Directors
Employees
Management
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Without some form of organization and order therein, the group will not be able to achieve
anything, it will be just a crowd with everyone pulling in different directions
Management is what a manager does. Management is getting things done through others
Decision making is the most critical attribute of being a manager. Manager must also take
action
Management Processes
o Processes refer to a set of activities sequentially arranged and designed to produce a
specific output
o Individual tasks/ functions within a process are important but none of them matter if
the process does not deliver the goods
o Every function must pass through various management processes. And every process
applies to all functions
Recommendation Phase
Value Engineering is
System Oriented: formal job plan to identify and remove unnecessary
costs
Multidiscipline Team Approach: terms of experienced designers and
consultants
Life Cycle Oriented: examines the total cost of owning and operating
a facility
Proven Management Technique
Function Oriented: related function required to the value received
Value Engineering is not
Design Review
Cheapening Process
Requirement Done on All Designs
Quality Control
Benchmarking
It is a process of systematic and continuous approach to identify the
benchmark, compare yourself to the benchmark and identify practices that
enable you to become the new Best-in-class
It should be seen as a means of enhancing competitive behaviour and of
searching for ways of doing business more effectively
Benchmarking helps drive rapid business improvement in three ways
Quantification of the gap between internal and external practices
creates the need for change
Understanding industry best practices identifies what is to be
changed
Examination of externally benchmarked practices gives a picture of
what the future holds after change
Preparing for Benchmarking: starts with self-study
Define your objectives
Know your processes
Types of Benchmarking
Strategic
Performance
Process
Who to Benchmark Against?
Internal
Competitors
Functional
Generic
Business Process Reengineering (BPR)
Reorganizing the processes rather than functions and exploiting the potential
of information technology
Reengineering implies the fundamental rethinking and radical redesign of the
business process to achieve dramatic improvements in critical, contemporary
measure to cost, quality, service and speed
The first principle is that reengineering begins with no assumptions.
Reengineering means starting over from the scratch
The term radical design is getting to the root of the problem. The second
principle is that reengineering is about business reinvention
The term dramatic is not about making marginal improvements but about
achieving quantum of leaps in performance. The third principle of
reengineering is that dramatic improvement demands blowing up the old and
replacing it with something new
The fourth and final principle of reengineering is that the shift to process
based thinking is need of the day. Reengineering requires looking at the
business as a whole and introduce change in a manner that triggers off
changes in the entire way of doing business in the desired direction and to the
desired level
Business Process
A process may be defined as transformation of inputs into outputs
There are three types of business processes within an organization
o End to end business processes
Take inputs from outside the boundaries of an
organization, and produce goods and services for
delivery to the customers outside the boundaries of
the organization
o Funnel business processes
Move from broad, long term inputs to defined
outputs
o Composite business processes
Act as a holding category for business processes,
which cannot be fitted into the other two until
rationalization can be made
The business processes in a reengineering organization are few in
number perhaps only four to six should be networked together.
Other processes should be ordered hierarchically under business
processes
Partnering
Partnering assumes that the parties share sufficient common goals to warrant
a more collaborative relationship
This means that both the contractors and the owners would want projects
completed safely and on time. Neither party wants rework and would prefer
to avoid costly litigation. Each party would like to reduce costs while at the
same time improve quality
Conditions for Success
Acceptance by the partners that it is worth making the investment in
building a partnering arrangement
Potential for improvement in the product or service that is subject of
partnering arrangement
To achieve full benefits of partnering, it has to be a medium to long
term strategy
Long term commitment to strategic partnering arrangements by
senior management is an essential pre-requisite
Organizations should have similar work, culture, compatibility and
be financially stable
Arrangement should be based on equality rather than being a one
sided paternalistic relationship
Partners should have an interest in each others profitability and seek
to take an equal share of risks
Free and open exchange of information is an important characteristic
of good partnering
Taylor propounded that there was no inherent conflict between labour and employers
Labour wanted more income, employers wanted more profits and the consumer wanted a
better price. All of them could be benefited only if the plant itself produced more
Therefore, it was in the interest of everyone to produce more and thereby take more
The real problem was in determining a fair days pay for a fair days work. For this, if a
quantitative method could be evolved wherein a worker could know the basis of his wages,
and in which his income moved up along with the increase in efforts put in, the he would be
more rational and more production oriented
It is for employers to establish a scientific approach to management which he said was based
on five basic rules
o Replacing thumb rule with organized knowledge
o Obtaining harmony in group action
o Achieving cooperation for all rather than individuals
o Working for maximum output rather than restricted output
o Developing of workers ability to their fullest extent possible for their own and their
companys prosperity
Taylor advised the employers to establish the following four management practices
o Scientific management of work
o Clear procedures of work
o Rational wage structure
o Right man for the right job
The Generic Electric Plant was undergoing high labour turnover, absenteeism and production
fall for no explicable reason
The company felt this was due to fatigue as well as lack of proper lighting and other physical
amenities at the work place. The needful was done
The production went up but the problem was that while these conditions were not present in
the control group, its production also went up
It was not of the fact of giving better conditions but the feeling that this action created
amongst the employees that did the trick
Later when the workers were asked to elect representatives that would sit with the
management to discuss working conditions, the production soared up without any regard to
whether changes made or not
Another department of the same company never showed any improvement in production
irrespective of whatever management did
Production fluctuated up and down for no particular reasons due to which management did
not feel in control of the situation
Mayo identified the role of informal groups in shop floor management. He found that people
organize themselves into small groups on the basis of interests and someone emerged as
leader of the group
Mayo said that a management should accept the role of informal groups and involve informal
groups leaders into management processes
The formal management should be trained in human relations in order to achieve better
production
Theory X was a label for the traditional management approach of pushing people and
extracting work out of them
Theory X was based on the premise that
Herzberg was concerned about the fall in production which varied from time to time for no
particular identifiable reason
He had interviews with engineers and asked them recall specific incidents which made them
feel particularly good or bad about their jobs
This led to identification of a series of factors in the work situation of individuals that
influenced their attitudes and performance and whose intensity and duration affected their
work behaviour
o Hygiene Factors
Job, job security, work rules, promotions, incentives, leaves, employment
practices
o Motivating Factors
Attitudes, feeling about job, desire to excel, care and concern about quality
Based on the study and classification of factors he concluded as below
o Hygiene factors when inadequate had negative effect on employees attitudes.
However when present, they had no positive effect
o Hygiene factors are something that have to be provided and without which no person
worth his while will join the organization
o Hygiene factors are necessary to create motivation but are powerless by themselves
o The lesson for management is that if you do not provide hygiene factors you risk not
having productivity and you do not expect motivated workforce
o If you are looking for quality, desire to excel, concern for economy, care of the
materials and equipments, then you need to create a motivating environment and this
is what Herzberg called Management
o He said four things were important
Treating people as individuals, not as foreman, mechanic, peon, etc
Giving true respect to them as dignified human beings
Involving them in taking decisions that affect their careers and lives
Giving them a feeling through involvement and training that staying with the
company is contributing to their career development
Maslows studies led him to conclude that man was never contended. You can never really
buy content for people by giving them what they want
Needs were of three orders
o Physical needs i.e. needs to satisfy hunger, protection against nature and well being of
self and family
o Social Relationship needs i.e. belonging to a group, recognitions and promotions
o Power, Social and Societal Esteem needs
One need replaces another and the process continues
Money is worth what it can buy and some people have all that is worth having. Therefore, the
needs that motivate them to keep striving to work hard, to expand, must be of a different order
altogether
Todays motivators are likely to become tomorrows hygiene factors
McKinseys 7S Approach
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The basic premise of the model is that there are seven internal aspects of an organization that
need to be aligned if it is to be successful
The 7S model can be used in a wide variety of situations where an alignment perspective is
useful, such as to
Planning
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Plan
o
o
o
o
Basic Terms
o Objectives: Ends towards which an activity is aimed
o Strategy: Course of action decided to achieve the goal
o Policy: Statement which guides the actions and decisions of managers
o Procedure: Method of handling work in an enterprise
o Rule: Like procedure except that it has no chronology or sequence
o Programme: Complex of objectives, strategies, procedures and rules
o Budget: Statement of expected performance results in numerical terms
Levels of Planning
o Corporate Planning
Process of planning for the enterprise as a whole
o Project Planning
Series of activities that may be undertaken to complete a project within the
time, cost and quality parameters
o Site Planning
Types of Planning
o Strategic Planning
Long term planning process
o Tactical Planning
Short term planning which offers a great scope of flexibility, correction and
reallocation of resources
o Rolling Planning
Link between long term and short term planning
Plan for short time intervals that fit sequentially in the long term plan
o Contingency Planning
Emergency or standby plans
Resorted to if the plan under implementation fails
o
o
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Organizing
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Organizing Process
o Organizing process brings together the basic resources of an enterprise in an orderly
manner, and arranges people and resources in an acceptable pattern so that they could
perform the required activities efficiently and achieve the objectives
o Organizing process deals with creating a structure, assigning duties of individuals and
groups, setting up an hierarchy for smooth and efficient working and sorting out
issues of authority, leadership and delegation
Creating a Structure
o Three basic steps involved in creating a structure are:
Work is distributed among departments
Persons are assigned to perform this divisional work
Methods and procedures of handling work as well as role relationship are laid
down
o The structure or form of organization must remain flexible and should change as new
problems are encountered
o Recently, the matrix form of organization has emerged
o Flat vs Tall Structures
Under flat organization structure
There is extensive delegation or decentralization of authority
By pushing down authority in the hierarchy, span of control can be
widened
Improved vertical communication
Rapid decision making
Better development of subordinates
Centralized financial control
Assigning Duties
o Comprises of following steps:
Determining the duties
Grouping duties
Assigning authority
Span of control
Departmentalization
o By Simple Numbers
On decline because of skill differentiation of workers
o By Time
Based on shifts
o By Functions
Departments according to nature of work in the organization such as finance,
marketing, production, personnel
Advantages
Efficiency and Economy
Simplifies Training
Permits Occupational Specialization
Tighter Controls Possible
Responsibilities can be Fixed
Disadvantages
By Territory
Zone wise or Region wise
Advantage is that local action is taken on time and the span of control is
reduced
By Products
Products of similar nature are grouped together and created as a department
The Product Manager then looks after all aspects production, marketing,
finance, personnel, etc
This method permits better planning, better controls and profitability of the
product can be seen more clearly
Its advantages are that the problems of coordination and integration are
detected early and dealt with promptly
Also helps to keep problems of one product isolated from others
Its drawbacks include the reduced opportunity to use professional expertise
for the other products of the organization
Communication among specialists, since they are now in different units, is
hampered
Organization Structure
Staffing
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Staffing is a function of filling the organization with right type of people in the right number
at the right time
Sub-Functions of Staffing
o Manpower Planning
It would avoid shortages and at the same time avoid surplus people
Forecasting is the first step in manpower planning
Manpower planning has to be related to some period in the future
It can be made as reliable as possible by following systematic procedures
such as studying the past data, trying to assess the future trend in the related
fields, etc
o Recruitment
This helps in identifying sources for the required manpower
Through recruitment organization attracts potential people and induces them
to apply for the positions
Sources of recruitment could be internal or external
o Selection
This comprises
Comparing the qualifications and experience of the prospective
candidates with job requirement
Eliminating those whose qualifications and experience does not
match the requirement
Selecting those who satisfy the needs
Selection procedure is assisted by Job Analysis and Job Specifications
o Placement
Determination of the precise job to which a selected candidate is assigned or
assigning an appropriate job to the selected candidate
A person who is not properly placed will be frustrated person and also
hamper the work of others in the organization
Placement and Training are complementary
o Training
A person may not fit in place unless some training is given to him
Learning on-the-job on their own is a slow process and candidates may learn
wrong practices
Training is work oriented and is aimed at imparting specific skills for doing a
particular job
Types of Training
Induction training
Job training
Refresher training
Control Process
o Establishing Standards
Standards are yardsticks or measures of expected performance
Standards may be set up as signals for critical activities as all the activities
cannot be monitored
They are best expressed in quantifiable terms i.e. turnover, expenditure, etc
however, some standards may not be quantifiable accurately e.g. morale,
loyalty, etc
o Measuring Actual Performance against the Standards
This should be done on a forward looking basis so that deviations may be
detected in advance of their actual occurrence and avoided by appropriate
actions
In less technical kinds of work not only are standards difficult to develop but
appraisal is also difficult
o Taking Corrective Actions
Process in not complete until deviations from standards are corrected
Deviations may also be positive as the result of superior performance or
inadequate standards
Managers may correct deviations by redrawing plans, modifying goals,
reassigning duties, etc
Types of Controls
o Production and Operations Control
o Inventory Control
o Quality Control
o Financial Control
Complexity of Control
o The feedback provided by the system discloses the errors and results in a corrective
action
o There is an erroneous belief that control is a feedback system because the corrective
action is applied on receipt of the feedback
o In fact it is this kind of feedback based control system that results in project overruns
The more the plans are clear, complete and integrated, and the more
that controls are designed to reflect such plans, the more effectively
controls will serve the need of managers
Principle of Organizational Suitability
The more the organizational structure is clear, complete and
integrated, and the more that controls are designed to reflect the place
in organization structure where responsibility for action lies, the more
the controls will facilitate corrections of deviations from plans
Principle of Individuality of Controls
The more that control techniques and information are understandable
to individual managers, the more they will actually be used and the
more they will result in effective control
The Process of Control
Principle of Standards
Effective control requires objective, accurate and suitable standards
There should be a simple, specific and verifiable way to measure
whether a planning programme is being accomplished
Good standards of performance are more likely to be accepted by
subordinates as fair and reasonable
Principle of Critical-Point Control
Effective control requires special attention to those factors critical to
evaluating performance against plans
Critical-Point Control is to do with recognizing the points to be
watched
The Exception Principle
The more that managers concentrate control efforts on significant
exceptions, the more efficient will be the result of their control
Exception principle is to do with watching the size of deviations
Principle of Flexibility of Controls
If controls are to remain effective despite failure or unforeseen
changes of plans, flexibility is required in their design
Principle of Action
Control is justified only if deviations from plans are corrected
through appropriate planning, organizing, staffing and leading
Control is wasteful use of managerial and staff time unless it is
followed by action